UBS' George Magnus On Marxist Existential Crises And The "Convulsions Of A Political Economy"

Tyler Durden's picture

Well over two months ago we first reminded the Marxists of the world that something big may be coming over the horizon in "Attention Marxists: Labor's Share Of National Income Drops To Lowest In History" a theme, whose violent reprisals in the real world we have been observing since before the Arab Spring began (courtesy of the Fed of course).  Lo and behold, suddenly the coolest thing among the post-sophist punditry is to bring up the name of Marx for this and for that, because, guess what -  he was right all along or something. Where were these same pundits when Marxist postulates were becoming apparent not only across the past year, but past century, we wonder. That said, one analysis that does merit mention is that by UBS George Magnus, who several days ago does the most comprehensive summary of the modern world through the lens of Marxism. His conclusion is spot on: "We have had a gathering crisis of political economy this year, which is partly about economic growth and jobs, but also and importantly, about a malaise in politics and policymaking, in which governments are seen as unwilling, unable, divided or ineffective when it comes to economic management and stability. It’s this resistance or backlash against the political order that runs through the propagation of the political economy convulsions around the world, including, in extremis, the uprisings through North Africa and the Middle East." Granted this is not at all surprising, nor is it odd considering that all that central planning under the modern monetary system has done is to perpetually push off disasters, with each increasingly frequent subsequent one hitting with greater severity until not all the money printing in the world can save the modern broken socio-political (and economic) framework. But everything in due course. And yes, expect many more references to Marx by hollow econo-historians who bring nothing new to the table and merely stampede in where the herd has already boldly gone before.

As for Magnusen, while we recommend a close reading of the full note, the following selection is of particular note as it provides yet another set of policy recommendations for how to fix the unfixable: namely our existing situation.

First, to lighten the household debt load, we have to think about debt restructuring, possibly even debt forgiveness in certain circumstances, so that eligible mortgage holders receive relief in respect of current debt obligations, for example, in exchange for future home price appreciation gains accruing to lenders. To lighten the sovereign debt load, lower interest rates and longer debt maturities, as recently proposed for Greece, will almost certainly become the norm as afflicted debtor countries reach the limits of forced austerity.


Second, to sustain aggregate demand, governments must seek to promote employment in the short-term, as well as through education and supply side reforms in the longer-term. Cutting income taxes and VAT, for example, might have short-term political advantages but they won’t necessarily get people to spend more. Better to cut employer payroll taxes, or offer companies tax holidays contingent on employment criteria. Better still for the government to embrace some national investment or national infrastructure strategy. It could even capitalise a bank to make investment loans to small and medium-sized companies, which are the real employment-creating part of the company sector.


Third, to build defences against falling into a debt trap, we should use monetary policy in a more radical way than even asset purchases. In other words, while fiscal and debt management policies operate over time on the numerator of the debt ratio, monetary policy should work to bolster the denominator, that is, GDP, income, cash-flow and so on. Most of you will have to hold on now, because this would involve a significant change in monetary policy, in which, for a while at least, central banks would actively target higher inflation, suspending their commitments to 2% inflation or whatever, and to interest rate targeting.


The theoretical underpinning for this derives from the work of the 19th century Swedish economist, Knut Wicksell, who asserted that in addition to the very visible nominal interest rate, there’s also an invisible natural, real rate of interest that balances the supply and demand of loan capital in the real economy. In an economy where the natural rate lies below the nominal rate, there’s excess supply, high unemployment, and a dearth of credit. Sound familiar? I remember having a ‘Wicksellian’ discussion with a very senior member of the Bank of Japan in 1996 at his instigation, shortly before the BoJ adopted QE (for a while), and that’s as far as I’m going to go with this complex theory here. But in order to ‘fix’ this disequilibrium between the now zero nominal and the natural rate of interest, central banks would have to allow the money supply to expand until such time as they achieve, for a while, a higher rate of inflation, a lower real nominal rate, or, say, steady 4-5% growth in nominal GDP. Would it work? We don’t know, but if aggregate demand looks like buckling again, it’s probably worth a stab. That said, the political climate for this is currently very frosty.

Hmmm, so not just more of the same, but much more of the same (and in a way that gold would hit $10k not in a year but a day). Granted, anyone working at UBS (for however much longer) will surely like to provide recommendations that entail them preserving their employment in the "post-fix" world, even if such a transition is really impossible absent a global revolutionary reset due to status quo interests embedded so deep that the Red Button will be pushed long before the worthless equity tranche of the global financial system is marked to market (i.e. zero).

Full Magnus note.

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Motley Fool's picture

They should go right ahead with this. Morons.

trav7777's picture

yeah, this stuff is if growing money will grow the economy by magic

apberusdisvet's picture

The corporate fascists, led by the FED/ECB/BIS and multiinational corporations and defense contractors, versus the marxists, led by the unions and uber Progressives.  Who will win?  Or will they morph together in the great totalitarian wet dream of the NWO?

wisefool's picture

Agreed. I mean did anyone catch the kitchen table talk that Hillary and Panetta gave on US Foriegn policy to a bunch of defense contractors, thier lobbiest and hookers?

It had the exact tempo and tone of Harry Reid and Joe Biden firing up a bunch of GM workers, Teachers, and service industry union people.

Kobe Beef's picture

Exactly. Marxist Totalitarianism for the masses, corporate feudalism for the players. Welcome to the NWO.

macholatte's picture


Barry Soetoro fancies himself a Marxist and his handlers from the Soros-Clinton Machine (Center for American Progress) have done an outstanding job of placing their minions in key positions throughout the government. So why ain't everything coming up roses? Oh, yea, I forgot. It's Bush's fault.


If it looks like horseshit and smells like horseshit then it must be a duck.


From each according to his abilities, to each according to his needs.
Karl Marx 

and who decides, eh?

 For the bureaucrat, the world is a mere object to be manipulated by him.
Karl Marx

indygo55's picture

 "eligible mortgage holders receive relief in respect of current debt obligations, for example, in exchange for future home price appreciation gains accruing to lenders. "

Isn't this just another loan, by giving relief of current debt obligations, then getting it back down the road? Did I read that right? If I read that right this is a bunch of bullshit.


Azannoth's picture

The International Elite don't care what the system is, if the Proletariat wants Marxism let them have it, they don't care they stay in control no matter what

I am not sure if there is a way to get rid of those leaches, probably not

cpnscarlet's picture

I wake up in terror in the dark night with visions of the agitators saying "Capitalism has failed! We need Marxism today more than ever." And of course, the mob yells back "Yeah!"

Of course, we've had nothing but creeping collectivism for the last 80 yrs. Our markets are not free of some governement/centralized control of some kind. But do the crowds understand this. No. They think stuff like Social Security is part of a "free market" system. They've been brainwashed in corporate Tide and US Government bleach.

Solution: None that I can see past the obvious...complete tyranny with consent of the sheeple, or social breakdown.

UPDATE - How about a little optimism. We True Patriots (believers in the ideals of the Founding Fathers) do not just hunker down or hide, but do what they did - Pledge Our Sacred know the rest.

WestVillageIdiot's picture

You mean to tell me that Social Security is not part of capitalism?  Awww, fuck, now you've gone and done it.  You just ruined my whole Sunday.  Next, you will tell me that the FDIC, SEC and CFTC aren't a part of capitalism.  Why don't you go back to ripping the wings off of butterflies?

The Man in Room Five's picture

Why would you believe in the ideals of the Founding Fathers when they lead us directly here? Obviously they got something wrong. 

ATM's picture

Actually they didn't.

Many knew that government over time would need to be purged to clean it up and restore what is rightfully the peoples. We just haven't had a purge in a while but we will..... we will.

I did it by Occident's picture

 From what I know, the FF weren't around in 1913. 

Mach1513's picture

Can we get real?

Ideals of the FFs?

They were a bunch of frightened local pols coming together to create a political system that each of them had back home that would protect their own narrow interests against the hoi poloi (everyone else).

It took nearly a 150 years to overcome their narrow-minded views, and now the tea-baggers want to roll back the clock so that we can again be governed by 18th century "principles" that have been themselves twisted by the "strict constructionist" justices on the Supreme Court to declare corporations people. Where does it say that in our constitution? In fact, where are corporations mentioned at all?

Such rot!

Mach1513's picture


That sacred honor part is in the Declaration of Independence, not the constitution. And it has no legalor governing effect. It's NOT part of the constitution but an indictment bill of particulars, a regurgitation of Locke's political philosophy, a plea for help and a propaganda document.

NorthenSoul's picture

Collectivism? You gonna throw some gris-gris voodoo scary amulets around like a hapless apprentice sorcerer? Think this is gonna work on this site?? This is zerohedge: the thinkers-to-fuckwads ratio is quite high around here

On to "collectivism: Are you aware that human beings cannot survive on their own? What has made our success as a specie is the ability to work (dare I say it?) collectivelly toward basic common goals.

Why the fuck is this simple fact presenting such a particularly huge problem to an extremist faction of the American political spectrum?

Simply because they want the powerful to rule without any constraints whatsoever. No input nor limitations coming for the "inferiors" who should (GODDAMNIT!!!) "know their place". Nothing coming from the collectivity should interfere with the goals of the big boys.

On top of being unbelievably irritating for its colossal dishonesty, this "philosophy just cannot work in real life. I know this will come as a total shock to some, but people without millions in assets are people too. They think, they work, they want the same thing as everybody else; a better future for their kids, the ability to claim a stake, however modest, in the future of their country (ya know, this much-maligned collectivity) and its wealth, reasonable financial and social safety and the capacity to raise a family without being on the edge of the financial cliff all the time.

If it is too much to ask, people will simply take it. Whether it is by peaceful means or otherwise, will depend on how smart and awake political and economic leadership is. They would do well to remember JFK about peaceful revolutions.

PulauHantu29's picture

Stop spending more then you have (or earn). It's that simple, whether you are an individual or a government.


WestVillageIdiot's picture

And where does one find this "saved" money?

Mr. Magniloquent's picture

"But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost."

~ Helicopter Ben

Our masters are not bound by such quaint notions as "savings". When money is free, one can earn quite a potent sum.

NorthenSoul's picture

If it was THAT simple...

Try to fathom the differences between an individual an a government and some facts will jump at you.

omar's picture

I am no economist or financier but valuing gold at $25000 and making the banks swallow there own debts through managed bankruptcies sounds good. Money should then be linked to gold

narnia's picture

The most powerful force known to man (the US, hopefully not soon to be the UN military) and the "supposed" rule of law have been hijacked by a series of special interests.  Decisions are made to benefit this group in which property rights, justice and liberty (and, consequently, the Constitution) are summarily ignored.  

What you end up with is a series of people fighting over the steering wheel of the Titanic without recognizing it has already hit the iceberg.

Marx fails to recognize that the instrument by which he suggests we stay clear of the iceberg (tyranny) is exactly the reason why it hit the iceberg.

TuffsNotEnuff's picture

Marx fails to recognize that the instrument by which he suggests we stay clear of the iceberg (tyranny) is exactly the reason why it hit the iceberg.

The UK and America have "hit the iceberg" because capitalism fell prey to criminals within their Upper Classes.

PM Cameron was a vandal, Clegg an arsonist, Gerald Kaufman an out-and-out television thief. They walked.

Back in the 1990 S&L scandal era, some 1,000+ S&L people and 2,500 bankers were prosecuted and then jailed. But not now -- even state-level prosecutions have been stymied. Someone like a George Anderson CEO can get DUI and kill a woman 5 blocks from NYSE, going up Water Street weaving at 60 mph, and end up with Vehicular Homicide reduced to a misdemeanor and serving two weeks and paying $350 fine. "A Tale of Two Cities" carriage scene, redux.

Between 1981 and 2011 some $17-trillion has been offloaded from the American Middle Class to the Top 1% by wealth holdings. The Reagan tax giveaways, Big Bubble I (1994-2000), Bush tax giveaways, and Big Bubble II (2003-2008), plus the bizarre consumer debt schemes -- all implemented with false statements and fraud. Another $16-trillion has gone out unaudited from The Fed but surely delivered into hands connected to these Top 1% wealth holders as well.

The whole country is valued at $55-trillion.

Karl Marx saw capitalism as a potentially criminal system, along with the day-to-day exploitation/slavery issues. He had few illusions related to Free Market primitive ideology.

Bad guy, eh ? Proponent of tyranny ? The first incarnation of Dr. Evil.... Whatever.

Mr. Magniloquent's picture

You're merging failures within civil justice framework with economic disparities. Civil justice failures are exactly that, and only that. Division of wealth at the scale you decry is/was only possible because of the mandate of fiat and centralization of credit which Marx adamantly clamoured for.

Narnia is correct in his or her deduction that Marx's own solutions for avoiding societal decay and class subjugations are precisely what have wrought them.

NorthenSoul's picture

The division of wealth at the scale we're witnessing now is only possible because there is no countervailing force to channel productivity gains toward a fairer redistribution.

I mean, why do people go to extreme lenghts to ignore the fact that productivity, profits and capital have soared to highs never seen before while salaries, wages and benefits have stagnated for decades? This situation isn't the result of "the mandate of fiat and centralization of credit", but of policies (by action and omission) edicted and implemented by a bevy of bought and paid for politicians and lobbyists.

lizzy36's picture

Yes lets raise target inflation. Brilliant.

Year over year CPI is now running @ 7.2%. Lets raise it to say 10%. Because that is going to help right?

64% of Americans can't raise $1000 for an emergency. Prices go much higher and revolution in a well armed and hungry nation is all but assured.

Here is an idea, raise interest rates to 2%. And pledge to keep them there for 2 years. Savers, those on a fixed income know what they will get for 2 years. Perhaps when money isn't so cheap, capital investment will be incouraged over say, gambling in the stock market. Also change taxation laws to favor capital investment, as oppossed to capital gains.

In other words change the paradigm from cheap money, to money as a store of value. And give people who are savers and actual investors, in people, and productive capacity, incentives.

Of course i am a dreamer because the US Treasury cannot afford 2% interest rates. Not right now.

What an absolute circle jerk this is.

The point is, why do we keep going back to the same playbook that isn't working?


WestVillageIdiot's picture

Great post, you little football yanker. 

Bam_Man's picture

All good ideas, but unfortunately it's far too late for any of them. 25 years of non-stop easy money and massive deficits have the monetary authorities "painted into a corner". Inflation is the only way out.

Oh, and by the way they will blow one more asset bubble on the way to inflating away the unpayable debts. Guess where. 

WestVillageIdiot's picture

Any financial argument that involves the premise that government can fix anything is from either a retard, a sellout or a retarded sellout.  Government is the fucking problem.  Is that so hard to understand?  Just look around.  And of course we have the biggest worshipper of big government now occupying the White House.  What a colossal clusterfuck. 

NorthenSoul's picture

If you wanna play extreme, here's one for you: Let's abolish the government, since it doesn't fix anything. No more military (expensive as shit) no more FBI, no more SS, medicare or Medicaid. No more EPA; Tea Party assholes will get a huge orgasm out of that one, unless they're asthmatic.

Make sure you got the means to produce your own food, weapons, water and the whole kahuna because it'll be a lethal ride.

BTW, next time you post, try to think before doing so.

GlassHammer's picture

Those who keep blaming our inability to "get the real rates right" will never understand that attempting to do so is the problem. 

Economics has to be a faith based system because it requires the suspension of critical thinking. 


WestVillageIdiot's picture

I think I hate George Magnus. 

Comrade de Chaos's picture

Well, Marx was right when it came to over - production. Overproduction is a phenomena when firms  overinvest an over produce in a segment of economy. THere are plenty of historical examples - Railroads (1860's, 1890's), Steel (1900's), Electronic Consumer Goods (1920's), Cars (few times), Internet, RE (number of times) However he blamed the wrong party, it is not caused by capitalism or capital but by a human physcology in general. Marx also gave the wrong remedies.

The reason market is more efficient than anything else is its ability to EVENTUALLY self correct much faster than a command system (few humans on the top) would do because of dissolved individual responsibility (it's much easier for a market participant to recognize being wrong that it is for an economic leader). In addition market represents the most likely preference within a society at a given moment, which may or may not be rational, however it becomes rational (due to self correction) in the wrong run. 

In order to understand where Marx comes from, one has to understand conditions of labor during his time. His ultimate agenda was to provoke and shoke, so some constructive social changes that would benefit all could occur and not necessary world revolution and dictatorship of labor. 

p.s. I am not the fan of Mr Marx (!!!), but he was an excellent historian (view that history has to be viewed from the point of economical forces and structure of society) and there were a few things that he did get right (business cycle, he didn't call it exactly that.) 

p.p.s. There is a good book on the subject that covers much more than Marx - history of economic genius. 

Caviar Emptor's picture

i'm just delighted that everyone from sea to shining sea is utterly baffled at what to do or even what 'the problem' is. Very amusing. Lots of laughs ahead. Plenty of entertaining oratory will be ejaculated, lots of 'visionaries' will come out of the woodwork with insights that 'nobody ever had before', plenty of hard core passions about, well, passions, isms and how can we best hold on to what we've got. 

But absolutely nothing will get done until there's an utter disaster. That's certain beyond any conceivable doubt. The counter forces against change are too entrenched. Oh there'll be lots of big talk, shouting and even screaming. And we'll get lies, poppycock and balderdash that will seem believable. For a while. But nothing but catastrophe will induce the change from rot to renewal. Sorry, it's inevitable. Lotsa Luck! 

Bam_Man's picture

And surprise, surpise! The "solution" to the debt problem will involve a massive decline in living standards for all but the super rich.

Oh regional Indian's picture

You BS.

I think that about sums it up.

Vivek (ORI)

zippy_uk's picture

Maxists - "Let fix the facts to validate the theory".

Peak economic inequality just means an "adjustment" is coming. The history book says so.

We don't need more solutions. We just need to run the system properly. Sound money, telling bankrupt banks they are bankrup. Throw people in jail for fraud, spend only what we earn and no more. You know, old fashioned stuff from a time when the world actually worked.

Caviar Emptor's picture

Who to beleive? Von Mises? Marx? Laffer? Friedman? Keynes? 

The world is awash in theories and explanations. 

The world is devoid of solutions.


Look for more of the same in the days ahead


Cruel Aid's picture

They are all promoting their version of the correct answer within the laffer curve.

Caviar Emptor's picture

In case you missed it, Warren Buffet dissed the Laffer curve last week. As share of tax cuts shifted up, the economy has done worse. Prior to tax cuts the economy was robust. 

Cruel Aid's picture

Warren,Warren, Is he really smart enough to know all of the factors that go into the concept.

Nobody is. Which is why free markets are more efficient.

And no we don't have free markets in reality any more than we have Keynsian economics.

Warren is on the level of Trump wrt economics.

linrom's picture

Karl Marx warned us about banksters and financial manipulators, but, we get Swiss gnome to explain to us that Marxism is about more supply side and education as solution to long term structural instability caused by global wage arbitrage, taxation of labor rather than rents, interest and capital and of course the mother-lode: income and wealth inequality - all explained by Marx as failure of Capitalism

In the eyes of guys like Rush Limbaugh, Obama is is a Marxist; there is a poster above who claims that over the past eighty years we had nothing by 'creeping collectivism'. Well, Obama is no Santa Claus and over the last the last eighty years we had creeping predation as political economy: the 'extreme wealth accumulation' is all the proof that one needs.


snowball777's picture

Yet another fool who thinks extracting blood from stones is a matter of selecting the correct set of clamps.

Want to "fix" a bubble that has lead to insane levels of personal and private debt? You'll need shared sacrifice with those who benefited most sacrificing the most.

We need cuts:

- Phased reduction of entitlement spending with means-testing and elimination of limits on contributions

- Move eligibility for SS and Medicare to 70 years old

- Reduce MIC spending drastically, there is no less efficient use of resources beyond propping up corporate interests overseas and the petro industry (bring our troops home)

- Eliminate all corporate subsidies...ethanol, petroleum, etc...or at least make entities larger than X ineligible to receive them (this includes Israel and the other minor leeches)

We need revenues:

- Make cap gains, corporate taxes, and hedge fund compensation just like any other income and taxable as such

- Eliminate corporate loopholes and refuse to give tax holidays for repatriated cash brought in by selling American workers downriver

- Up rates on >$1M/yr earners to a max of 50% for the top 0.01% (you want to make big bucks on our backs? pay the fuck up or get the fuck out!)

- Tariffs on imports to discourage moving jobs overseas where labor laws need not apply

- Restore the estate tax above $1M dollars

- Lower the cap on mortgage interest deduction to $200k

$918B surplus by 2015, $2.45T surplus by 2030

National debt paid off in a generation.

Are you kidding's picture

And what does that solve when the campain contributions and lobbyists are still there getting what they want?

PulauHantu29's picture

"Who is Marx, Daddy?"

I have to stop my grandchildren from reading ZH. They are gettign too, too smart and asking too many otugh questions. Before you know it, they will want an Audit of the Fed for a Christmas present!

Atomizer's picture

Let's not overshadow Marxism without adding the Leninist strategy in USA planned demise. Wake up J6P. Our president was put in place because he is Afro-American/Muslim. Any decent is considered racist. As the country spirals into the abyss, DHS considers your noncompliance as a threat to the world government movement agenda.

Achieving the Leninist Strategy

It amazes me how the NGO's, UN or any other taxpayer funded organization never reports any real news. 

Not for work/Graphic

Five people suspected of witchcraft burnt alive in Kenya - Where have we heard the word witchcraft before? Some folks are panicking over losing control of the monetary illusion. LOL

Always use good judgment in reading the States Newz Headlines.

Who, when, where, and why. Once you harness these skills, you'll become advanced in reading the Propaganda Newz.

snowball777's picture

How do you expect to meaningfully engage in dissent, if you can't even spell it?