How stupid is our CIA-appointed president?

Washington has already lost the war in the Ukraine. The BRICs are accelerating their arrangements to avoid the petro-dollar. Russia and China have accelerated their plans to form a pan-Asian trade alliance. Russia is building an independent settlement system so that the US cannot impose economic sanctions through the banking system. The BRICs are forming their own development bank and have expressed a desire to avoid contact with the IMF.

First the CIA stage a coup after Yanukovych cancels an agreement to join the EU in favor of closer relations with Russia. RT (note source) interviewed the former security chief of the Ukraine who described in detail how the coup was run out of the American embassy in Kiev. The director of the CIA, John Brennan, recently visited Kiev to follow up. This was reported on RT and in the American alternative press, but nowhere in the MSM. The White House confirmed the visit.

The ever-stupid American public is being told the Russians fomented the coup; that it is the Russians destabilizing the Ukraine; and they are buying it.

The German “60 Minutes” has just investigated the sniper shootings at the Maidan and found that they were perpetrated by the protesters, not pro-Russian agents. This is typical false flag chaos-creation by the CIA.

Putin has been consistent in his demands: he wants the Ukraine to be a buffer state, not aligned with NATO; and given the demonstrably split demographics and east-west hostilities, for referendums to be held in the east to establish more autonomy for the eastern provinces, who large dislike Kiev. The statistics I’ve seen on eastern Ukrainian sentiment on secession and joining Russia are about a third for, a third against, a third just want peace and don’t care.

Putin is correct that the primary danger now is civil war. Military action by Kiev in the east virtually guarantees it. If Putin is smart, he will not engage militarily; and the West will lose the hearts and minds of Ukrainians for generations to come. As the EU goes bust they will look to the east. They will likely default on debts to the IMF under such conditions.

What is is disturbing this morning is that our CIA-appointed president is on TV looking very gray and exhausted saying that under no conditions will America take military action, that our only course will be tightening sanctions.

In contrast, Michael Hudson, who is better connected than I, is on RealNews saying that under the table the Americans are threatening Russia with military action, including nuclear, and that Europe and the rest of the world are terrified by this.

The neocon-neoliberal Washington Consensus is on its last legs. Their program for world domination has already failed; they’ve hollowed out the US economy and turned the rest of the world against us. The plutocrats who are pulling the strings everywhere have no national allegiances. They park their money beyond national tax jurisdictions; and they will make themselves at home in Europe or Asia and encourage the EU to join the pan-Asian trade zone if that suits them; and where would that leave the US?

It is time for Russia and America to work together to let the Ukraine develop a federalized structure; and to jointly support this impoverished, ransacked region so that it may support itself. America via the IMF wrecked the Russian economy when the Soviet Union fell (by “free market shock treatment” that destroyed the social fabric, fostered anti-Semitism and created pronounced inequality and government by a plutocracy that Putin is trying to ride herd on).

Destroying the Ukraine in the name of freedom helps no one except Blackwater, or Xi, or Academi and the rest of their military-industrial-financial complex ilk. And of course the plutocrats on both sides who would like to buy up Ukrainian assets at bargain prices.

But this is what Washington does best, destroying countries in the name of freedom.

But starting World War III would guarantee that the rest of world would turn on us.

Time to throw the psychopathic bums out, America. Wake up!

Krugman on Piketty

Paul Krugman has a beautiful review of Thomas Piketty’s Capital in the Twenty-First Century. I have described Piketty as the hero-economist on a white horse who will finally and I hope irrevocably shut up the neocons and neoliberals who would tell you that the distribution is not a worthy subject of economic analysis. Now, next, if economics would take note of Wilkinson’s epidemiological work on inequality (see this for intro) we might be able to say economics is a noble profession seeking social justice (as some used to think of it) rather than a bunch of whoring cheerleaders for the rich.

Those of us who were young economics professors in 1981 as Ronald Reagan began his program of fraudulent “supply side” tax cuts for the rich (“trickle down economics”)  told our students that America was being duped, that it was time for “mourning in America,” that is was not “morning in America.”

Why We’re in a New Gilded Age

Paul Krugman

MAY 8, 2014 ISSUE

Capital in the Twenty-First Century

by Thomas Piketty, translated from the French by Arthur Goldhammer

Belknap Press/Harvard University Press, 685 pp., $39.95

Emmanuelle Marchadour

Thomas Piketty in his office at the Paris School of Economics, 2013

Thomas Piketty, professor at the Paris School of Economics, isn’t a household name, although that may change with the English-language publication of his magnificent, sweeping meditation on inequality, Capital in the Twenty-First Century. Yet his influence runs deep. It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.

(continues here)

After QE; Piketty and neo-feudalism

There is a lot of nonsense going around about interest rates going up post-QE. Following John Hussman's lead, in a recent post I showed the empirical regularity governing the relationship between central bank balance sheet as a percent of GDP and long-term interest rates proxied by the 10 year T-bond.

Recently Base/GDP has been about 0.22, so we are way out on the right end tail. It would take a reduction of the ratio of about 15 percent of GDP to begin to raise long rates, or about $2.6 trillion at current rates of GDP. The St. Louis base is currently at $3.7 trillion, and has been growing at over 20 percent a year since the last recession.

Now, "tapering" is a reduction in the rate of increase of additions to the base, not a reduction of the base. The chart looks to me like a very strong empirical regularity indeed. So the chance that long rates will rise anytime soon is remote in the extreme, as the Fed has no announced plans whatsoever to actually reduce the base.
Long rates will remain low and the bad debt clogging the banking system will remain impacted, that much seems assured for years to come.
What is a somewhat lower probability outcome is that the dump-the-dollar movement internationally gains sufficient momentum that the Fed has to buy up more and more (perhaps virtually all) new Government debt. This might be called the MMT-by-force-majeure outcome, as there is little chance that such additions to the Fed's balance sheet will ever go away.

In this latter case rates will not go up because of the empirical regularity shown above, but as the dollar falls on the foreign exchange markets due to weak demand to hold or trade in dollars, there will be import inflation domestically in the US. This will cause a further collapse of effective demand--already afflicting the bottom 80 percent or so of Americans--as real purchasing power of consumers is decimated. The US will become an even less attractive place to invest, and capital flight will occur. The US's status as a banana republic will be cemented.

This is the essence of the dreaded global currency reset: the dollar falls on international markets, import inflation slams domestic real demand, but neither short-term nor long-term interest rates rise (short rates exhibit a similar empirical regularity to that shown above). A domestic stagflation occurs. The Fed, ever the servant of Capital, will fight the inflation with modest rises in short rates (this can be done administratively in the short run) sufficient to beat any thought of asking for higher wages out of the heads of workers even though labor cost-push inflation exists only as a curiosity in economic history textbooks.
In the final chapter plutocrats of various "nationalities" (with allegiance to none) will divvy up Plantation America, keeping the best parts of it private, for themselves and their would-be-royal progeny.

Enter the Anti-Mainstream Economist

Certainly Thomas Piketty is the most important economist of the past 80 years, since the last Fourth Turning (Keynes got it that time). I highly recommend The New Yorker's review of his big book (here). A Frenchman, Picketty came to the US at 22 as a young economics superstar and to his great credit, became immediately disenchanted (disgusted is a better word, probably) with the status-quo-supporting mathematical fictions he encountered at MIT. (Disgust afflicted your correspondent upon entering economics at the graduate level in search of "science" after an undergraduate career studying literature.) Son of a leftist French couple, Piketty imbibed the Marxist notion of capital increasingly displacing labor leading to the reserve army of the unemployed and set out to study the issue of the distribution empirically, probably sensing that only real world data could displace the mathematical fictions of the self-congratulating, narcissistic mathematical economist-priests ruling policy in the West.

Piketty's concerns over where the world is going are as dire as mine. He is the Anti-Mainstream economist on the white horse that I thought could never possibly arrive. The New Yorker disappointingly pooh-poohs Piketty's suggestions that we need to raise taxes on the incomes and wealth of the plutocrats as politically infeasible. (But of course The New Yorker’s readership inhabits the status quo, so what else could they say?)
Democracy will have to be reborn to prevent a return to out-and-out feudalism.
It couldn't happen here, of course (although Piketty now has a stateside ally in fellow French-born Berkeley economist Emanuel Saez). Piketty turned tail after a couple of years in the US and returned to Paris, where he has remained since.

[Editor: spelling of Piketty's name corrected 3/27/2014]

Fiat money = funny money => Fed must screw labor

h/t Mish for pointing out an article by Adair Turner, former Chairman of the United Kingdom’s Financial Services Authority, a member of the UK’s Financial Policy Committee and the House of Lords, suggesting that the Fed or any fiat money central bank might accept conversion of assets on its balance sheet, i.e., Treasuries, into zero coupon perpetuities, and so create "helicopter money" and permanent monetization of the sovereign debt.

I suggested just this strategy as a joke some time ago (here).

However, we all knew that the Fed can and does print money. But stating it as baldly as this brings me back to the problem this causes in the labor market.

As I have said repeatedly, inflation (a sustained wage price spiral inflation) is always and everywhere a labor market phenomenon accommodated by monetary policy.

Thus, with the vast overhang of base the Fed must worry about inflation in the long run, even if not so much right now. Why not now? Because prosumers are overburdened with debt and inflation is nowhere raising its ugly head. Looking more deflationary now, it is.

But should actual deleveraging take place by some other means than a few bad debts actually being charged off (imagine that!), such as bad debts being recognized as such (FAS 157 thrown out, good riddance) and debtors finding relief as the (unpaid) debts hit statute of limitation dates with no more recourse--then the Fed would have to worry about a wage-price spiral getting going.

In other words, the Fed is intrinsically anti-labor and always will be. What did Paul Volcker teach us, if not that? You got to recruit some cannon fodder, some inflation fighters to win the war on inflation.

There's an interesting wrinkle in here in that Janet Yellen has allegedly stated her desire to see the labor force participation rate improve, while at the same time worrying that it will adversely impact the unemployment rate (duh!) and hence, confidence. (My readership is small but highly intelligent and knows that if discouraged workers are included the unemployment rate is well above 10 percent by the governement's own questionable figures.)

I do believe the Fed economists are aware of the psychological importance of the unemployment rate that the unknown economist whose work I channel has established, and which the econophysicists seem to appreciate far more than the professional economist (i.e., generally establishment cheerleaders) community does.

Sometime within the next few years the unemployment rate will meet its falling adaptation level and rise above it. That is when we will see the next collapse of confidence. So the model predicts.

In passing I note that MMT does not really offer a way out of the wage price spiral problem. They just seem to be willing to inflate the debt out, disco style. However, the danger of hyperinflation may be greater this time, given the size of the base, and they seem oblivious (to me) to the Austrian distributional implications that those who get new money first can increase their wealth at rates much faster than those depending on increasing real wages can expect.

To bing this discussion full circle, let's ask what comes next for the international monetary system? Does an IMF ADR basket currency make the central banks love labor any more? I think not. Unless they're playing competitive devaluation games, they still can't afford too much inflation ("a little inflation is a good thing, but not too much"--this is the mainstream cant).

Given the plutocratic distribution in the world today, it seems to me that any fiat money system broadly adopted is going to result in labor continually getting screwed, absent really aggressive incomes policies (guaranteed basic income and health care, for example; or even better, enforced limits on wage contours, now being challenged even in Sweden, such is the prevalence of greed in the current historical moment).

History shows that a metal based system achieves stable prices over long periods. Sorry, "Rich Dad, Poor Dad," you're not a genius for investing in real estate. To paraphrase Paul Samuelson, during an inflation every fool is a great financier. It takes no brains to load up on debt when inflation is guaranteed.

Are there financial crises under a metal standard? Yes, just like under fiat banking as it rides into its sunset. The answer to cyclical variations is always to let them happen, to concentrate on stabilizing people and not "the business cycle," to take care of displaced persons during the adjustment. And to keep banks out of the business of speculation with other people's money.

 

How monetary policy drives foreign policy

It should now be evident that America's foreign policy is to an extent being driven by our banking mess. Again and again, we see Washington, including Wall Street's handmaiden, the Fed, exporting monetary chaos implicitely in order to weaken the status of potentially competing reserve currencies:

• Wall Street sent a tsunami of bad AAA-rated mortgage debt to Europe, much to Germany, the locus of power for the Euro (and again, implicit admission of guilt is seen in the apparent fronting of billions of bailout dollars to the European banks by the Fed after the crisis);
• Washington has apparently fomented or supported a coup in the Ukraine that increases the likelihood of war in Europe dramatically therefore sending the gigantic pools of liquid financial assets in the world scurrying into the greenback and US Treasuries, which the Chinese have stopped gobbling up;
• the other factor is that the military-industrial complex needs war to get its funding, and when drone-bombing rag-heads can't provoke a serious attack, destabilizing a former Eastern bloc nation and provoking a somewhat justifiably paranoid Russian leader into military action guarantees at least a shot in the arm of crisis funding.

Russia has repeatedly stated over the past decades that an EU move on the Ukraine crosses a red line. The EU ignored the warning, and with the US's help and the ire of Ukrainians sick of a corrupt government crossed Putin's red line. What the Ukrainians want is democracy and relief from their corrupt plutocrats (see previous post's article by Paul Craig Roberts).

The US has no compelling strategic interest in the Ukraine, or in the Crimea remaining part of the Ukraine. Yes, the Ukraine has been looted by its oligarchs, just as Russia was, and just as the US is being looted by its oligarchs right now; incomes of a majority of American households are falling so the banks can collect on bad debts. It would be nice for people everywhere if they could break the grip of the plutocrats over their livelihoods. In the Ukraine, to substitute debt servitude to Western banks for the domination of the oligarchs would only accelerate the collapse of the EU. And it's not clear the EU, if it offers help, won't be ripped off by the oligarchs as well. The new government in the Ukraine has already increased the power of the oligarchs by giving them provinces to rule, so it's not clear the Western "rescuers" are even able to help solve the fundamental problem at all, and might end up losing their shirts again, as they have in Greece, Portugal, et al.

Until democratic governments around the world become strong enough to counteract the power of the plutocrats by taxing them, both their income and their wealth (as Sweden does) the revolving looting of sovereign governments and demolition of middle classes by the plutocrats and their corporations will continue.

A couple of posts ago I said the scariest thing I've heard recently was Catherine Anne Fitts saying what the world needs now is a global debt for equity swap. I should say I generally like Ms. Fitts' analysis and suspect she may even have misspoken when she made this comment. Such a move would concentrate ownership of the world's assets sufficiently to create even more of a Plantation Earth than we have currently.

She identified the problem, but not the solution. What the world needs now is a global jubilee, debt forgiveness. The debt that the Fed is shoving under the carpet via QE is what is known in banking circles as "bad debt." It is loans that never should have been made because they will never be repaid. In honest not crony capitalism such debts come out of the profits (as losses) of the banks that made them. In crony capitalism, with a central bank controlled by the banks, such debts are "paid back" by being monetized and put on the backs of the taxpayers either directly or through inflation.

The austerity programs Europe has put in place so that Wall Street and European banks can be paid back bad debts have destroyed more than one economy and more are probably yet to fall. (The idea promoted ten plus years ago of "convergence" of interest rates in the EU between periphery and core caused me to gag at the time.) Debt slavery to Western banks is not the answer. (China is apparently making similar mistakes; it will be interesting to see what they do with the bad debt. I suspect their strong central government will tell the bankers to go stuff it.) Ms. Fitts suggests that sooner or later the plutocrats will destroy the banks in order to buy them cheap and collect the rents themselves, canny suggestion indeed.

Chaos in the world = a strong dollar. Until it doesn't. Chaos has a way of being unpredictable.

Capitalism has killed democracy. "Free" markets dominated by monopolies and oligopolies are not what Adam Smith had in mind. It's time for democracy to be reborn. There are degrees of economic inequality that are simply immoral and destructive and humankind has the right to reject them. When the top 85 families own as much as the bottom 3.5 billion people, as recently reported, we have reached such a point.

The looting of the Ukraine

From Paul Craig Roberts here (quoted with permission). The best thing Boris Nicolayevich Yeltsin did for Russia was to default on the loans the IMF pushed on them. Russia has a very low level of sovereign debt, and hence is largely immune to the evil machinations of the international bankers. The Ukraine ought to take note. See also Jess's excellent post with an embedded must-watch video from "economic hit man" John Perkins here.
Most Americans do not benefit from these imperialist exploits. It is within our power to stop them, if we gain control of our government.

According to a report in Kommersant-Ukraine, the finance ministry of Washington’s stooges in Kiev who are pretending to be a government has prepared an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so that Western bankers who lent money to Ukraine can be repaid at the expense of Ukraine’s poor. http://www.kommersant.ua/doc/2424454 It is Greece all over again. 

Before anything approaching stability and legitimacy has been obtained for the puppet government put in power by the Washington orchestrated coup against the legitimate, elected Ukraine government, the Western looters are already at work. Naive protesters who believed the propaganda that EU membership offered a better life are due to lose half of their pension by April. But this is only the beginning. 

The corrupt Western media describes loans as “aid.” However, the 11 billion euros that the EU is offering Kiev is not aid. It is a loan. Moreover, it comes with many strings, including Kiev’s acceptance of an IMF austerity plan. 

Remember now, gullible Ukrainians participated in the protests that were used to overthrow their elected government, because they believed the lies told to them by Washington-financed NGOs that once they joined the EU they would have streets paved with gold. Instead they are getting cuts in their pensions and an IMF austerity plan. 

The austerity plan will cut social services, funds for education, layoff government workers, devalue the currency, thus raising the prices of imports which include Russian gas, thus electricity, and open Ukrainian assets to takeover by Western corporations. 

Ukraine’s agriculture lands will pass into the hands of American agribusiness.
One part of the Washington/EU plan for Ukraine, or that part of Ukraine that doesn’t defect to Russia, has succeeded. What remains of the country will be thoroughly looted by the West. 

The other part hasn’t worked as well. Washington’s Ukrainian stooges lost control of the protests to organized and armed ultra-nationalists. These groups, whose roots go back to those who fought for Hitler during World War 2, engaged in words and deeds that sent southern and eastern Ukraine clamoring to be returned to Russia where they resided prior to the 1950s when the Soviet communist party stuck them into Ukraine. 

At this time of writing it looks like Crimea has seceded from Ukraine. Washington and its NATO puppets can do nothing but bluster and threaten sanctions. The White House Fool has demonstrated the impotence of the “US sole superpower” by issuing sanctions against unknown persons, whoever they are, responsible for returning Crimea to Russia, where it existed for about 200 years before, according to Solzhenitsyn, a drunk Khrushchev of Ukrainian ethnicity moved southern and eastern Russian provinces into Ukraine. Having observed the events in western Ukraine, those Russian provinces want to go back home where they belong, just as South Ossetia wanted nothing to do with Georgia. 

Washington’s stooges in Kiev can do nothing about Crimea except bluster. Under the Russian-Ukraine agreement, Russia is permitted 25,000 troops in Crimea. The US/EU media’s deploring of a “Russian invasion of 16,000 troops” is either total ignorance or complicity in Washington’s lies. Obviously, the US/EU media is corrupt. Only a fool would rely on their reports. Any media that would believe anything Washington says after George W. Bush and Dick Cheney sent Secretary of State Colin Powell to the UN to peddle the regime’s lies about “Iraqi weapons of mass destruction,” which the weapons inspectors had told the White House did not exist, is clearly a collection of bought-and-paid for whores. 

In the former Russian provinces of eastern Ukraine, Putin’s low-key approach to the strategic threat that Washington has brought to Russia has given Washington a chance to hold on to a major industrial complex that serves the Russian economy and military. The people themselves in eastern Ukraine are in the streets demanding separation from the unelected government that Washington’s coup has imposed in Kiev. Washington, realizing that its incompetence has lost Crimea, had its Kiev stooges appoint Ukrainian oligarchs, against whom the Maiden protests were partly directed, to governing positions in eastern Ukraine cities. These oligarchs have their own private militias in addition to the police and any Ukrainian military units that are still functioning. The leaders of the protesting Russians are being arrested and disappeared. Washington and its EU puppets, who proclaim their support for self-determination, are only for self-determination when it can be orchestrated in their favor. Therefore, Washington is busy at work suppressing self-determination in eastern Ukraine. 

This is a dilemma for Putin. His low-key approach has allowed Washington to seize the initiative in eastern Ukraine. The oligarchs Taruta and Kolomoyskiy have been put in power in Donetsk and Dnipropetrovsk, and are carrying out arrests of Russians and committing unspeakable crimes, but you will never hear of it from the US presstitutes. Washington’s strategy is to arrest and deep-six the leaders of the secessionists so that there no authorities to request Putin’s intervention. 

If Putin has drones, he has the option of taking out Taruta and Kolomoyskiy. If Putin lets Washington retain the Russian provinces of eastern Ukraine, he will have demonstrated a weakness that Washington will exploit. Washington will exploit the weakness to the point that Washington forces Putin to war. 

The war will be nuclear.

The scariest thing I've heard recently

In an interview with Greg Hunter on his YouTube channel Catherine Austin Fitts said, "What we need now is a global debt for equity swap."

In other words, let the sovereigns out of their unpayable debt by selling off public assets to the global plutocratic class.

This will seal the deal for generations of neo-feudalism to come.

More and more, I think the only way populations will throw off this yoke will be by national strikes that shut the corporatocracy down. I'm not advocating national strikes, but I don't see any way to combat entrenched neo-feudalism through democratic means, as the democracies have been eviscerated through the corrupting powers of money.

Talk continues to percolate through the Intertubes of the imminent "global reset"....

Global currency reset: is it real?

The Intertubes are buzzing with talk of a global currency reset, usually in conjunction with a sale of a DVD that the seller alleges contains secrets that "the elite" have imparted to him that will make the difference between survival and adject ruin in your life. The most cogent of these is by Pastor Lindsey Williams here.

The basic argument is that Christine Lagarde has secured agreement from some 204 nations to enter into a new managed float currency system that, however, will move currencies toward new exchange rates based on national "assets." America, being the premier debtor nation in the world, would be devalued in its new channel, especially relative to the yuan. This of course is what a lot of people would like to see happen to stimulate exports. This system is allegedly to be kicked off by the end of first quarter 2014. There will be some sort of gold-backed or basket-based new international reserve currency introduced.

Obviously America is hit by stagflation as goods from China increase in price by 30 percent or so. Simultaneously the government in 2014 or 2015 will seize 30 to 50 percent of public and private pension funds to pay down government debt.

I have little doubt that the dollar's reserve currency status is weakening. Many significant trade deals have been recast in the past few years out of dollars into other currencies, or in some cases, into commodities. But if such negotiations for a global currency reset have taken place they have been kept very quiet.

The problem I have with this story is that it conflicts with what I see as the most likely outcome, the credit supernova, in which all countries succumb to temptation to beggar the rest of the world to inflate out their debt and depreciate their currency. America's dominance and relative safety (note the negative yields on recent T-bill auctions) would seem to augur a relatively strong dollar in such a supernova scenario.

However, Williams does make a credible case that the American economy will totally collapse in 2015 when the business mandate of Obamacare takes effect. The press has recently given coverage to the profit guarantees that the health insurance companies enjoy under Obamacare. Recent retail sales numbers certainly suggest a collapse of demand (see this).

The good pastor also maintains that the smart meters that have supposedly been put on most American houses are in fact microwave mind control devices that have softened up the population for the imposition of the totalitarian new world order without violent resistence (this seems to entirely based on the allegations of one Barrie Trower, a British physicist).

What economists call "effective" demand collapses when most people's incomes are falling, even if total income (GDP) is ostensibly rising. The rich just don't spend enough or on the right things to keep the circular flow going in a healthy way. And when the most attractive investment opportunities are offshore, anyone with a mutual fund can send their capital abroad. Add to this the bad debts of the banks that they have transferred onto the backs of the American (and Irish, and Spanish, and Portuguese...) people and the stage is indeed set for collapse. The question will be whether the rich will push the poor into a die-off (life expectancies are already declining among the lower classes in America, and probably elsewhere) or whether the population of the world will learn to share in the context of a just society.

In any event, we'll see if there's anything to all the fevered talk about the "global currency reset" within 90 days.

 

Inequality forever: the (hidden) neo-feudalist agenda

I read a lot of different blogs, mostly for their links. I have little interest in reading Yves or Michael Snyder, but they both provide lots of high-quality links, so I frequent their blogs. Some blogs I won't go to, like Brad de Long's, simply because the stench of the self-satisfied Establishment is too much.

What I find tragic about the libertarians like Mish and about the Evangelicals like Michael Snyder is that they are apparently willing to play so readily into a Government-destroying gambit that opens the way for those in control of vast wealth, the 1 percent, so to speak, to bankrupt governments worldwide and then buy up their assets at trivial prices as occurred after the fall of the Soviet Union; in other words, to take the world into the new world order dreamed of by Rockefellers and other Illuminati for generations, a neo-feudalism enforced by financial fascism through a world-wide fiat money system run by the Bank of International Settlements, which there are the lords and ladies of wealth over the debt-serfs, everyone else. Snyder even had a link to a Carroll Quigley quote on this from the Sixties.

Depression conditions are known to foster fascism, but the indicated depression conditions don't seem to bother the Evangelicals or the libertarians.

But history is nonlinear, and I maintain hope that in the Crisis to come a new viable democratic form will emerge.

Neo-feudalism: the dragon

I only link to stuff anymore that really got me off. Here's Bruce Sterling's take on the unholy symbiosis of the high tech startup society and the new international Money Lords who are driving the middle class out of existence, delivered at a design conference in Berlin. He just nails it (sorry for the messy link, but I'm doing this on an iPad and don't know all the commands):

http://t.ritholtz.com/bigpicture/#!/entry/startups-are-not-disruptive-the-global-rich-get-richer,51849d3bda27f5d9d0ba0d68/media/1

When will a global conscience arise? There is no evidence of it among most of the Money Lords.

H/t boing boing via Ritholtz

Almost every issue is a wedge issue

Sometimes you have a great notion.  Today I’m having one about how we think about things.  It’s that almost every issue in the modern discourse is a wedge issue, or can profitably be used as one.  That “profitably” is a hint as to the exception, by the way.  And then if you can link issues in voters’ minds, you can create a web of divisive issues.

Let’s start with “economics.”  Every school of economics is bullshit being used by some interest group to further their own advantage.

How about “freedom”?  Same thing.  I’m rich, I want to be free.

How about “socialism”?  We already have socialism for Wall Street.  The government redistributes the money from hard working folks to Wall Street when their big derivative bets don’t pay off the way they hoped.  The government rewrites rules and regulations that even people like me with a Ph.D. in economics have trouble understanding, but which rewrites almost universally have the effect of letting the financial institutions skim a heftier slice out of our hides.

How about “capitalism”?  Sure, we got capitalism, crony capitalism.  See the last point.

I’m not going to belabor the point.  I could dredge up more buzzwords (“abortion,” “family values,” “gun rights,” “welfare,” and so on) but I won’t.  I won’t even touch “democracy,” which has gotten to be a big joke.

The one issue that really matters now is the distribution of wealth, and derivatively, the distribution of income.  America is still a rich country but the rich always seem to have an excuse for letting the poor get poorer.  “You can’t fix that because [raising taxes is linked to being pro-abortion] [raising taxes is not freedom] [that’s socialism]!” 

We may not have free markets—they are horribly concentrated and monopolistic in too many cases—but we do have enough capitalism that those who own stuff (or act as if they did by manipulating the stock price to their own advantage—I’m referring to our non-owner, stock option loaded American management gangsta class) largely get to call the shots for those who don’t own the means of production or get to act as if they did, i.e., labor, working folks.

Until this imbalance is righted the situation is not going to get better.  The greatest danger lying ahead is a global neofeudalism.

Will “socialism” destroy us?  Hardly.  I have pointed to the Scandinavian countries as working models of how a greater degree of social justice can produce a more prosperous nation.  And anyway, it’s not socialism because the state doesn’t own the means of production.

So long as Americans are so easily divided the raw economics of the ownership class’s interests and its power over the politicians will determine our course.

The first tiny step toward equity is a more progressive tax system. 

So if Obama has any backbone he will let us go over the fiscal cliff, and then cut taxes for the 98 percent. 

If not, if he compromises without effecting any significant increase in the progressivity of the tax system, then will in truth be a Manchurian candidate, a total sycophant, good little Barry whose mother worked for the Foundation and knew how to be nice around rich people.

He who oppresses the poor shows contempt for their Maker,
but whoever is kind to the needy honors God.

When calamity comes, the wicked are brought down,
but even in death the righteous have a refuge.

Wisdom reposes in the heart of the discerning
and even among fools she lets herself be known.

Righteousness exalts a nation,
but sin is a disgrace to any people.

--Proverbs

Reference:  Michael Hudson, Obama Wins for whom?

A couple of recent article from Der Spiegel about how Germans see America now (the Germans, having some history of their own to deal with, don’t mince words):

Americans Don't Want The Truth In US Election, He Who Lies Wins

Destroyed by Total Capitalism America Has Already Lost Tuesday's Election

P.S.  Mish has declared that California will fail because they’ve enacted tax reform.  I’ll take the other side of that bet.  California is a very dynamic state; and being a state, and not a country with the ability to print money, they have to balance their budget over the long term.  Is it an accident that so much technological innovation has come out of California, with its (formerly?) great educational system? 

I still expect the global fiat money debt dilemma to be “resolved” in some sort of monetary catastrophe, with possibly multiple “bang points,” including deflation and (possibly hyper-) inflation. 

Chimerica and the global predator class

Two must-read posts:

Charles Ferguson: Predator Nation, Global Predator Class – jesse 

The Macroeconomics of Chinese kleptocracy – bronte capital   Deflation = revolution in China.  Great insights into how Chinese demographics impact saving and investment.

The specter of global neofeudalism looms….

Add:  see also You Should Be Mad As Hell About This [CHARTS] (businessinsider.com) h/t patrick.net  In case you had any doubt…. mind-blowing set of charts.

‘Animal spirits’ update

The President’s reelection chances hinge upon the unemployment rate remaining below 8.8 percent, the current adaptation level.  Any rise above that level will signal the beginning of a recession or negative growth episode, if the pattern that has occurred every other time the unemployment rate rises above its adaptation level persists.

I continue to pencil in a rise in the unemployment rate in 2013 as the US falls off the fiscal cliff to one degree or another, with monetary policy impotent to do anything more than goose financial markets hooked on cheap money like heroin junkies.

The current situation continues to resemble the year 1973’s setup, with the Michigan survey measure still much lower than the A metric.  Interestingly, then the Michigan measure rose going into the recession as the A metric plunged.  After the cycle bottomed, the A metric shot up and the Michigan measure again became more pessimistic.

The potential for long-term pessimism, or what Keynes called “the state of long-term expectations,” becoming very dismal indeed in America is large, as Americans of even the slowest cognitive abilities wake up to the fact that the plutocracy has bought off the Congress, the President, and the Supreme Court (the justices who ruled for corporations being people in Citizens United were just thinking what they were told to think as good conforming conservatives).  The plutocracy would like to set up their families as the lords and ladies of the new world, ever Anglophiliac in their pretensions, with the rest of us as their wage-serfs.

Here is Joseph Stiglitz trying to say the same things in a way that won’t get him kicked off the MSM media… this is the latest on our continuing feature, “Neofeudalism watch.”

I hope that American creativity will come up with a solution to the problem of the extreme dysfunctionality of the American political economy.  What we have now cannot persist without creating blowback and further dysfunctionality.

Neofeudalism watch

Via:  www.nytimes.com

March 12, 2012, 12:31 AM

The Reproduction of Privilege

By THOMAS B. EDSALL

Instead of serving as a springboard to social mobility as it did for the first decades after World War II, college education today is reinforcing class stratification, with a huge majority of the 24 percent of Americans aged 25 to 29 currently holding a bachelor’s degree coming from families with earnings above the median income.

Seventy-four percent of those now attending colleges that are classified as “most competitive,” a group that includes schools like Harvard, Emory, Stanford and Notre Dame, come from families with earnings in the top income quartile, while only three percent come from families in the bottom quartile.

Anthony Carnevale, director of the Georgetown University Center on Education and the Workforce and co-author of “How Increasing College Access Is Increasing Inequality, and What to Do about It,” puts it succinctly: “The education system is an increasingly powerful mechanism for the intergenerational reproduction of privilege.”

Continues here.  Read. 

See also:  College, Farther and Farther Out of Reach

The great sorting-out

Americans are becoming more and more divided along class lines, even geographically.  This does not bode well for social cohesiveness or the ability to execute effective social policies.  (And you can say “government is the problem” all you want, but I tell you we will have government for the rest of our lives, and I’d rather have government that works.)

Middle-class areas shrinking in US: study – yahoo.com

I recently reread my oldie-but-goodie, “On the coming neo-feudalism,” from two and a half years ago, and was amazed at its prescience.

Neither capitalism nor democracy

America has neither capitalism nor democracy currently. 

Capitalism would require that government let bankrupt firms fail.  Capitalism would require that the owners of capital—not corporate managements—would have a majority say in how companies are run.  Capitalism would never permit the rich to impose their personal investment losses on the rest of tax-paying Americans.  In-your-face bonuses paid to Wall Street executives whose firms and jobs were saved on the taxpayers’ back would not have happened under a capitalist system.

Democracy would require that “persons” be people, human beings, not cash-bloated corporations.  Democracy would require that the desires of the people would be effected, to a reasonable and rational degree, by their elected representatives, not cynically ignored as they grovel for their campaign dollars before their moneyed donors, a rich class that controls not only the politicians but corporate governance (which they’ve lock up tight), and to an increasing degree, national governments around the world. 

In reflecting upon what it would take to amend the Constitution, the phrase “no exit” occurred to me.  Here’s the process:

Article V of the Constitution spells out the processes by which amendments can be proposed and ratified.

To Propose Amendments

• Two-thirds of both houses of Congress vote to propose an amendment, or

• Two-thirds of the state legislatures ask Congress to call a national convention to propose amendments. (This method has never been used.)

To Ratify Amendments

• Three-fourths of the state legislatures approve it, or

• Ratifying conventions in three-fourths of the states approve it. This method has been used only once -- to ratify the 21st Amendment -- repealing Prohibition.

The Supreme Court has stated that ratification must be within "some reasonable time after the proposal." Beginning with the 18th amendment, it has been customary for Congress to set a definite period for ratification. In the case of the 18th, 20th, 21st, and 22nd amendments, the period set was 7 years, but there has been no determination as to just how long a "reasonable time" might extend.

Of the thousands of proposals that have been made to amend the Constitution, only 33 obtained the necessary two-thirds vote in Congress. Of those 33, only 27 amendments (including the Bill of Rights) have been ratified.  (source)

It will require a Congress, or two thirds of the state legislatures—both of whom are dependent on rich donors—willing to vote above their own narrow self-interest to get an amendment even proposed.  I would guess that it will remain impossible for inside-the-Beltway politicians ever to achieve that state of mind.  A proposal to amend will have to come from the state legislatures.

What we have now is a semi-feudal system, a class system supported in principle and in effect by the Republican party, who, as shown a few posts ago, are the party of increasing inequality.  So the red states will be hard to get on board with a proposal to amend unless the commoners suddenly wake up to their exploited state.

The Reid tax proposal, to impose a 5 percent surcharge on incomes over a million dollars a year is estimated to generate about half a trillion in incremental revenue, or about a third of the projected deficits near-term.  That’s how unequal things are.  If only the average Republican could see that they’re being snookered with a load of Reaganite bunkum…. 

It will take a sea-change of popular opinion about government, taxes, sharing, work, reward, democracy for America to exit the one-way street to neo-feudalism we’re on now.

Income growth under Republican and Democrat presidents

The first thing Bartels did was break down economic performance by income class. The unsurprising result is shown in the chart….

Under Democratic presidents, every income class did well but the poorest did best. The bottom 20% had average pretax income growth of 2.63% per year while the top 5% showed pretax income growth of 2.11% per year.

Republicans were polar opposites. Not only was their overall performance worse than Democrats, but it was wildly tilted toward the well off. The bottom 20% saw pretax income growth of only .6% per year while the top 5% enjoyed pretax income growth of 2.09% per year. (What's more, the trendline is pretty clear: if the chart were extended to show the really rich — the top 1% and the top .1% — the Republican growth numbers for them would be higher than the Democratic numbers.)

In other words, Republican presidents produce poor economic performance because they're obsessed with helping the well off. Their focus is on the wealthiest 5%, and the numbers show it. At least 95% of the country does better under Democrats.  (source)

The Republicans are salivating over the opportunity to send America into the twenty-first century as the first developed nation to return to a state of feudalism.

The 2005 Kevin Drum article cited as source above (based on the Bartels paper and subsequent book) goes on to show that Republican presidents tend to produce their best economic performance in the year of the election, to induce lower income groups to vote for them. 

So it would appear the Pyrrhic victory sought by the Republicans—an economic collapse under President Obama to usher in their king—is part of a longer pattern of election year economic manipulations of long standing.

God help us.

Links 3/23/2011

Some particularly good links on where we’re at h/t www.patrick.net :

James Grant Testifies On The Federal Reserve (dailybail.com)
The Origin of Central Banking and Possible Alternatives (Mish)
Federal Reserve and the opaque banking syndicate (mybudget360.com)
New Civil War erupts, led by super rich, GOP (marketwatch.com)
Rising Wealth Inequality: Should We Care? (nytimes.com)
Educating College Graduates So They Can be Unemployed Mike Konczal, New Deal 2.0

The tightest union

With all the union bashing going on—and as a private sector worker I am aghast at what public sector union members get in pay and benefits—still, it strikes me as misplaced.  A relatively small percentage of the work force is unionized in historical context.

The tightest union in America is the ruling class, with its lap dog politicians and captive media, all spouting about the un-Americanism of raising taxes on those highly productive rich people, even as CEOs and Wall Street executives take greater and greater multiples—hundreds of times—of the median family income home in pay each year, because they and their board friends say they’re worth it.  They weren’t worth it thirty years ago, when the spirit of shared sacrifice of World War II still lived in the hearts of the ruling class, and CEOs worked for 30 times the median family income.

And the tightest union is international.  As capital moves, so do they and their minions, ready to bash labor wherever it has the temerity to protest (except perhaps in China, where the authorities understand that in the long run, the country that coheres will ultimately win, because they can still work together productively). 

Paul Craig Roberts, who has been one of the most eloquent in upbraiding the American rich and their useless wars and idiotic policies (see this)—even Roberts cannot let go of his Reaganism (he was a Treasury official under Reagan) and admit that tax rates are too low on the ultra-rich.

The administration seems to understand all this.  Shared sacrifice has been one of their themes from the beginning.  They would like to leave the Bush tax breaks on the middle class in place and raise taxes on the top few percent.  I just don’t think the ruling class will stand for it.  And another nail will be driven into the coffin of the American social contract.

Via:  Bloomberg

Ultra-Rich in Finance Are Meaner Than Rest of Us: Matthew Lynn

By Matthew Lynn - Sep 6, 2010

Bloomberg Opinion

There is something surprising about a private banker warning his colleagues about the rich. It would be like a director of Volkswagen AG casting doubt on motorists, or the boss of McDonald’s Corp. distancing himself from people who eat fast food. Rather like valets, the main aim of the private banker is to court the wealthy.

At a conference in Zurich last week, the head of Barclays Wealth Management’s private-banking unit, Gerard Aquilina, appeared to issue a red alert about the richest of clients.

“Beware of the complexities of dealing with ultra high net worths,” Aquilina told his audience. “Demanding and often unreasonable” requests from them may create “impossible demands on the organization.”

Such as? Help with getting children into the right school, securing credit to buy property, or obtaining last-minute concert tickets, for example. Even worse, the richest of the rich turn out to be pretty stingy as well. They don’t even want to pay the full fee for all the services they demand.

It was strong stuff. But it was also an insight into the way the rich have changed over the past decade. They are, it turns out, a nasty bunch of people who are only getting nastier. And the banking industry only has itself to blame. […]

US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal

Via:  US Crosses the Bernholz Line -- Hyperinflation Early Warning Signal – EconomicPolicyJournal.com

The basic point:

Economic historian Peter Bernholz has identified that inflation starts to take on hyperinflationary characteristics some time after the deficits of a country as a share of government expenditure rise above a third and stay there for several years.

According to Bernholz, the great hyperinflations of France, Germany, Poland, Brazil, and Bolivia all occurred after deficits reached that magic percentage or higher (In Bolivia, it reached 91%). The United States crossed over the Bernholz line last year.

The time lags for onset of the disease vary following the indication.

A word about the definition of inflation:  Monetarists and Keynesians alike (neoclassical economists) generally follow Friedman in saying “inflation is always and everywhere a monetary phenomenon.”  Some Austrians say inflation is money supply growing faster than real product.

For practical purposes, let’s define inflation as a general and sustained rise in prices, all prices, including consumer and producer prices.  This is very different from a localized asset inflation such as America has recently experienced in stocks and real estate and commodities.  Let’s call these “asset inflations.”  Asset inflations are not so good at reducing real debt loads, as most people’s incomes (and wealth) don’t follow asset price bubbles upward—and they are definitely left behind when the bubble bursts.

For a general inflation to get going there must be a “wage-price spiral,” so that incomes rise to meet or at least follow the general rise in price level.  Hence, I define a general price inflation as “a labor market phenomenon accommodated by monetary policy.”  The money supply does indeed grow faster than real product in such a case.

I go through all this merely to point out the unlikelihood of a general inflation in the current environment, in which labor unions are nearly extinct, employment-at-will is the law of the land, fascistic Storm Troopers routinely terrorize citizens for trivial infractions, basic Constitutional rights to due process have been destroyed (the Government can “disappear” you legally if they designate you a “terrorist”—hold you forever without any due process, torture you, do whatever they like with you), and for the most part citizens respond by cowering in their homes, afraid they will be next to run afoul of the dystopian corporate police state, to drop into poverty and a life of internal exile or worse.

Now, the monetary authorities, in their wisdom, would actually like to see a general inflation, as this is their deus ex machina for dealing with excessive federal debt loads (debts of all varieties, really).  Hence, I expect the national governments, goaded by their monetary wizards, to try to “enfranchise” the working populations of the world somehow, in a desperate last stand of Bretton Woods (II).  If successful, they will accomplish nothing less than the the supernova of Bretton Woods II, a global hyperinflation. 

And hyperinflations generally end up permitting those with money and access to leverage, the Big Money, to expropriate the working folks of whatever they had left, and if historical precedent applies, to set the stage for full-bodied Fascism to arise.

The solution:  raise taxes on the rich in America who have twisted the income distribution so much in their favor, and provide workfare and health benefits to the people.  There is enough to go around.  We don’t need to run huge deficits, we don’t need to cut taxes on the rich, we don’t need more war.

Shame upon the ruling class of America!  You sit and watch as this happens without the slightest pangs of conscience?  As if you don’t know what is happening?  Shame upon you!

Shalom.

See also: 

U.S. Income Inequality Is Frightening--And Much Worse Than We Thought – businessInsider.com