As we witness the riotous dissolution of corrupted capitalism, we need not wait for the history books to identify the mile markers of self-destruction. If we are to rebuild capitalism, even as it is tearing itself down, then we will need to become street-smart detectives in analyzing the current economic murder-suicide in progress. Every fall has its tell-tale confirmations and corrupt capitalism is no exception. There arrive key points where a system’s own contradictions become so evident and self-damaging, where motive, means, and opportunity become so clear, that one can mount an informed, effective counter-offensive.
If we understand the difference between parasitic wealth and real value/wealth creation, we can properly align the tax structure to reality: the tax on authentic wealth creation should be low, to encourage wealth creation and the employment (broad-based wealth creation) generated by legitimate value creation. We must also understand that the Central State now protects and enables parasitic skimming as the primary function of the nation's financial system. Thus the entire financial system is parasitic on the wealth of the nation. Financial parasitic incomes should be taxed at 99%. If Mitt Romney reshuffles assets created by others and skims $100 million, 99% of that parasitic wealth should be returned to the nation via taxes. The parasite still gets to keep $1 million, more than enough to live well but not enough to buy the presidency, the Congress and the regulatory machinery of the Central State.
While a welcome development (and probably even more welcome on the other side of the Atlantic) it doesn’t make up for the fact that the explosive price increases during the boom years were never included. And it isn’t just real estate — equities was another market that massively inflated without being counted in official inflation statistics. It would have been simple at the time to calculate the effective inflation rate with these components included. A wiser economist than Greenspan might have at least paid attention to such information and tightened monetary policy to prevent the incipient bubbles from overheating. Of course, with inflation statistics calculated in the way they are (price changes to an overall basket of retail goods) there will always be a fight over what to include and what not to include. A better approach is to include everything.
In the long run, all the hullabaloo about the various global banking crises is just hot air. The old establishment banks — the ones that have been bailed out this week in Spain, and in 2008 in America — are unnecessary middlemen. This is because of the ludicrous spreads from which they profit. They borrow from central banks and from depositors at absurdly low rates of interest (that’s what ZIRP is all about) and lend at vastly higher rates. What useful function does it serve? At one time, banks generated value by being wise lenders, lending to businesses that they determined would add value. Today they prefer gamble up even bigger profits in the zero-sum derivatives casino and shadow banking whorehouse, requiring frequent bailouts when such schemes go awry. They are dinosaurs that offer no real value to their shareholders, their customers, or to society.
Incentivize debt, and you end up relying on debt as a sustitute for productivity and income. Increase debt, and there's not enough income left for productive investments that might boost income. Incentivize debt via making interest tax deductible, and you create a self-reinforcing feedback of a rising share of declining income being devoted to interest payments. With demand and borrowing both suppressed by debt-serfdom, demand for housing, goods and services declines. Borrowing more to consume simply speeds the cycle of rising interest and falling net incomes. Incentivize debt and you create multiple overlapping death spirals. We are seeing the death-spirals play out in a fractal manner, from households to nations to entire regions. High debt levels lead to high interest payments which lead to low investment and savings rates which lead to lower productivity which leads to stagnation of income, consumption and investment: in other words, a death spiral.
Lesser Of Two Evils? There’s No Such Thing…
First of all, asserting that there is such a thing as a “lesser of two evils” is an act of naivety. It relies on a very dangerous assumption; that one can somehow quantify which candidate is going to hurt the country less. I’ve even read essays by people who pretend they can mathematically delineate the “more evil” of the evils! Not surprisingly, their “logic” invariably leads them to proclaim the lesser evil to be the candidate of the party they happen to belong to. Ignorant Republicans always see the Democrat as the greater evil, while ignorant Democrats always see the Republican as the ultimate monster. Here’s some math for you: there are two candidates for President of the United States, one is a cannibalistic serial killer who plans to murder 20 more people with his own hands while in office. The other is a cannibalistic serial killer who only plans to kill 19 innocents personally. Which candidate do you support?
The correct answer is NEITHER.
Last Saturday, it is being reported that U.S. Department of Commerce Secretary John Bryson was involved in two auto accidents that may have been related to a seizure he suffered during the incidents. According to CNN, Bryson is currently under investigation for a felony hit and run. It is unclear at this point if his health played a part in either accident. Police currently don’t believe drugs or alcohol were involved. Whatever the case, Bryson’s insider status will likely help him escape any significant legal trouble that could arise from the episode. That’s just how plutocracies roll. Perhaps now is a good time to analyze the oxymoronic reasoning behind a government bureaucrat in charge of regulating commerce. Those who had their vehicle plowed into by his Lexus are not the only ones who have suffered at the hands of Secretary Bryson. It is the businesses and innovations that will never see the light of day due to the endless amounts of regulatory red tape which permeate from Washington into the economy like a deadly plague.
The financial elite - using academe for intellectual cover - want you to believe that markets are efficient, as defined by the Efficient Market Theory (EMT). Neoliberal economic philosophy is based on the belief that neoclassical economic theory is correct. That is, that “markets are efficient”. Wall Street touts markets as trustworthy and infallible, but that faith is misplaced. Gullible US politicians believe that markets are efficient and defer to them. Therefore, US politicians abdicate their responsibility to manage the overall economy, and happily for them, receive Wall Street money. Mistakenly, the primary focus during the 2008 credit crisis is on fixing the financial markets (Wall Street banks) and not the “real economy.” The financial elite are using this “cover-up and pray” policy—hoping that rekindled “animal spirits” will bring the economy back in time to save the status quo. This is impossible because the trust is gone. The same sociopaths control the economy. A Federal Reserve zero interest rate policy (ZIRP), causing malinvestment, and monetizing the national debt with quantitative easing by the Fed, and austerity for the 99% to repay bad bank loans has not worked—and doing more of the same will not work—and defines insanity.
For years some of us have been preaching that the so-called American Dream, if it once existed, was then appearing as nothing more than a myth. Ronald Reagan, touted as the great communicator, articulated this myth quite well making most everyone feel hopeful and proud, while at the same time spreading the most perverse moral disease that can confront any modern day society: the cult of inequality – an inevitable result from the infamous trickle-down economics and the homage to greed. And, for three decades, that’s what we have been living in the United States: a morbid growth in inequality either sponsored or condoned by the leadership in the White House, all following in Reagan’s footsteps: the two Bushes, father and son; Bill Clinton; and now, our fizzle-savior, Barack Obama. The truth is that Americans have been fed by both parties the Great American Lie, while at the same time being humored with the placebo of the American Dream.
How do you get "consensus" in politics? You horse-trade. You give everybody something they want. You cut everyone into the deal. That passes for "consensus" in politics: divide the swag. If you want to understand President Obama's failure as a leader, ask (as my friend G.F.B. did) where did he learn politics? In Chicago. Big-city politics boils down to getting the ward bosses, ethnic-neighborhood leaders, Chamber of Commerce and public unions together and making them all happy with concessions, give-aways or some other slice of swag so they all agree to to support some minor policy tweak of the Status Quo. Any constituency left out of the swag distribution squeals like a stuck pig and kills the "consensus." This "making sausage" consensus is passed off as "the only way to get anything passed," but the truth is that it's the politics of failure: nothing meaningful can possibly get done in the politics of "consensus" because 95% of any useful reform must be traded away to get everyone willingly on board.
All you need to read and some more.
You can’t watch the mainstream media propaganda channels for more than ten minutes without a talking head breathlessly announcing that gas prices have dropped for the 24th day in a row and are now back to $3.55 a gallon. Wall Street oil analysts, who are paid hundreds of thousands of dollars per year to tell us why prices rose or fell after the fact, are paraded on CNBC to proclaim the huge consumer windfall from the drop in price. This is just another episode of a never ending reality show, designed to keep the average American sedated so they’ll continue to spend money they don’t have buying crap they don’t need. The brainless twits that pass for journalists in the corporate mainstream media never give the viewer or reader any historical context to judge the true impact of the price increase or decrease. The government agencies promoting the storyline of those in power extrapolate the current trend and ignore the basic facts of supply, demand, price and peak oil. The EIA is now predicting further drops in prices. Two months ago they predicted steadily rising prices through the summer. What would we do without these government drones guiding us?
All that debt Obama acquired, and all the stimulus did work to redistribute wealth and income — it worked to redistribute wealth and income toward the well-connected crony capitalist groups that funded Obama into office. Obama can talk all he likes about cutting taxes for the middle class; the data shows who Obama’s redistribution policies have overwhelmingly favoured. Of course, leftists and statists often end up favouring the super-rich. That’s been the underlying reality of communism — politburos, bureaucrats, technocrats, party members all benefit at the expense of everyone else (in spite of all that proletarian rhetoric). Inviting the state to carve up national income and redistribute it is an invitation to corruption, and graft. Obama talks an updated version of the old communist rhetoric about redistributing wealth to the working class — he even adopted Stalin’s slogan “forward” — yet just like Stalin the reality of his policies is more wealth for the richest and most well-connected. What a surprise.
Mark Carney announced a few days ago the Bank of Canada will keep its benchmark interest rate steady at 1%. This announcement comes despite his previous warnings over the enormous increase in Canadian private debt. But of course the run up in debt couldn’t have occurred if interest rates were determined by market factors only. Had supply and demand been allowed to function freely, interest rates would have risen as a check on the swell in debt accumulation. Carney won’t admit this though. Like all central bankers, he has made a habit of boasting the positive effects of his low interest rates policies while avoiding blame for the negative consequences. He is a bartender who gleefully takes the drunk’s cash while replying with “who, me?” when said drunk drinks himself to death. Carney’s decision to keep interest rates suppressed is yet another instance of a central banker unable to face reality. The malinvestments will continue to accumulate and will have to be liquidated at another date. What Carney has done to mitigate the looming debt and housing bubble is effectively kick the can down the road. He has revealed through his actions the undeniable truth which holds for all central bankers: that they have no other card to play but the printing press.
Spain is holding out for a better bailout deal. Spanish banks need an estimated €40 billion but will likely need much more than that. (see definition of ‘recipriversexcluson’) The ECB wants to lend the money to Spain so that it can then bailout it’s own banks but Spain wants the ECB to lend the money directly to the Spanish banks, in this way the ‘loan’ is not a Spanish sovereign liability but a liability of the banks themselves. The ECB, correctly, perceive that those Spanish banks don’t have an assured future even with a bailout, whereas, the country of Spain is unlikely to disappear from the map of Europe anytime soon, and they have a better chance of getting their money bank from Spain than if they bailed out the banks directly. This issue is at the heart of the negotiations which have taken place over the last week and look set to be concuded by teleconference this afternoon. I’ve written above that it’s the ECB negotiating with Spain but in reality it’s Germany and some other Northern Eurozone countries who are driving the ECB position.
All this wrangling appears rather interesting if you happen to be a Greek trying to decide who to vote for in the upcoming Greek election.