"The Dollar's fall won't stop until there's a change to the global currency system." - Daisuke Uno, October 2009

"Commodities insist on validation and validity, while currencies are subject to politics and perception." - Peter Kenny, October 2009

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Nortel No More

Toronto-based Nortel, once North America's biggest maker of telephone gear, filed for bankruptcy protection early this year, blaming the economic crisis for derailing a turnaround effort that began in 2005.

That followed several rounds of attempted reorganizations and years of job cuts that slimmed the company down to 25,000 employees, from a peak of about 90,000 at the height of the technology boom at the start of the decade.

Shares in the company, which once had a market capitalization of over $250 billion, have fallen to almost nothing, and Nortel said it did not expect existing shareholders to receive any value from the latest sale. ...

The company was once the poster child in Canada for high- tech success and was the most heavily weighted stock on the Toronto Stock Exchange. Its shares on a consolidation-adjusted basis were worth more than C$1,100 each in mid-2000. [1]

“It’s sad,” said Doug McGregor, 52, chairman and co-chief executive officer of RBC Capital Markets, the investment-banking unit of Canada’s biggest bank. “It was a great Canadian company, it employed a lot of people and it was an important part of the economic structure of Canada.” ...

“The quality of management is what did them in,” said Jean Duguay, a fund manager at Gestion de Placements Eterna in Quebec City, which oversees about C$650 million and sold its Nortel shares more than five years ago. “They went on an acquisition spree during the Internet bubble but they paid over the top for assets and never managed to get rid of the debt.” [2]

1. Ericsson takes Nortel wireless assets for $1.13 billion, by Janet Guttsman and Frank McGurty, Reuters, July 26, 2009.

2. Nortel Bankruptcy ‘Blow to Psyche,’ Investors Say (Update1), by Frederic Tomesco, Bloomberg, January 14, 2009.

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Eliminating the Bankers and Billionaires through Economic Collapse

"We have seen some of the companies that serve as the bedrock of our financial system unraveling before our eyes." - New York Governor David Paterson, September 15, 2008.

13.03.09 It just gets uglier by the day. In the middle of February 2009 a record 5,112,000 Americans were collecting unemployment benefits, and by the beginning of March a record 4.4 million jobs have been lost since 2007, forming the biggest decline in U.S. employment since the end of World War II. December's job losses were the most since 1949. Now 31,100,000 Americans, over 10% of the entire US population, are receiving food-stamps to feed themselves and their families.

Private homes, the traditional repository of personal savings in U.S. culture, continue to decline in value after years of overproduction and price-speculation. New home sales fell 10% in January to an annual pace of 309,000, the lowest since records began in 1963, as the median price decreased 13.5%, the most in nearly 40 years. As a whole the U.S. real-estate market lost $2.4 trillion in value during 2008. The percentage of loans in foreclosure and past due has risen to a record of over 11%, and at the current rate 6,000,000 families in the U.S. will face foreclosure. Nearly 8% of all mortgage loans in the U.S. are now delinquent, the most since records began in 1972, and one in five homeowners now have mortgages that exceed the value of their house (negative equity)! U.S. household net worth plunged 9% in the fourth quarter of 2008, representing a record loss of $5.1 trillion.

The S&P 500 stock index lost 38% in 2008, the most since 1937. Icon of American manufacturing General Motors' stock has fallen to a low not seen since 1933. Business investment in the U.S. has dropped at a 21% pace, the most since 1980, while spending on software and equipment has fallen 29%, the most since 1958, and American corporate defaults are expected to triple in 2009 to the worst level since the Great Depression. Consumer spending has fallen off a cliff, for the first time ever recorded falling more than 3% in consecutive quarters. And keep in mind these are the official statistics, the numbers that we already know are skewed through various means in order to make everything look better than it really is, such as not counting millions of people who have given up looking for jobs in the unemployment rate.

Even as grim as these official statistics may seem, the rest of the world is doing even worse! The IMF announced in January 2009 that the entire world economy averaged out will grow at an annual rate of only 0.5%, the lowest level in the post World War II era. Economically-motivated protests and riots are breaking out across the globe with greater frequency, paralyzing the French-controlled Caribbean islands of Guadeloupe and Martinique, as well as troubling the Ukraine, Lithuania and Latvia, Greece, Iceland, China, and so on.

Throughout the developed world economies the collapse is directly proportional to their adoption of neo-liberal and ‘free-trade’ economic policies. Ireland and Iceland are prime examples, having thoroughly deregulated their economies, throwing open the door to international debt-based casino-capitalism, and now paying the price for flying high on fictional wealth. Iceland has collapsed entirely and the mountains of bad debt held by Ireland’s banks far exceeds the government's ability to pay when they default. It's become apparent that although the United States has banks considered 'too big to fail', Europe has banks that are too big to save. And England, having based its national economy on hopelessly mistaken Thatcherite economic policies, is not far behind in the race towards national implosion.

For almost three decades, Anglo-American university economic faculties have turned to Thatcherite deregulation of financial markets as "the efficient way", in the process, undoing many of the hard-fought gains secured for personal social security, public health care and pension security of the population. Now the poster-child economy of the Thatcher revolution, Great Britain, is sinking like the proverbial Titanic, a testimony to the incompetence of what is generally called neo-liberalism or free-market ideology. [1]

British police are very worried about a “summer of rage” breaking out across the nation with public protests exceeding their authoritarian capacities for mass-repression. The political establishment is nervously biting their nails knowing that they have no solution to the growing mess that they created and that (what they label) the extreme far-right and far-left political groups are becoming increasingly popular in contrast to the establishment's rampant corruption, gross ineptitude, and institutional impotence.

Particularly notable through all of this is the rapidity of the collapse, the severity of it, and the remarkable cluelessness of the economists and similar establishment ‘experts’ who are supposed to be telling us what’s going on while getting paid to make accurate near-term predictions. Yet every time the official numbers are announced they exceed the worst predictions of polled economists. These clowns would be more accurate consulting the I-Ch’ing or flipping a Magic-8 Ball to make their guesses. Despite the repeated exhortations of the experts this is not a typical recession that will blow over in a few quarters; it’s an entirely different class – the collapse of a spectacular debt bubble. And everything that the Presidents, bankers, billionaires, and establishment tools have done so far, namely print money like crazy to try and reinflate the bubble while throwing billions in taxpayer cash to the crooks in bailouts, has only made the situation worse.

"These are global banks, but they're not being rescued by the globe. We have to separate deposits from the very risky global casino." - Vince Cable, Liberal Democrat Treasury spokesman, UK, March 2009.

Indeed, even the official statistics indicate that the negative turmoil in the casino-economy is accelerating, not stabilizing. More bubbles loom on the horizon waiting to break; the frenetic buildup in commercial real-estate is just one. All the stores going out of business and failed financial firms mean lots of empty office space and that spells trouble for commercial real estate. Particularly vulnerable are billions of dollars in shopping center mortgages that will soon need to be refinanced because they're, like most other commercial debt, based on short term financing.

U.S. government treasury bonds look increasingly unstable, with record low yields (0%) and record high supply (cash for bailouts), something has to break soon. "America remains dependent on huge inflows of foreign capital to finance debt ... if foreign capital inflows were to slow even a little, there could be a sudden drop in Treasuries and dollar-dominated assets." - Timothy Canova, professor of International Economic Law at Chapman University in Orange, California. 

The Solution to the Problem of Capitalism

“This country is going through no less than an economic revolution.” - Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission

This great economic collapse isn’t just inevitable, it’s desirable! The days of bankers and billionaires are nearly over, and we should rejoice because we can finally build something better atop the ruins. Although the financial investment system and associated commercial banks are falling apart in spectacular fashion, and the CEOs and executives now regularly consume billions and billions of taxpayer dollars in a pathetic attempt to keep collecting their exorbitant incomes, not one credit union has failed.

Eighty five million Americans belong to credit unions which are not-for-profit cooperatives owned by their members who are depositors and borrowers. [...] Credit Unions have no shareholders nor stock nor stock options; they are responsible to their owner-members who are their customers. – Ralph Nader

Community responsiveness and collectivized ownership have once again proven a stable and profitable model. Let’s take this a step farther. Why do we have banks at all when we can share our capital directly? Now we can use Internet-based peer-peer loans:

A generic clearing-union network of direct financing will enable a simple but radical new approach to global economies. It could enable systemic fiscal reform based upon taxation of privilege rather than earned income, and it also offers new solutions for financing public assets. Most exciting of all, it enables a new networked generation of global markets, and even the potential for a "New Settlement" - a Bretton Woods II - establishing a new global architecture for world trade. [2]

A novel example of this already exists at Prosper.com, where anyone can receive loans from anyone else. This development is as remarkable as it is revolutionary. For the first time in history we have all the tools we need to seize control of capital from the bankers and billionaires and to finally place it under the control of the rightful owners – the people who work every day and produce it. We don’t need Marx, we don’t need Mussolini, and we don’t even need ideology, all we need are a set of clear and simple rules that everyone can follow and a neutral and objective authority to enforce them fairly. The rest will solve itself naturally.

1. Death agony of Thatcher era, by F William Engdahl, Asia Times, January 27, 2009.

2. Crunched into modernity, by Chris Cook, Asia Times, February 27, 2009.

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Too Big To Fail, Too Rich to Lose

November 2008

Credit Turmoil Roils International Markets

08.10.08 International stock markets took a major hit on Tuesday and Wednesday, October 7 and 8. Tokyo had the greatest one-day loss since the stock market crash of 1987. Trading had to be halted in Russia, Indonesia, Ukraine, and Romania to stop a total meltdown. Russia's Micex Index has lost 66 percent of its value this year, China's CSI 300 Index has plunged 62 percent, and India’s Sensex has fallen 44 percent. The currencies of many countries around the world are in an almost equal state of collapse. The massive carry trades are unwinding. This is where investors borrow money in low-interest rate locations, like Japan, and invest in higher rate places to make a quick profit. The Japanese Yen has now broken through the level of 100 to the Dollar, despite enormous government effort to buy Dollars and sell Yen so that Japanese exports are more affordable in the US. World currencies are in turmoil. This kind of sudden flight of international capital will undoubtedly have serious repercussion for internal stability and national solvency.

It’s complete panic, international equity is being sold at any price and any loss just to get it out of locations with even the slightest level of risk associated with them. Where’s all the money going? Straight into US Treasury bonds.

Insatiable demand for US Treasury bonds means that in effect the US federal government is bailing out the entire world. What this is really doing is forming the biggest financial bubble ever, because with investor fear racing through the world economy the international money supply, most of which is already in US Dollars anyway, is being funneled into the safest destination (relatively speaking) of US bonds. If the international economy improves then the bubble will explode and collapse as demand for Treasury bonds evaporates. If things don’t improve then the USA will simply drown in national debt, the national credit rating will be slashed and the Dollar will probably dive in value to follow suit.

That being the case probably the best statistic to watch is US national debt, last quoted in June at about $9.5 trillion, but easily topping $10 trillion today, not including Freddie Mac and Fannie Mae liabilities, and rising at a blistering pace.

For more on this topic read: Welcome to the Death-Spiral of America's Credit Capitalism, by Freydis at Holology.

Inadequate Wages Undercut Economic and Social Development

02.08.08 Despite enormous effort and very long hours the workers in China still can't afford to buy most of the consumer products they manufacture and export. Indeed, despite superficial economic development China is actually sliding backwards in social development. Why? The primary cause remains pathetically low wages.

This low-wage-driven growth has distorted the progressive purpose of Chinese socialist society by reintroducing many of the pre-revolution socio-economic defects commonly found under market capitalism, such as income and wealth disparity, market-induced chronic unemployment, inequality of opportunities, collapsed social safety nets resulting from privatization of the part of the economy best handled by the public sector, rampant corruption from a collapse of societal morals and excessive influence of money in the political process, uneven regional development and environmental deterioration of crisis proportions. From: Breaking free from dollar hegemony, by Henry C K Liu, ATO, July 30, 2008.

You simply can't have a developed world economy paying workers poverty-level wages, and this basic macroeconomic rule holds true regardless of the location. In a corporate-friendly political environment continually forcing down wages, living standards inevitably decline and poverty increases until consumer demand cannot possibly suffice to sustain the preexisting economy because the public lacks the necessary income.

Could it be that economic god Maynard Keynes was wrong and contemporary economic experts are repeating the same mistake that exacerbated the Great Depression?

The claim of John Maynard Keynes parroted by most mainstream economists, that the Great Depression was due to the "contractionist tendencies of the gold standard", is untenable. Just the opposite is true. Here is what happened.

In 1933, the forcible removal of gold signaled to bond speculators that the one and only competition to government bonds had been knocked out. They were quick to realize that their chance to bid bond prices sky high had come. The result was continually falling interest rates, causing widespread capital destruction as well as falling prices. Producers were bankrupted en masse. Economists have never bothered to study the untoward consequences of the forcible removal of gold, even though common sense would suggest that it cannot be done with impunity.

A careful and impartial examination of the record shows that the scuttling of the gold standard, as advocated by Keynes, was the main cause of the Great Depression and, unless it is rehabilitated with all deliberate speed, a new depression may be waiting in the wings. From: They dare not speak its name, by Antal E Fekete, ATO, July 3, 2008.

Russian Economy Grows, U.S. Economy in Turmoil

As the United States’ economy races towards a recession, now being blamed on over-extended mortgage lending, Russia has emerged as one of the most astounding financial success stories in the world today. This success is largely due to the governing acumen of the nationalist President Vladimir Putin, a complete reversal from the economic basket case he inherited from the wholly corrupt Boris Yeltsin. By paying off Russia’s national debt and investing in national production and infrastructure while locking up rich thieves and deposing the financial oligarchs that ruled over and mismanaged Russia with Yeltsin's help, Putin defied the United States government and the New York capitalists. By intentionally rejecting the suggestions and demands of supposed macro-economic experts at the IMF and the big western banks Russia has become a wildly successful economy and not the disaster that was predicted by the credit ratings agencies, the New York bankers, and the policy-makers in Washington DC.

Putin’s administration has accumulated $400 billion in national reserves, enough to weather most any financial storm and making Russia a very attractive investment destination. Western banks are competing against each other to loan money to Russia while avoiding the United States. Now major Russian companies have better credit ratings than similar companies in the U.S.A.!

China Adds $1 Billion to Reserves Every Day

Here's how Bretton Woods 2 works. China (or the other, lesser players in this game, Japan, Taiwan and South Korea) does not sell its export-earned dollars. Rather, it banks them. Without this excess selling pressure, the dollar does not fall in value against the yuan; it remains stable, which allows American consumers to continue their monthly billion-dollar overseas spending spree. Chinese factories keep humming, employment is strong, the Chinese people are far too content buying new stuff to come out to protest again at Tiananmen Square, and China's Communist Party rulers are very happy about that.

This is much like what happened with the billions of petrodollars that were raised by oil-exporting countries after the oil-price rises of the 1970s. The billions of dollars of China's current export earnings get sent back to the US, mostly to be invested in Treasury securities. This keeps dollar interest rates, including mortgage rates, lower than they would have been, and this keeps the US economy humming and the consumer, still fat, dumb and happy, flush with cash and plastic to keep the cycle going for at least one more round. ...

But in business, the customer is right even when he's not, and the United States is now far and away China's biggest customer. For example, it is now estimated that up to 70% of Wal-Mart's inventory is of Chinese origin; a remarkable turnaround for a company that until this decade broadcast advertisements that trumpeted the red, white and blue all-American manufacture of its products. Wal-Mart's current trade with China alone, estimated at more than $25 billion a year, surpasses the GDP of the smallest 112 national economies of the world. From: Careful what you wish for, China may grant it, by Julian Delasantellis, ATO, June 22, 2007.

Tough Times for the IMF

Venezuelan President Hugo Chavez is squeezing the International Monetary Fund out of Latin America, the region that once accounted for most of its business.

IMF lending in the area has fallen to $50 million, or less than 1 percent of its global portfolio, compared with 80 percent in 2005. Meanwhile, Chavez has used his oil wealth to lend $2.5 billion to Argentina, offer $1.5 billion to Bolivia and hold $500 million out to Ecuador.

The international lender's worldwide portfolio has shriveled to $11.8 billion from a peak of $81 billion in 2004, and a single nation, Turkey, now accounts for about 75 percent. As its lending wanes, so does the fund's ability to influence government policies. The IMF and its sister institution, the World Bank, have used aid to promote free trade, unfettered investment flows and limited government.

Argentine President Nestor Kirchner, elected in May 2003, said IMF policies had ``devastated'' his country, which defaulted on $95 billion of debt in 2001. ``There is life after the IMF, and it's a good life,'' Kirchner said in Munich in April 2005.

Prosperity in Latin America means hard times for the IMF, which depends on income from loans. The fund projects a loss of $103 million this fiscal year and is considering selling and investing some of its estimated $6.6 billion gold hoard to cover losses. From: Chavez Exploits Oil to Lend in Latin America, Pushing IMF Aside, by Christopher Swann, Bloomberg news, February 28, 2007.

The New Morality in Consumer Driven Capitalism

02.04.06 Consumerism, as we think of it today, has its origins in the post WWII era of industrial production surplus, the result of mass production techniques and the commodities made available by a worldwide transportation system coupled with the socio-political need to maintain minimal unemployment. In the 1950s propaganda pushed on the American public made it clear that the duty of every citizen in a 'free' capitalistic country was to buy as many products as they could. Not surprisingly a materialistic consumer driven society emerged and has been refined over the decades since then. Consequently, the dominant value system is structured upon spending and acquiring money and increasingly the morality of good and bad are measured using dollars.

Consumerism is the triumph of Keynesian economics as a reaction to the protectionist trade practices and deflation associated with the Great Depression, the answer being: don’t save, just spend now! The consumer culture comes from the planner's fear of the public saving their money outside the banking and finance system, i.e. in a jar in the cupboard or under the mattress. It comes from a fear of macroeconomic deflation.

Of course today that original fear is mostly ridiculous since Americans spend nearly everything they earn, not to mention the private debt loads. Nevertheless this economic answer to a problem that doesn’t exist anymore (if it ever really did at all) remains with us today in the form of consumer driven capitalism (CDC). The IMF and World Bank function as the supranational enforcement mechanisms for maintaining and perpetuating the CDC Keynesian economic system. This is a classic example of trying to solve one problem with a top-down mandate and creating multiple new problems in the process. The CDC system has spun out of control to the point that Americans live a hand-to-mouth existence in a state of wage slavery while constantly being fed a toxic diet of propaganda commanding them to buy and consume toys and vapid entertainment.

Behind the undesirable physical consequences of the mass-consumption culture resides a remarkable development. The beauty of this new morality is the quantifiable nature of it. This is a radical departure from all known previous moral orders that have been mostly arbitrary, having been based on habit and tradition with the express, if often unstated, purpose of keeping things from changing.

This is an amazing development in human history, yet it clearly leaves much to be desired since as we know capital is a sticky substance - it makes the rich richer and the poor poorer.

The fact that this new morality is materialistic, quantifiable, and often merit-based and friendly to change is not undesirable. Indeed these qualities are an inevitable consequence of rational social development. Rather, the source of the problem is that the equation here is incomplete. The consumerist, capitalistic value system is circular and self-referential; it fails to include the negative externalities of industrial production, for example. Nor is it able to include intangible qualities such as beauty or friendship. Further, the moral foundation of this value system is based on a tautology in that rich is good and poor is bad, that winners win and the losers lose and the winners are perceived as being inherently better than the losers – a flawed interpretation of Darwinism twisted and perverted to substantiate a preordained conclusion.

The value of money is not being questioned or even being measured in a valid context. People structure their entire lives based on the search for monetary wealth (and the products money can buy), it is the desire for money just to have more money. The effort is pointless because it has no context just as consumers are divorced from meaning and a separate identity outside of the money loop. Consumers are strongly discouraged from finding or forming independent meaning and identity and especially from questioning the established value system of consumer driven capitalism, just as under more traditional moral authority codes.

Taking a grand view of events I have to conclude that the moral values of contemporary consumer driven capitalism are an intermediate stage in the progression towards a system that adequately includes human needs and the needs of the natural environment around us, and the sooner we get to it the better.

Now it can be sold: the truth about commoditization

February 2006

Myth of the Free Market Revealed

09.05 Business interests, libertarians, political conservatives and neo-liberal economists are continually harping on how government shouldn’t regulate business and industry, how we should always be working to remove laws that restrict private enterprise because if not then it will cost people jobs and lower productivity and raise prices to the point of economic peril. The reasoning is always the same and rarely scrutinized because the public reaction of fear is so predictable. But look at the state of California – it has a tax and a regulation for nearly everything yet it remains a strong, growing and robust economy. In fact hyper-regulated, hyper-taxed California, if it were its own country, would be the fifth largest one in the world!

What business really wants is predictability and stability, and the simplest way to deliver that is through laws and regulations. But especially laws and regulations that favor corporate management. So the issue is not really about an unfettered capitalist market, it's about a gaining and holding on to economic dominance through the creation of favorable regulations and a legal structure that favors established wealth while seeking to minimize competition by excluding new entrants into the marketplace.

The foundation for this system of economic exclusion has already been firmly established. Through the exploitation of the interest rate establishment a few powerful men are able to manipulate the financial system in a way that fundamentally contradicts the precepts of the free market ideology. Both the supply of money and the demand for money as affected by its price (interest rates) are set by the Fed based on macroeconomic theories that are ideologically derived, not scientifically validated. On this arbitrary monetary foundation set by a handful of appointed individuals is built free-market capitalism. [3]

The ‘free-market’ is a myth, no such thing exists and all we really have are degrees of central planning and market interference. After all, even the paragon of laissez faire economics, Hong Kong, had government intervention in the imploding stock market of 1997. It’s obvious that certain sectors of the economy are simply too important to allow them to fail or to even fluctuate too wildly because it becomes an issue of national security. What country can afford to let their currency, equity or bond markets crash? Thus fundamentally, the money market is not a free market, but one dictated by the central bank with a particular preference for the resultant state of the economy. The so-called free-market capitalism operates through this command money market. Thus at the heart of the free-market ideology is a fiat money system set by command of the central bank. [3]

In an unstable globalized marketplace, such as the one we have today, the question arises: where does intervention stop? With the stock market in the United States capitalized at 130% of GDP, the health of the market cannot be ignored! Indeed the financial system has assumed such supremacy amidst instability that every bump in the financial markets is now a potential catalyst for an apocalyptic financial collapse. [T]he most dangerous near-term threat to U.S. world leadership and thus to U.S. security, as well, would be a sharp decline in the U.S. securities markets. [1]

To this end the Treasury and the Federal Reserve have colluded to operate a covert organization with the express purpose of preventing a cataclysmic financial collapse, given the unofficial name of Plunge Protection Team or (PPT). The PPT uses connections with major banks and corporations to coordinate the market manipulation and employs surrogates to move the money and place the actual trades in order to maintain plausible deniability of federal intervention in this ‘free market’. According to the report Move Over, Adam Smith: The Visible Hand of Uncle Sam, the money for these surreptitious actions is taken from the U.S. Exchange Stabilization Fund (ESF). This slush fund is typically used to buy highly leveraged index futures, thereby moving the markets higher when everyone else wants to sell. [2] Not surprisingly, federal government market manipulation is increasing in frequency since the ad hoc inception of such a program in 1987, to the point that now, for the war on Iraq in 2003, the manipulation was pre-emptive!

Taken together, these revelations demand a radical revision of prevailing beliefs about the current state of markets, not to mention the relationship between the private sector and the U.S. government. If major financial institutions are knowingly implementing government policy with regards to important markets, they have essentially become de facto agencies of the state. Just as importantly, the government's role has also changed markedly. Previously content not to intervene in certain spheres, now the Fed and Treasury apparently regard the stabilization of markets to be within their responsibilities.

The continuing silence of government officials about this expanded reach is easily explained. First, they no doubt recognize that an electorate supportive of free markets would frown upon market interventions. More pragmatically though, the government must also realize that to publicly acknowledge such activities would be to invite the greatest of moral hazard situations. To use a famous quote, the risks would be socialized while the rewards would remain privatized. Such a disconnect invites increasingly reckless speculation by investors who believe that the government stands ready to rescue them should crises arise. [2]

What’s especially ironic is that this market manipulation program was created under the watch of Alan Greenspan who is not only the poster child for the ‘free market’ but is also a protégé of the libertarian Ayn Rand. Libertarianism, and similar free market mythology, demonstrates a fundamental misconception concerning the role of government in democratic society. You can't run government like a business, it is not profit motivated like the private sector, the purpose of government is to do all those things and enact those values that business can't or won't do. Egalitarian society, widespread access to education and health care, public safety regulations, many say 'let the free market do it', but first of all we don't have a free market, we have a poorly regulated one, and second no one really wants a free market because it doesn't work anyway. A free market is like what we see in the developing world where any business can pollute without limit, worker rights are non-existent, wages are at rock bottom and regulations are meaningless because anything can be bought with bribes.

We need to drop this erroneous myth and call things what they really are, not what we wish them to be, even though the impact of exploding the free-market myth will be enormous since it forms the foundation of modern economics, Maintaining the lie is even worse because no one can adequately prepare or respond to events except the elite cabal of insiders that can exploit the national treasury to manipulate the financial markets behind the curtain like some kind of shoddy magic act. 

In addition to creating a privileged class, the manipulation also has little democratic legitimacy in the sense that the citizenry has not given its consent. This has tangible ramifications. By not informing the public, successive U.S. administrations have employed a dangerous policy response that is subject to the worst possible abuse. In this regard, the line between national necessity and political expediency has no doubt been perilously blurred. [2]

1. Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis. by Roger M. Kubarych, New York: Council on Foreign Relations Press, 2001, p. ix.

2. Move Over, Adam Smith: The Visible Hand of Uncle Sam, by John Embry and Andrew Hepburn, Sprott Asset Management, August 2005.

3. How the US money market really works, by Henry C K Liu, Asia Times Online, 2005.

The Myth of Supply and Demand Determining Price

With pharmaceuticals, price is set neither by cost nor demand. The pricing model of any new drug aims at achieving a maximum lifetime value of the drug that has very little to do with current supply and demand. Microsoft's pricing model for Windows has nothing to do with supply and demand, or marginal costs, which are close to zero. Telephone charges are similarly disconnected from supply and demand, or marginal costs. Even in the auto industry, the dinosaur of the old economy, where cost input is high and discounted return on capital low, pricing is based more on complex considerations than demand. With 80% of autos financed or leased, subsidization of financing costs is the name of the game, not sticker price. Farm-commodity prices are definitely not set by the intersection of supply and demand. They are set artificially high by political considerations of practically all producer governments, and both supply and demand are artificially distorted to maintain the politically set price. The general consensus of mainstream economists on the global steel-overcapacity problem is to reduce capacity, not to let prices fall.

Price in fact is the most manipulated component in trade. That is the fundamental flaw of market fundamentalism. From: The Need for a Labor Cartel, by Henry C K Liu, February 20, 2006.

Crimes Against Humanity: Death by Dollars

28.05.05 World leaders regularly condemn acts of village torching and ethnic retribution as crimes against humanity in troubled places like the Balkans, Uganda, and Sudan. And although the magnitude of these events is significant enough for the people unfortunate to be on the receiving end they pale in comparison to crimes against humanity that aren’t committed with machetes and machine guns but with a weapon far more deadly: the American Dollar bill. 

Perhaps the greatest crime against humanity committed by the United States to date is the permanent impoverishment of Central and South America. By extracting the natural resources of these regions without allowing sufficient capital to accumulate in the hands of the source country, the government of the United States In conjunction with, and often prompted by, complicit corporate interests have robbed these people of the capital and capacity to self-develop. By extracting their natural resources but not being able to spend the resources on the internal development necessary for the long term rise out of poverty, such as investing in infrastructure and education, much of South and especially Central America is now doomed to a grinding state of perpetual poverty. This is because all countries begin by building a base starting with the easily extracted resources, such as oil, minerals and forest products, to gain an initial level of capital and savings to grow. But unless that wealth is used wisely it will be lost forever, and with the natural resources removed, no base level remains for the nation to develop beyond perpetual poverty. This is the case in Haiti, Nicaragua, Honduras, Bolivia and more.

Bolivia is one of the poorest countries in the western hemisphere. Even though Bolivia sits atop massive mineral wealth in its mountains such as tin, gold and silver, average yearly income is only $2,600. However, these income numbers are meaningless because no matter how much money is going into the country and listed as GDP or GNP, that figure does not tell us how much, if any, of that money is actually reaching the average person. For instance if an American mining company operates in Bolivia, they may be spending millions of dollars there which is then counted as Bolivian GDP, but if that company is using American workers who live in company camps and spend all their time and money buying products shipped in by the company, then Bolivians receive no economic benefit from the enterprise and will eventually end up poor in natural resources once the mining company has sucked out everything they can take and left.

Similarly, even if a natural resource exporting country manages to gain income from taxing the resources being removed, the total national income doesn't reflect the amount of capital that leaves the country in debt servicing payments to foreign lenders - often half or more of yearly national income in this region of the world. So about the only way that weak national governments can gain anything from these arrangements with multi-national corporations is through taxation of the extracted product and sale proceeds. Then the national government must distribute the money gained from the taxation process, but one can clearly see given the number of layers involved here that there’s not going to be much left by the time the public really needs it. So one cannot simply divide national income by the population to arrive at a meaningful figure of per capita income. Between inflation eating away at the value of the money and the financial circulation patterns that funnel the cash out of the country as fast as it enters, actual poverty is being grossly understated by the raw financial statistics.

Bolivia, like many other developing countries is not just in a race against the clock to gain and hold a small amount of wealth from their natural resources before they're all gone, but they're also in a race against environmental catastrophe. Facing massive deforestation in a desperate attempt to crawl out of extreme poverty, Bolivia will never escape the money trap because they cannot control their own economic outcome as long as the only government allowed to run the place has to be beholden to North American political and economic concerns.

The current crisis in Bolivia is not about distributing the benefits of the countries mineral wealth but her wealth of natural gas, second only to Venezuela in regional quantity. Riots are common as Bolivia has descended into what is essentially an ungovernable region because the disconnect between what the Bolivian public needs and what the governing elite do is so wide that the nexus for dialogue and common ground has evaporated. Peru and Ecuador are not far behind Bolivia on this path.

Although this extraction-oriented relationship between Central America and North America has provided some benefits to both parties it has only done so over the short term and in massively imbalanced form. Now both ends of the hemisphere are in a losing situation. Haiti for example is in an interminable state of turmoil with endemic disease and violence so extreme that even UN forces can't maintain temporary order, and then the boat people fleeing the disaster end up taking both and more with them to the southern shores of the United States, bringing the trouble right back to the source.

Poverty and wealth inequality institutionalized through decades of one-way resource extraction policies created the foundation for bloody civil wars in Nicaragua and other central American countries during the 1980s, dragging both superpowers into a low-level conflict that managed to serve no one's best interest except the arms dealers. Central America was flooded with weapons by both the Soviet Union and the United States while soldiers, militias, and paramilitary forces were trained using covert advisors, as from the CIA, in the tactics of extreme violence like assassination and torture. In the aftermath of these civil wars, poverty, corruption and social destabilization increased while crime, drugs and gangs filled the dual voids of political authority and economic necessity.

The gang Mara Salvatrucha 13 or MS-13, known for its brutality, is a typical example of this boomerang effect, or what the CIA calls ‘blowback’ having already had extensive firsthand experience with the phenomenon. MS-13 originated in the aftermath of El Salvador’s civil war, fomented by the United States under Ronald Reagan, and the large scale flight or persons northward, in the case of MS-13, ending up in Los Angeles. Today MS-13 has grown so large that it is considered a trans-national threat to the stability of entire countries with an estimated total size of 50,000 gang members and at least 10,000 in the United States. Thanks to  poverty and a Catholic culture El Salvador, just like the rest of Central America, has a decidedly imbalanced population with large numbers of youth with 39% of the population under 15. With the country environmentally and economically hollowed out, little employment, violence endemic within male-dominated societies, is it any surprise at all what emerges from this? Indeed, one quarter of El Salvador's population now live as economic refugees in the United States. Meanwhile as the FBI has been frantically searching for real, potential, or just imaginary Middle Eastern terrorists, the problem of gangs, drugs, and illegal immigration, all three of which are intricately interlocked, have exploded across the country.

Just like a boomerang, northward immigration into the United States has brought all the violence, crime, drugs and gangs right back home. As a consequence it's radically and permanently changing the language, culture, religion and economic well-being of entire states like California, Arizona, Texas and many others throughout the country. Slowly recognizing the magnitude of the situation, Presidential administrations and policy planners have used the standard tools of American fiscal foreign policy, such as the IMF and World Bank, to attempt a rectification of this deleterious situation but have only succeeded in making things worse because once again the benefits of the development aid have all been self-centered.

Instead of trying to make the entire hemisphere wealthier and more stable, U$ policy has consistently attempted to do whatever benefits the United States without regard to the rest of the hemisphere. And this is the main source of problems that have impoverished Central America and created the immigration exodus to begin with! Stable countries with functional economies don’t generate large numbers of desperately unemployed that need to immigrate to where the jobs are or to escape the violence and environmental catastrophe that surrounds them.

Millions of people in South and Central America have learned the hard way that economic development must be built using internal capital, not external capital, not using money borrowed from sources outside the country  such as the IMF, World Bank, or any number of private multinational financial institutions such as JPMorgan Chase Manhattan or Citigroup. Millions of people in South and Central America have also learned another painful lesson: the United States is not your friend.

The Dilemma of the Declining Dollar

19.03.05 Given the decline of the dollar’s value and since China still has its currency pegged to the dollar (it has been set at 8.28 per dollar since 1994), and since most of China's trade income comes from shipping their products to the United States, then the Chinese are really losing a lot of money because now they are in effect getting paid less for the same product!

So why do they let this continue? It seems that the Chinese, and probably the Japanese and other major holders of dollar-denominated financial assets, are in too deep to stop now because if they convert to euro denominated assets to halt the loss of value they risk upsetting the entire global system of finance and then everyone loses in a big way.

It’s an increasingly distorted system being fueled by the massive trade and finance imbalances of the United States combined with the export monomania of trading partners. China is really the country in focus because they are setting the standard for the East Asian exporting nations. Unless China raises the exchange rate of its currency none of the other exporters are going to do it either and take the risk of becoming even less competitive.

China’s foreign exchange reserves are well over half a trillion American dollars at last count, mostly in Treasury bonds, and Japan has even more! So even though China is caught in a losing proposition with their massive holdings of U$ dollar assets, they are willing to accept this state of affairs because of the temporary stability it provides them. And the Chinese economic planners are even more fearful of the destabilization that will ensue if they alter the dollar to Yuan ratio because by now they’ve waited so long to do anything about it that even a small change will start an avalanche they can’t control. If the Chinese had an open economy and a free-floating exchange rate from day one this crisis would never have occurred, at least not in the form it has taken today.

Let’s think about this for a moment. You’re a member of the Chinese leadership committee, you’ve got over a billion people, many of which are struggling to find food and the basics of existence, massive unemployment, you’ve just become a food importer, you don’t have enough electrical power, internal growth it grossly disproportional, you face riots and protests all over the country every day and to top it off the public has no confidence in your leadership abilities. What do you do? You stall for time and hope it all blows over, and if it doesn’t you find someone to blame other than yourself, but at least in that regard you have plenty of options; you can choose from a wide selection of enemies, Taiwan, Japan, the United States, etc.

China is not the only victim of a weak dollar; yet another consequence is high oil prices because the oil producers need more dollars per barrel to make the same income as they did before with a strong dollar. This is one reason why OPEC has been willing to see the price of a barrel of oil skyrocket even at the risk of creating a permanent shift in demand away from fossil fuels and into sustainable alternatives. In this case higher oil prices aren’t terribly harmful to the United States because they print the dollars; they control the pricing mechanism anyway. But it does harm every other oil-importing country. Every importer outside the U$ has little recourse but to pay the inflated price of fuel and hope that their own currencies will appreciate in value enough to offset the higher price of oil.

If the entire house of cards, built up from trade imbalances, falls then everyone loses, to varying degrees, and that’s a given. But if it doesn’t, or at least in the meantime, who are the winners? In my view it's the euro.

Europe has to stop whining about the situation and learn to play the hand they're dealt. They have to start flexing the nascent economic muscle they do have and begin to build some policy leverage over world events - stop deflecting to the United States and start carving out their own niche. So for instance get oil denominated in Euros because everyone wants that done anyway, except the United States. That move alone would not only stabilize Europe’s fuel import costs but it would significantly magnify Europe’s policy influence and status throughout the world, and a strong currency will go far in foreign aid and development projects.

The way things are headed now the euro will become the reserve currency of choice because it not only retains its value, unlike the dollar, but is accruing in value too. This will mean lower interest rates in the euro economic zone and thus internal development will become more affordable since the interest cost of loans is less. Conversely, the American dollar is becoming much less desirable as a reserve currency and interest rates are headed up in the United States. But this is far from a doomsday scenario because higher interest rates should attract the volume of investment needed to sustain the American economy. And even in the worst case, debt held by the Chinese and Japanese banks can be paid off by printing more dollars.

The bottom line is that most every major financial force wants to shift out of dollars and into Euros; they’re just waiting and trying to find a safe way to do it without upsetting the precarious balance.

A Pictorial View of the Contemporary World Economy

Contrary to the tenets of market fundamentalism, financial markets do not tend toward equilibrium; they are crisis prone. Since 1980, there have been several devastating financial crises but whenever the centre is threatened, the authorities take decisive action in order to protect the system. As a consequence, the devastation is confined to the periphery. This has made countries at the centre not only wealthier but also more stable. It has encouraged capitalists in peripheral countries to hold their accumulated wealth at the centre. From: The Bubble of American Supremacy by George Soros.

An open letter to concerned members of the public,

02.01.04 Billion dollar business operations have been getting a lot of bad PR lately. Rumors have been circulating and misleading statements have been tossed around like confetti at a CEO birthday party in Bermuda. So I’m here to help straighten out the story. As such I represent a large multinational corporation and we do business all over the world. You probably buy and use our products everyday! Look for them on the shelves at Wal-Mart.

Autocratic governments and Multinational businesses have a lot in common. We both get attacked all the time by self-righteous types that have nothing better to do than criticize and not see the positive aspects. Let’s face it, dictators are the easiest people to work with because they understand my concerns and the needs of big business (dictators hate competition just like I do!) plus no messy voting or debates – it’s all one-stop deal-making! They understand that  a billion dollars in one hand is a lot more safe and efficient than a billion dollars in a billion hands. Autocrats understand the importance of a monopoly when doing business; these are good folks that can be reasoned with unlike a crazed lunatic looter trying to crash a WTO meeting.

But hey, I’m open to alternatives too, I’m not narrow-minded; some people like freedom, some folks don’t. If I can’t get in with a dictator then I really like democracy because I get a second chance (and a third and a fourth), and besides, it looks good in the annual report. Pay scales too; this big, colorful world we live in is full of different people and minimum wages. Some like to work for $21 an hour with benefits and others are happy to work for $21 a month, it's all good.

And you know what else? Multinational corporations are just like average folks because we both dislike silly laws and regulations from government getting in the way of what we do best. Don’t you hate it when someone says you can’t buy 20,000 acres of rain forest? Or that you can’t build a power plant because it’s too dirty?! Come on!

But I can be reasonable too, multinationals can roll with the punches and work with the government and its rules.  As a well established multinational with roots in the local community lots of rules and regulations are actually pretty darn nice – with a little tweaking thanks to our good friends in the lobbyist community.  Government rules and regulations protect my operation and make it more difficult for new completion to enter the field. So you see, everyone wins.

I hope this brief letter helped you to see how multinational corporations are actively working to make your life simpler and all the life-products you need to buy cheaper and more plentiful.

Have a wonderful shopping day!

Perry Richman
CEO ConglomCo Worldwide

The  American Supernova

29.07.02 & 02.10.09 North American pop-culture is truly a marvel, the whole thing is designed to make spending money as effortless as possible. And the technology behind it all develops with one goal in mind: to more effectively separate the consumer from his or her cash. For instance, credit cards were created to make spending more convenient and promoted by banking institutions that found they could make a tidy sum on interest and fees charged to the balance. Psychology enters the fray and the consumer is made to believe they are the king; even contemporary economists harp upon the importance of consumer spending to 'create jobs' or 'drive the economy out of recession'.

And the king gets what he wants, now even the production process itself is increasingly oriented towards direct to consumer products and services. Buying music and games, magazines, videos, all popular cash destinations but none of it has any intrinsic merit so once the fun is over what are you left with? Not to mention the mental pollution that most of it leaves in its grimy wake.

Yes the customer may be treated like royalty in America but only as long as he or she has a solvent credit line, demonstrating the ephemeral nature of the relationship, not to mention the inherently exploitative qualities. It's not a symbiotic relationship between consumer and seller, it's one of exploitation and abuse. The relationship only goes one way from consumer's wallet to seller's cash register, everything that impedes that flow or challenges the consumer's anti-capitalist thought process is to be hounded out and eliminated like a heretic in the Vatican.

Meanwhile the impoverishment process continues at a rapid clip, hard work and cash earnings are being directly translated into useless commodities and, as this process becomes increasingly refined, the consumer is driven from a earn-save-spend-earn again pattern into an earn-spend-borrow-earn again cycle that inevitably spirals downward into a myopic hand-to-mouth lifestyle.

The physical infrastructure facilitating this process is also highly refined. Malls and clustered shopping have replaced downtown districts over most of North America. The scale of shopping has vastly increased from a simple hardware store or corner grocery into discount warehouses for everything from appliances to furniture to food and mega-malls with millions of square feet in retail space. After housing the automobile is the largest single cash outlay for North Americans. Transportation not only uses up high volumes of dollars in initial purchase but extensive funds in maintenance, fuel costs plus the time it takes to travel to work, play and shopping. Consumer focused regions like malls also serve as social forums for young and old alike. Public space has become privatized in the sense that people aren't congregating in public places with constitutional rights but inside private, commercially oriented property where the culture is totally oriented towards the monomania of spending money. Instead of seeing a tree and a baseball diamond you see a 50% off sign and a movie poster. Needless to say, the negative social ramifications of this can't be understated.

Given the growth of consumer mega-centers, one wonders, why not just go all the way and add apartments to the second, third fourth floors of the mall? Residents could get paid in 'GAP' T-shirts and 'Subway' sandwiches while they work the register selling CDs to foreign tourists!

Of course this is an obvious absurdity because the cash has to come from somewhere and tourists don't usually go to the malls. They would have to add a theme park or some other attraction to the bordered up anchor at the south end where Montgomery Wards used to be, then it would all come together!

The 'secret' is that these commercial monstrosities be they 'Home Depot' or a multi-store mega-mall, collectively operate within a pyramid scheme. They have razor thin profit margins amidst a highly competitive marketplace. They need a continual increase in consumer spending in order to manage the mountains of debt they're built upon and still sate the shareholders demand for profit growth and a decent dividend. But since consumer spending in North America is effectively flat, they must expand overseas and find other ways to cut costs to stay ahead. The only way for them to defeat this cycle is to expand into ever bigger and bigger scales of economy. Hence the largest retailer at the top of the pyramid is the most successful (Wal-Mart) and every retailer below that is frantically struggling to keep up.

Speaking of American corporations in general,

Finance capitalism is operating with less and less reliance on capital. Capital has become a notional value in structured finance. Credit is no longer anchored by equity but by circular hedges. Debt-to-equity ratio is no longer a relevant consideration. Practically all US major businesses nowadays, with their high debt leverage based on an unprecedented asset bubble, would have negative real equity if the price/earning (P/E) ratio were to return to historical norms. Blue-chip corporations are being shut out of the unsecured short-term commercial paper market as their credit ratings are downgraded. Corporate credit ratings have been inflated by exorbitant market capitalization value, which in turn reflects irrational P/E ratios. Even now, during what many on Wall Street contend to be a savage bear market, the Standard & Poor's 500 Index yields 25 times earnings. It would have to fall by another 41 percent to reach the median valuation prevailing since 1957. When that happens, the derivative defaults will hit the financial system like a tsunami. From: Capitalism's bad apples: It's the barrel that's rotten, By Henry C K Liu.

The point is that this entire retail-capitalist system is like a snake eating its tail. Primary industrial production of the kind that actually drives economic growth and the future investment to maintain it are flat or declining, and the remaining consumer investment that does occur is predominated by volatile stock-market equity. This is a death stage, much like a dying sun frantically feeding off heavier and heavier elements until its contradictory forces become impossible to balance and it blows apart in a supernova.

Today's consumer has been successfully trained and exploited by corporate interests, they've been turned into a kid in a candy store, as the saying goes, with the hope that their allowance money will show up tomorrow. But eventually a tomorrow will come when that borrowed money doesn't show up. The erosion of wealth this has (and is) creating is unprecedented anywhere in history, vastly outdoing even the multiple trillions Japan has lost over the past two decades in recession. Furthermore, since American economic imperialism is predicated upon Dollar hegemony this collapse in wealth will be felt worldwide.

When everyone wakes up and realize the money's gone, the collective invested capital has been depleted, the ensuing social turmoil will equally dwarf any historical parallel. It'll be like the biggest run on the bank in world history. The cities will evacuate because the capital to maintain them as centers of commerce will have dried up. In the U$, the delicate system of Balkan equilibrium based upon wealth and resource distribution will fracture. Population regions will split-off based upon ethnic, economic and other fault lines. All the political maps will be redrawn. Indeed such maps will be useless anyhow because North American's will be living like gypsies in cars and motor-homes, all frantically shifting from one region to another trying to find food, employment and safety. And if this debt bomb ever blows apart in such a cataclysmic manner, many regions will have to reacquire primary capital from scratch. Some regions will bounce back quickly, even grow in the aftermath. But others, those heavily subsidised or without any economic viability, will simply become slums and vacant buildings.

The number of corporate Chapter 11 bankruptcy filings has exploded just over the past few months. Everyone from WorldCom to Budget rent-a-car. And while the meltdown in the telecom sector is bad, the impending collapse of the energy sector with some $500 billion in total debts may well make the recent stock market slide look like a picnic in the park on a sunny day.

This economic and social supernovae is only inevitable if we don't revise the values driving this warped retail-capitalist system into a dark abyss without a sun and taking us all with it.

We must produce products and services with long-term utility that are made from sustainable resources and while providing living wages to everyone in the chain of production.

Not even the pseudo-science of modern economics can create something from nothing; we can only borrow from the future with interest, not steal from it!

An Urban Analysis, Circa 1938

Density reinforces the effect of size, for it results in differentiation and in specialization with respect to economic activities, residential location, and workplaces. As the complexity of society is thus increased, people are compartmentalized into specialized roles that predominate in particular subareas of the city. The result is the segregation of the city into a mosaic of social and economic worlds that are too numerous and complex for anyone to fully comprehend. Finally, cities are heterogeneous because they are the product of migration of people of diverse origins. They are also socially diverse. This characteristic is compounded by the differentiation and specialization of occupations. This heterogeneity results in no common set of ethical values. Eventually money tends to become the measure of all things, with certain objects, such as a house or automobile, providing external status symbols.

From: [The North American City by Maurice Yeates, page 331-332, 5th edition 1998, Addison Wesley publishers, italics added.]

Economies of Scale

April 2003

Money? Japan's soaking in it!

The Japanese want the yen to drop in value so they can export more competitively, since they're getting killed by the Chinese. So one way is to print more yen by the cart-full as the picture demonstrates. Another way is floating public bonds. The next step is spending it, because clearly just manufacturing the money does the economy no good unless its injected into the system, hence Japan's chronic use of 'supplementary budgets'. Only flaw is that this makes imports more expensive which could prove to be an unbearable strain on the weakest sectors of corporate Japan. We'll see. Meanwhile domestically, the latest plan is to inject more public funds into the broken banks. In other words using taxpayer money to bailout the same old culprits once again. Stage two of this remarkably unimaginative notion is to spend more money on construction projects! What a surprise! In other words the Japanese leadership is doing the same thing over and over but expecting different results each time.

Now even American economic experts are turning pale over Japan's snake-oil remedies for curing their ailing national economy, and besides it's always easier to criticize the other guy first. The anti-logic that characterizes modern economic "science" is better labeled witchcraft since the economists don't have a clue what they're really doing nor the slightest understanding of macroeconomics cause and effect. So while one train wreck of a dilemma is approaching terminal velocity, others have already crashed. Argentina comes first to mind. Argentina listened to the IMF, they listened to the 'Free Trade' siren song and where did it get them? Japan is listening to the Keynesian economic wizards and where is it getting them? Nowhere fast.

Hot off the presses, new 2000 yen notes. (Here's a tip slick: go motorized.)

Overspending, waste, rigid cultures and flawed economic advice all coalesce in eventual disaster preceded by a terminal sate of decline. And especially in Japan, the world's second largest economy's case, the question is not if but when. That should give everyone pause for thought. 09.01.02

Argentina: Portent Of Your Future

20/23.12.01 You know it's bad when the IMF won't even give you a bailout! Massive, chronic overspending, $132 billion in accumulated debt, waste and lack of accountability by government officials has wiped out Argentina's future and essentially eliminated its political and economic presence to become just another disordered South American region defined by a meaningless border on the map.

It didn't used to be that way; 100 years ago it was one of the richest nations in the world on the level of Switzerland. But Argentina is no third world country, its people are well-off, urbanized, and relatively affluent with very high expectations and a penchant for quality in food and lifestyle. Today Argentina is one of the worst off, plagued by an astronomical debt burden coupled with four years of recession, unemployment at 18% and a government that has stolen all retirement funds to meet debt servicing deadlines and that has been paying state employees in government bonds (promises of payment) for months. Present protest is fixating upon the resignation of current political leadership (and food looting), certainly a step in the right direction given culpability but far from a strategic solution. Now with even the state employees trashing their offices, the Argentine government has few if any friends left. Robbed of a future they're all rapidly descending into a state of violent chaos, sixteen antigovernment protesters, looters and rioters dead already with the promise of much more to come.

President Carlos Menem, who left office in 1999, increased national debt by 87 per cent to $118 billion. Now topping $132 billion Argentina's debt is 45% of Gross Domestic Product; by contrast Japan's is 150% and climbing rapidly. With their currency pegged to the dollar and most debt in U$ dollars the country can't officially devalue the currency without being unable to pay off their debts. Yet a high-valued currency makes exports hopelessly overpriced, hence the chronic conflict with neighboring Brazil who's cheaper currency can undercut Argentine competitiveness. This method, recently adopted by Ecuador after national default, mitigates runaway inflation so typical of the recent past but at the price of lack of money to pay salaries or buy anything! So with a government stuck between denial and futility the currency declines in practical value and the black market thrives. People pay for groceries and house rent on a daily basis with credit cards.

Many other countries are facing this trap as well. The South African Rand is in a free-fall, Canada's dollar is consistently hitting record lows, and the Mexican peso is falling as well, just to name a few. All are declining against a backdrop of eroding economic situations characterized by rampant structural flaws built up, sustained and ignored for decades. The only choice left is to peg to the dollar and run out of money or print your own and hyper-inflate; so what do you do?

All right, so maybe 'no one' is crying for Argentina, its crooked government and populace left out to dry. The newspapers relegate the life and death struggles of millions to a two paragraph blurb at the bottom of the back page. Bush administration spin artist Ari Fleischer said on December 20, the President "is concerned about the events in Argentina and the situation is being monitored closely." In other words, 'does Argentina have terrorists? No? Great! Send 'em a get well soon card, next....'

But look, how many other western governments have resorted to rampant accumulation of debt, how many others have populaces with high expectations facing crumbling infrastructure and unavoidable long-term social and economic decline, dangerous demographic imbalances, and unsustainable social security systems? Argentina is not an exception; it's just the weakest link at the front line of the battlefield. This shit's headed for your door, it may be ten years away or it may be next week, either way you'd be wise to be proactive and head it off where possible and be prepared for the ugly outcome when not.

Read the signs, every government will confiscate your bank account, they will steal every penny they 'borrowed' from you for social security, they will pry the art out of the museums and chip the gold paint off the statues to pay off the foreign debtors and keep their sorry-asses in office for another week. And once they've scavenged and bled the country dry, looters will be left to pick through the remnants.

American Comedy Surplus

24.09.01 This fallacy of consumers driving economic growth has gotten so ridiculous it's at the point where the media and (crackpot) economists are actually telling people it's a "patriotic duty to spend". Truly the ignorance in America is astonishing and nowhere is that more blatant than within the sphere of economics. Think about this for a moment, where are consumers getting money to buy things in the first place? Either loans like credit cards or from a paycheck, right?! And since most every item consumers typically purchase is manufactured in China then this statement is the equivalent of telling consumers to send their paycheck to the Chinese! So evidently patriotism is the direct transference of one's wealth to foreign countries and the trade deficit is actually a shining beacon of freedom and American patriotism to the world. So you see it all makes perfect sense! Just repeat the lie enough times and people believe.

I don't care what kind of math or creative accounting you're using, economics cannot defy the laws of physics, you cannot create something from nothing and I'm not talking about the quantum vacuum here. What may appear that way is just a symbol, the fiat money is representational of something that is real, and if you make more symbols without increasing the amount of substance you only devalue the symbol. Boosting the economy is not achieved by spending money on cheap, disposable junk made in China or anywhere for that matter, it comes from savings and its corollary of careful investment. In other words instead of buying another TV you invest in a local business employing your neighbors by buying stock in their company, for instance. Of course herein lies the problem and why the opening quote cannot be accurately qualified as to what to buy, for within a global economy local investment is a heterodox notion, and American consumer can't win for trying. If they buy an American car it's made in a foreign factory, if they buy a foreign car they get it from a domestic factory employing Americans. Either way only a fraction of the money is benefiting their fellow citizens; fractional patriotism I guess.

Spend you fools, spend! The Chinese need dollars to buy CD burners and pirate more American software! They need cash to buy American electronic hardware to reverse engineer it and resell it for a fraction! The solution is clear: spend money wildly - furs, SUV cars, trips to Vegas and eventually, hopefully before your credit card company cuts off your funding, we (all together) can boost the economy enough that uh... those Wall Street brokers can collect the bonus' they deserve and then, um... we'll go further and boost the economy more! Yeah, that's it.

The Search for Social Harmony in the Aftermath of Capitalism

07.09.01 Historically speaking economic efficiency and social harmony are incompatible, think of the elaborate Egyptian burial practices (and their Keynesian excess labor projects). Or the many ancient cultures that buried hoards of weapons and gold during funeral ceremonies for a richer afterlife. A blessing for archaeology but extremely wasteful from an economic standpoint. Yet from the perspective of social harmony it's actually quite sensible because it helps to alleviate the social friction caused by the accumulation of massive wealth in the hands of a few; in other words it kept the distribution pyramid from becoming too steep and unstable. The northwest native-Americans had a remarkable plan to distribute excess wealth known as the potlatch. Rich tribal chiefs would throw lavish parties, giving away food and effects, gaining friends and placating opponents. Gift giving on a grand scale is practiced today by corporate charities and even the super rich like the Gates' and the Packards', but in proportional scale it's just a drop in the sea, insufficient with negligible impact. The potlatch worked well within the proscribed scale of a tribe but collapses under the weight of industrialization.

Somewhere between the intentional destruction of wealth, widespread gift-giving and the modern laissez faire model we may find a functional and effective solution, or maybe not. The necessity is tangible, but it gets worse because the present paradigm of Americanized capitalistic imperialism is fundamentally doomed. It's not so much a mechanical flaw but a psychological deficiency due to the relative nature of wealth. And that perception of well-being dictates jealousy and animosity between the classes. The failure of capitalism is the fact that it can't make everyone happy despite generating that same false expectation. So while simultaneously implying that wealth is there to be had by any and all with minimal effort, increasingly the recipients of that message are being economically marginalized. Technological societies are experiencing rapidly escalating levels of redundant workers, and non-workers because as technical skills eclipse blunt uneducated labor, those without skills or unable to attain technical skills are left without gainful employment. Society is left putting these people in prisons, providing welfare or creating make-work programs while their grumbles gain volume. The question becomes: what to do with them?

Capitalism is a system that everyone uses to their personal advantage while simultaneously decrying its evils. It's a system that if not for rapidly increasing markets and competition will evolve into an inefficient monopolistic monstrosity. At this stage the elite having gained wealth and power so they change the rules to keep their wealth and stifle challenges to their status. Marx and Engels had this concept in mind but they seem to have underestimated the tenacity and spread of the element of corporate power, the fact that businesses are entities unto themselves growing and evolving. These corporate entities have largely supplanted individual financiers as top dogs because the CEO is beholden to the shareholders beholden to profits beholden to success by any means. Then these corporations are competing with each other to achieve monopoly power.

In everything but imprimatur we've entered a neo-fascist era. And I say neo because the element of nationalism in old fascism is gone to be replaced by a rootless internationalism necessitated by expansion of consumer markets. Furthermore, political leaders are no longer in charge over the industry to the facile extent of a Mussolini but merely serve as stooges to cut deals and rewrite trade laws to favor the industry.

Now for the first time in a decade the entire world economy, or at least the three biggest powers, are in simultaneous recession. Well a recession for anyone defining the numbers in a technical sense or what the economic analysts call "a recovery that takes longer than expected." Of course 'longer' according to whose definition I don't know, the 'experts' I suppose and we all know how right they've been before; idiots. But the point is that global capitalism may well be on its last lap for the reason that it's predicated on chronic expansion into new markets, most of which have already been saturated. This is why corporate consolidation is increasing, the small fish are gone so the big fish are left to prey on each other; a trend to increase rapidly if economic gloom prevails much longer.

The decade of the nineties had a lot of turbulence, dizzying highs and terrifying lows, but the final outcome was a developing world in a very unstable position with broken banks and deeply troubled industrial conglomerates protected by governments from a natural, quick death. As we progress up the pyramid from the worst small economies to the organized big ones we gradually reach the U$A at the top which has been the source of salvation for everyone below. Which was great for a short while because everyone could keep on being employed and financially solvent. But it created a disincentive to clean up dirty houses and broken institutions. Consequently, the present situation has only one central bank left with any margin of operation or generally able to DO anything anymore, and we've already seen that bank cut interests seven times in a year! That's not a healthy sign friends. Europe and Japan are sitting on a demographic time-bomb, they've run out of breathing room to wait for things to get better because in the next few years the severity of their age imbalance will really kick into their social welfare system, indeed the entire economy. Long story short, they have far too many old people and not enough young to work.

Raw capital, like technology, is (often) not the solution. For example in India they wish to construct a dam or a bridge or some large public works project they have two choices: tax and spend a billion dollars to hire an American construction firm, they move in their machines and engineers and build it. Or they can hire a hundred thousand unemployed laborers and build it with a few million carefully placed rocks. One transfers a huge sum of money to a foreign nation, the other provides desperately needed employment to entire towns. Capital or technology both are destructive not beneficial when divorced from proper social context.

Safety In Numbers

02.07.01 The World Economic Forum, chaired by none other than infamous billionaire George Soros himself, runs the European Economic Summit for three days in Salzburg Austria. What does it say of the popularity of the world banking and financial elite and their politician allies when it takes no less than 5,000 police in full riot gear, helicopters, armored cars, tear gas and brutality, to protect one meeting of few hundred people? What does it say when these leaders must quickly whisk from point to point in armored limousines escorted by hordes of police, security guards and secret service agents all armed and prepared to use deadly force?

Tourists are greeted by the official Austrian welcome committee.

And that the only venues they can safely go to are either held in secret or tightly controlled, sealed-off fortresses. Do they enjoy the support of the public or just the tacit lazy acquiesces of a plurality and a significant amount of animosity by the remainder?

It seems rather hypocritical that the Austrian authorities claim the police are necessary to protect tourism but no tourist wants to compete with 5,000 police to shop for souvenirs! These are the same authorities that confidently proclaimed they would not tolerate violence only to breathlessly elaborate on their policy to shoot protesters for 'violence prevention' in the same sentence!

A portion of the hard-working, completely non-violent police protecting their paymasters.

I think this is yet another fearful regime unambiguously posturing to intimidate opponents and cow the passive remainder into obedience. This doesn't look like democracy and free expression of alternate opinion, it looks more like misnamed fascism.

The only question in my mind is why the protest chant "Our world is not for sale, put the bankers into jail!" is left up to the communists. It's clear who's winning this battle and it's not the police. The greater the show of force to silence criticism the more transparent the sham of democracy becomes. The 'answer' is clear - hire more police.

This guy didn't buy enough souvenirs.

Monophonic Culture

23.06.01 Surprisingly the typical record label actually loses money on over 9 in 10 of their artists. Only 5-10% of signed artists turn a profit for the label and most of the invested money goes into marketing and hype replete with its host of guesses, fad and fashion. Even if this rate of loss is surprising the record labels behavior shouldn't be. Now we realize why the Madonna and the Michael Jackson-type artists are never allowed to die; they keep getting repackaged and revived, recycled forever because those are about the only names the record industry has that make money. So even though CD sales are flat in a near-saturated market someone like Jackson even now can finish and release the most expensive album in record history all to an audience that seems nonplused at best. This is why the record companies love crossover hits because it effectively doubles their target demographic. Think of all the white people playing black music or the black people doing white music. The Beastie boys and Mr. M Mathers doing rap or the late Jimmy Hendrix playing rock and/or roll. The more the universal appeal of the artist both in sound and image the better they can be marketed to a wider audience yielding a greater profit. Making money in this highly competitive industry necessitates cultural homogenization and ethnic assimilation.

Land, Law & Capitalism

12.05.01 Any accurate critical analysis of the endemic popular support for anti-globalist sentiment must conclude that most of it is self-directed antagonism at unequal economic success between north and south or east and west, developed and undeveloped nations. Hence the consistent theme of anti-capitalism throughout these demonstrations from Seattle to London.

Yet a more reasonable crux of culpability would be less with the general methodology of wealth fluidity that is capitalism as it would be with the entities regulating that wealth distribution. And in this role the evil of evils, those Multinational conglomerates, are merely Satan's lackeys. The greatest hindrance to the success of the developing nations is their own governments and the corrupt and unfairly enforced legal structures supporting crooked politicos at the expense of farmers, small business people and taxpayers alike. Clearly codified land ownership is crucial in combating economic inequity, yet without it the wealth of the average citizen vested in the land, the farm or ranch, is rendered worthless because they can't even guarantee legal ownership. And if they can't do that then they can't borrow against it, they can't sell it, they are serfs, slaves to tax collectors, government and legal bureaucrats.

This capricious legal authority well suits governing officials for by stealing rights from owners they grant themselves significant authority via the bribery-lubricated determinations of who really owns the land. This is the nefarious charm of fungible legal rules that work to the detriment of the public and the country as a whole which then must import capital and then scrounge to find collateral to maintain the now necessary financing.

Because the poor often live on land or in houses where ownership is disputed they cannot borrow against what they "own'', or even sell it with much confidence. This has locked up a tremendous amount of capital, even in poor countries.

Mr. de Soto [an economist from Peru] estimates that the value of property held but not legally owned by poor people in developing and former-communist countries is almost $10 trillion—more than 20 times the foreign direct investment in these countries since the fall of the Berlin wall.  The Economist, Mayhem in May, April 30, 2001

For a recent example consider a group of American retirees that bought land and built houses in Baja California, Mexico. After happily living for years 'on the cheap' in the dry sun of western Mexico they were rudely jolted into a new awareness of the complexities of land ownership in the developing world, for they were informed by lawyers that they did not legally own the land as they had purchased it from persons that never had legal ownership. Long story short, due to the lack of clear and well regulated land ownership, both in law and paperwork, the American retirees, despite their legal entreaties, quickly became homeless, and hundreds of thousands of dollars poorer, then kicked out to flee back north of the border. In this case we can all shed a tear for the 'rich' Yanquis but the lesson is as clear as the vagaries of land ownership in Mexico.

The culpability for this nefarious exploitation is significantly associated with the developing countries legal structures themselves and not just with northern gringo's globe-straddling corporations. Instead of spray-painting signs on old TV box cardboard with spurious phrases like "capitalism sux" if these clowns of political activism had any ideological validity, if they ever wanted to be anything but protesting for the sake of sycophantically trying to be part of the scene, they would instead be working to build strong property rights and the concomitant legal structures in the developing world.

Marx's folly #183 and one he should have figured out living so long in England, that unequaled nation of brilliance, the originator of all western land ownership laws and property rights, is that wealth equality is founded on these laws and the fair and prudent support of land disputes. It is a concept we take for granted in the Anglophonic world, that if we want to know who owns that weed filled lot next to the convenience store we can just go down to the country records department and look up the files. The economic success of America and England, home of the industrial revolution, is fundamentally predicated upon these rules of private land ownership.

For a detailed treatise on the topic of Anglophonic land-law read Land Use and Society - Geography, Law and, Public Policy by Rutherford H. Platt, Island Press 1996.

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India: Not doing time just hard labor