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Pablo Solón, “‘Deglobalization’ Versus ‘Inclusive Growth'”

March 21, 2014 7:35 am / Leave a comment

Pablo Solón, “‘Deglobalization’ Versus ‘Inclusive Growth'”.

The race of globalization is leaving the majority of the world’s population far behind.  According to UNICEF, the richest 20% of the population gets 83% of global income, while the poorest quintile has just 1%.1  This trend is getting worse.  A new UNDP report called “Humanity Divided” estimates that 75% of the world’s population lives in societies where income distribution is less equal now than it was in the 1990s,2 although global GDP ballooned in that time from US$22 trillion to 72 trillion.3

For developing economies in Asia, the Gini coefficient — which measures income inequality on a scale from zero to one where one is worst — rose from 0.33 in 1990 to 0.46 in 2010.4  Inequality corresponds with high social tensions and political instability — with the potential for violence and conflicts between groups — as well as increased economic uncertainty and lower investment.  It demolishes human rights for the vast majority, especially for vulnerable groups like women, children, and the elderly.

What causes inequality?  The UNDP states: “Specific aspects of globalization, such as inadequately regulated financial integration and trade liberalization processes, whose benefits have been distributed very unequally across and within countries, have played a significant role in determining the upward trend observed over the last decades.”

Globalization causes inequality for various reasons.  One is that trade and financial globalization has weakened the bargaining position of relatively immobile labor in relation to fully mobile capital, driving down wages.  The chief economist of the Asian Development Bank, in an article that argues that inequality jeopardizes economic growth, notes that, between the mid-1990s and the mid-2000s, labor income as a percentage of manufacturing output fell from 48 percent to 42 percent in China and from 37 percent to 22 percent in India.

The UNDP also says dependence on volatile capital flows made countries more vulnerable to economic and financial shocks that cause lowered growth and employment, both of which disproportionately affect the poor.

If globalization drives inequality, what are the remedies?  The usual list of recipes of UN agencies, the World Bank and IMF includes measures to stop tax evasion, more progressive income tax policies, incentives for foreign investment, conditional cash transfers, subsidies and credits for small businesses and agriculture, limited expansion of public investment and social safety nets.

Two key things are apparent in these “remedies.”  First, they talk about redistributing income but don’t address unequal access to sources of wealth, such as land or assets.  They also avoid mentioning examples of nationalizations that have reduced extreme inequality in some countries.

Second, they don’t deal with the process of globalization.  The most ambitious among them suggest some kind of regulation of speculative financial markets to minimize volatility.  The World Bank clearly states that measures to reduce inequality should not affect “free trade.”

The measures to combat inequality touted by international financial institutions ignore the structural causes of inequality.  Don’t be fooled by their fashionable new name: “inclusive growth.”  This idea repeats old remedies and is more concerned with profit than inequality.

If we care about reducing inequality, we must seek new solutions to the problem.  One approach is “deglobalization,” a proposal developed by Walden Bello and Focus on the Global South in response to the Asian financial crisis of 1997.

Focus on the Global South wrote:

Deglobalisation is not a synonym for withdrawing from the world economy.  It means a process of restructuring the world economic and political system so that the latter builds the capacity of local and national economies instead of degrading it.  Deglobalisation means the transformation of a global economy from one integrated around the needs of transnational corporations to one integrated around the needs of peoples, nations, and communities.5

For deglobalization, there is no “one-size-fits-all” model like neoliberalism or centralized bureaucratic socialism.  Instead, according to this scheme, diversity is expected and encouraged, as it is in nature.

Some key proposals of deglobalization to really address the relationship between globalization and inequality are:

  • Reorient national economies away from export production and toward production for the local market to fulfill basic human needs, relying primarily on domestic resources and employing technologies that enhance rather than destroy the community, the environment, and life itself.
  • Implement policies that redistribute the sources of income and wealth such as land, ensuring domestic control over key sectors of the economy and promoting communal access to basic services like water, health care, and education.
  • Provide more resources to rural areas to halt the migrations that increase inequality and rob local communities through resource grabbing.  This means expanding public services in rural areas and implementing tools to boost food sovereignty that have been developed by peasants and indigenous communities.
  • De-emphasize economic growth based on the recognition that this growth has limits.  Instead, we should maximize equity and redistribute what is available and possible without breaking the vital cycles of nature and overshooting the carrying capacity of the Earth.
  • Make strategic economic decisions subject to democratic choice, rather than leaving them to the market.  In other words, bring participatory democracy to the sphere of the economy.

The approach of deglobalization is still under construction.  It needs to be debated and joined with other ideas if we are to build viable alternatives to the flawed system we have today, the one that has caused explosive inequality.  But it certainly holds more promise than the empty claims of “inclusive growth.”

 

1  United Nations Children’s Fund (UNICEF), Global Inequality: Beyond the Bottom Billion — A Rapid Review of Income Distribution in 141 Countries, 2011.

2  United Nations Development Programme (UNDP), “Humanity Divided: Confronting Inequality in Developing Countries,” 29 Jan 2014.

3  See www.data.un.org.

4  Changyong Rhee, “Inequality Is the Real Threat to Asia’s Growth Miracle,” Financial Times, 8 May 2012.

5  Focus on the Global South, “The Paradigm: Deglobalisation,” 2003.

Pablo Solón is the current Executive Director of Focus on the Global South, a think tank based in Bangkok.  More information is atwww.focusweb.org.  Follow Solón on Twitter @pablosolon.

Pablo Solón, "'Deglobalization' Versus 'Inclusive Growth'"

March 21, 2014 7:35 am / Leave a comment

Pablo Solón, “‘Deglobalization’ Versus ‘Inclusive Growth'”.

The race of globalization is leaving the majority of the world’s population far behind.  According to UNICEF, the richest 20% of the population gets 83% of global income, while the poorest quintile has just 1%.1  This trend is getting worse.  A new UNDP report called “Humanity Divided” estimates that 75% of the world’s population lives in societies where income distribution is less equal now than it was in the 1990s,2 although global GDP ballooned in that time from US$22 trillion to 72 trillion.3

For developing economies in Asia, the Gini coefficient — which measures income inequality on a scale from zero to one where one is worst — rose from 0.33 in 1990 to 0.46 in 2010.4  Inequality corresponds with high social tensions and political instability — with the potential for violence and conflicts between groups — as well as increased economic uncertainty and lower investment.  It demolishes human rights for the vast majority, especially for vulnerable groups like women, children, and the elderly.

What causes inequality?  The UNDP states: “Specific aspects of globalization, such as inadequately regulated financial integration and trade liberalization processes, whose benefits have been distributed very unequally across and within countries, have played a significant role in determining the upward trend observed over the last decades.”

Globalization causes inequality for various reasons.  One is that trade and financial globalization has weakened the bargaining position of relatively immobile labor in relation to fully mobile capital, driving down wages.  The chief economist of the Asian Development Bank, in an article that argues that inequality jeopardizes economic growth, notes that, between the mid-1990s and the mid-2000s, labor income as a percentage of manufacturing output fell from 48 percent to 42 percent in China and from 37 percent to 22 percent in India.

The UNDP also says dependence on volatile capital flows made countries more vulnerable to economic and financial shocks that cause lowered growth and employment, both of which disproportionately affect the poor.

If globalization drives inequality, what are the remedies?  The usual list of recipes of UN agencies, the World Bank and IMF includes measures to stop tax evasion, more progressive income tax policies, incentives for foreign investment, conditional cash transfers, subsidies and credits for small businesses and agriculture, limited expansion of public investment and social safety nets.

Two key things are apparent in these “remedies.”  First, they talk about redistributing income but don’t address unequal access to sources of wealth, such as land or assets.  They also avoid mentioning examples of nationalizations that have reduced extreme inequality in some countries.

Second, they don’t deal with the process of globalization.  The most ambitious among them suggest some kind of regulation of speculative financial markets to minimize volatility.  The World Bank clearly states that measures to reduce inequality should not affect “free trade.”

The measures to combat inequality touted by international financial institutions ignore the structural causes of inequality.  Don’t be fooled by their fashionable new name: “inclusive growth.”  This idea repeats old remedies and is more concerned with profit than inequality.

If we care about reducing inequality, we must seek new solutions to the problem.  One approach is “deglobalization,” a proposal developed by Walden Bello and Focus on the Global South in response to the Asian financial crisis of 1997.

Focus on the Global South wrote:

Deglobalisation is not a synonym for withdrawing from the world economy.  It means a process of restructuring the world economic and political system so that the latter builds the capacity of local and national economies instead of degrading it.  Deglobalisation means the transformation of a global economy from one integrated around the needs of transnational corporations to one integrated around the needs of peoples, nations, and communities.5

For deglobalization, there is no “one-size-fits-all” model like neoliberalism or centralized bureaucratic socialism.  Instead, according to this scheme, diversity is expected and encouraged, as it is in nature.

Some key proposals of deglobalization to really address the relationship between globalization and inequality are:

  • Reorient national economies away from export production and toward production for the local market to fulfill basic human needs, relying primarily on domestic resources and employing technologies that enhance rather than destroy the community, the environment, and life itself.
  • Implement policies that redistribute the sources of income and wealth such as land, ensuring domestic control over key sectors of the economy and promoting communal access to basic services like water, health care, and education.
  • Provide more resources to rural areas to halt the migrations that increase inequality and rob local communities through resource grabbing.  This means expanding public services in rural areas and implementing tools to boost food sovereignty that have been developed by peasants and indigenous communities.
  • De-emphasize economic growth based on the recognition that this growth has limits.  Instead, we should maximize equity and redistribute what is available and possible without breaking the vital cycles of nature and overshooting the carrying capacity of the Earth.
  • Make strategic economic decisions subject to democratic choice, rather than leaving them to the market.  In other words, bring participatory democracy to the sphere of the economy.

The approach of deglobalization is still under construction.  It needs to be debated and joined with other ideas if we are to build viable alternatives to the flawed system we have today, the one that has caused explosive inequality.  But it certainly holds more promise than the empty claims of “inclusive growth.”

 

1  United Nations Children’s Fund (UNICEF), Global Inequality: Beyond the Bottom Billion — A Rapid Review of Income Distribution in 141 Countries, 2011.

2  United Nations Development Programme (UNDP), “Humanity Divided: Confronting Inequality in Developing Countries,” 29 Jan 2014.

3  See www.data.un.org.

4  Changyong Rhee, “Inequality Is the Real Threat to Asia’s Growth Miracle,” Financial Times, 8 May 2012.

5  Focus on the Global South, “The Paradigm: Deglobalisation,” 2003.

Pablo Solón is the current Executive Director of Focus on the Global South, a think tank based in Bangkok.  More information is atwww.focusweb.org.  Follow Solón on Twitter @pablosolon.

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia

February 25, 2014 7:43 pm / Leave a comment

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia.

 

Roman soldiers bringing civilization to Dacia (from the Trajan column in Rome). The Roman empire invaded Dacia at the beginning of the 2nd century AD seeking the control of the Carpatian gold mines. 

The ascent of the Roman Empire is best understood if we think of it as a beast of prey. It grew on conquest, by gobbling its neighbors, one by one, and enlisting them as allies for more conquest. By the first century AD, the Roman Empire had conquered everything that could be conquered around the Mediterranean sea; that for good reasons the Romans called “Mare Nostrum”, “Our Sea.” But the beast was still hungry for prey.

And what a beast that was! Never before, the world had seen such a force as the Roman legions. Well organized, trained, disciplined, and equipped, they were the wonder weapon of their times. The great innovation that made the legions so powerful was not a special weapon or a special strategy. It had to do, rather, with a concept dear to the military: command and control. In the Roman system, command and control was based on gold (and silver). The Roman had not invented coinage, but they used systematically gold and silver coins to pay their soldiers. So, the size of the Roman army was not limited by the Roman population: almost anyone could enlist either as a legionnaire or as an auxiliary fighter; his reward was simply money. Gold was, in a sense, the secret weapon of the Roman Empire; it was the the blood, the lymph, and the nerves of the beast of prey.

Because of its command and control system, the Roman army could grow in size by means of a self-reinforcing mechanism. The more gold the Romans had, the larger their army could be. The larger their army, the more gold they could raid from their neighbors. Also, the more gold the Romans had, the more they could invest in extracting more gold from their Spanish gold mines. The beast kept growing bigger and, the more it grew, the more food it needed.

But even the mighty Roman legions had their limits. With the 1st century AD, the Spanish mines started showing signs of depletion. At the same time, the Empire had reached practical limits to its size and, with that, to the amount of gold it could loot from its neighbors. Already in 44 BC, the legions had been stopped at Carrhae in their attempt to expand in the rich East at the expense of the rival Parthian Empire. And in Teutoburg in 9 AD, a coalition of German tribes had inflicted a crushing defeat on the legions, stopping forever the attempt of the Romans to control Eastern Europe. There were no other places where the empire could expand: in the West, it faced the ocean; in the South, the dry Sahara desert. Confined in a closed space, the beast risked to starve.

Not only the Roman Empire couldn’t get any more gold; it couldn’t even keep the gold it had. The Roman economy was geared for war and it couldn’t produce much more than grain and legions, neither of which could be exported at long distances. At the same time, the Romans had a taste for expensive goods that they could not produce: silk from China, pearls from the Persian gulf, perfumes from India, ivory from Africa, and much more. The Roman gold was used for pay for all of that and, slowly, it made its way to the East through the winding silk road in central Asia and from Africa to India by sea. It was a wound that was slowly bleeding the beast to death.

With less and less gold available, the legions’ power could only decline. That the Empire was in deep trouble could be seen when, in 66 AD, the Jews of Palestine – then a Roman province – took arms against their masters. Rome reacted and crushed the rebellion in a campaign that ended in 70 AD with the conquest of Jerusalem and the burning of the Jewish Temple. It was a victory, but the campaign had been exceptionally harsh and the Empire had nearly gone to pieces in the effort. Nevertheless, the empire had managed to bring home a considerable amount of desperately needed gold and silver. The beast was eating itself but, for a while, it was satiated.

With the gold plundered in Palestine, the Roman Empire could gain some time, but the problem   remained: where to find more gold? It was at this point that the Romans turned their sight to a region just outside their borders: Dacia, an area at the North-East of the Empire that included Transylvania and the Carpatian mountains. The beast was smelling food.

We don’t know much about Dacia before the Roman conquest. We know that it was a thriving society that was expanding and that, probably, had ambitions of conquest of its own; so much that the Roman empire had agreed to pay to the Dacian kings a tribute. We know that the Carpatian region had been producing gold already in very ancient times and there is evidence (Bogden et al.) that, at the time of the Roman conquest, the Dacians were mining gold veins in the mountains. It may well be that they had learned new mining techniques from the Romans themselves. So, Dacia was probably experiencing a gold mining boom. It was a prey in the making.

The Dacians may have had plenty of gold at that time, but they were still building up their economy and their technology. The only gold coins that can be said to have a certain Dacian origin are a curious mix of Roman iconography and Greek characters spelling the term “Koson“, whose meaning is uncertain. We don’t know if these coins were actually minted in Dacia, although they were surely used there. It is possible that the Dacians had sent some of their  gold to Rome, to have it transformed into coins and brought back in Dacia – not unlike what oil producers are doing today when they send their oil to the United States to be transformed into dollar bills. The Romans were surely happy to work the Dacian gold, but they must have noticed that the Dacian mines were producing it. So, it was clear that a military conquest of Dacia could pay for itself. The beast had sighted its prey.

In the year 101 AD, a young and aggressive Roman Emperor, Trajan, invaded Dacia. It was a bold attempt, given the difficult terrain and the strong resistance of the Dacians. Surely, the nightmare of the Teutoburg disaster of nearly a century before must have haunted the Romans but, this time, the legions overcame all obstacles. After two campaigns and five years of war, the gamble paid off and Dacia was transformed into a Roman province. The beast had made another kill.

We have no reliable data on how much gold and silver the Romans looted in Dacia, although it had to be a considerable booty. We also know that the Romans invested in the Dacian mines, probably bringing in their expert miners from Spain. However, the overall effect of this inflow of gold seems to have been small on the Roman economy. If we look at the data for the silver content of Roman coins (data from Joseph Tainter) there is no evident effect of the Dacian conquest. We see an increase in silver content at about 90 AD, but that’s a decade before the Dacian campaign and we may attribute it, rather, to the inflow of precious metals deriving from the conquest of Palestine. The Dacian mines, apparently, couldn’t match the wealth that the Spanish mines had been produced in their heydays. The beast had become too huge to be fed just with crumbles.

But the content of silver in coins doesn’t depend only on the looting of foreign countries. It depends also on the policies of the government. So, if we look at the graph above, we see that both the Palestinian and the Dacian campaigns correspond to drops in the silver content of coins. That makes sense: of course the Roman government would see the advantage of debasing a little their currency when it was question of having to pay large numbers of troops. Trajan, indeed, didn’t stand still after the conquest of Dacia and, in 113 AD, he attempted another bold project: that of expanding in the East, attacking once more the Parthian Empire after the failed attempt at Carrhae, in 44 BC. But the task was too much even for an expert commander as Trajan. After some initial successes, the Romans simply had to stop; possibly they understood that the campaign had become too expensive. Asia was just too big for them to conquer. The beast had found a prey too big to swallow.

With the death of Trajan in 117 AD, the new emperor, Hadrian, took the decision of stopping all attempts of the Empire to conquer new territories, a policy that was basically kept by all his successors. In a sense, it was a wise decision because it prevented the Empire from collapsing. But the final result was unavoidable as gold continued to bleed away from the Roman territory and could not be replaced. The Western Empire, which included the city of Rome, disappeared forever after a few centuries as an impoverished shade of its former self. The beast was to die of starvation, slowly.

And Dacia? Over nearly two centuries of Roman rule, it was “romanized”, in the sense that it adopted Roman customs and the Latin language – at least in the cities. However, it was also one of the first Roman provinces to lose contact with the central government when, around 275 AD, the legions abandoned it (for comparison, Britannia was not abandoned before 383 AD). We have no data on gold production in Dacia during this period but the simple fact that the Romans decided to abandon the province means that the Dacian mines had been thoroughly depleted, just like the Spanish ones. There was no food left for the beast.

From then on, we have scant data. For sure, Dacia was exposed to all the invasions that were to sweep through Europe in the period we call “The Great Migrations”. Apparently, however, the region maintained its Roman roots better than Britannia. However, we have no records of a Dacian King who bravely fought the invaders, as King Arthur did in Britannia, and we don’t have to think that Dacia always remained a Roman fortress. Indeed, the earliest records we have of the Romanian language go back only to the 16th century and we have no clear evidence that its origin went back all the way to the times of the Roman colonization. However, it is a fact that, still today, the region we call “Romania” – the land of the Romans – is a Latinized island in a Slavic sea. Were the gold mines still producing some gold during this period? We cannot say but, if they did, it may be possible that the wealth they generated, even though modest, helped to maintain the cultural and social unity of Dacia.

This brief survey tells us a lot of how important is gold in human history. For the region that we call Romania today, the gold mines located in Roșia Montană, in the Carpatian Mountains, have been a fundamental element. Exploited from remote times, these mines have periodically experienced new waves of exploitation as technological improvements made it possible to recover lower and lower grade gold ores. And with these cycles of boom and bust, there went invasions, migrations, kingdoms, and empires. The cycle is continuing today with a project to restart exploiting these ancient mines using the last technological wonder in gold mining: the cyanide leaching process. But getting more gold from the exhausted Carpatian mines is costly and the damage it could do to the land is tremendous. The drop in gold prices of the past few years may soon make these new gold mines too expensive even to be dreamed of. Even existing gold mines may have to be closed.

So, it looks like the beast of prey that, today, we call “Globalization” is facing the same problem that the old Roman Empire was facing in its times: the disappearance of the vital minerals it is preying upon (and gold is just one of them). Since today there are no perspectives of conquering unexploited lands, it is an unsolvable problem. The globalized beast will have to die of starvation, or it will survive only if it will accept to change its diet.

Dani Rodrik reviews the fundamental lessons about emerging economies that economists have refused to learn. – Project Syndicate

February 11, 2014 8:46 am / Leave a comment

Dani Rodrik reviews the fundamental lessons about emerging economies that economists have refused to learn. – Project Syndicate.

Death by Finance

PRINCETON – How quickly emerging markets’ fortunes have turned. Not long ago, they were touted as the salvation of the world economy – the dynamic engines of growth that would take over as the economies of the United States and Europe sputtered. Economists at Citigroup, McKinsey, PricewaterhouseCoopers, and elsewhere were predicting an era of broad and sustained growth from Asia to Africa.

But now the emerging-market blues are back. The beating that these countries’ currencies have taken as the US Federal Reserve begins to tighten monetary policy is just the start; everywhere one looks, it seems, there are deep-seated problems.

Argentina and Venezuela have run out of heterodox policy tricks. Brazil and India need new growth models. Turkey and Thailand are mired in political crises that reflect long-simmering domestic conflicts. In Africa, concern is mounting about the lack of structural change and industrialization. And the main question concerning China is whether its economic slowdown will take the form of a soft or hard landing.

This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago.

First, emerging-market hype is just that. Economic miracles rarely occur, and for good reason. Governments that can intervene massively to restructure and diversify the economy, while preventing the state from becoming a mechanism of corruption and rent-seeking, are the exception. China and (in their heyday) South Korea, Taiwan, Japan, and a few others had such governments; but the rapid industrialization that they engineered has eluded most of Latin America, the Middle East, Africa, and South Asia.

Instead, emerging markets’ growth over the last two decades was based on a fortuitous (and temporary) set of external circumstances: high commodity prices, low interest rates, and seemingly endless buckets of foreign finance. Improved macroeconomic policy and overall governance helped, too, but these are growth enablers, not growth triggers.

Second, financial globalization has been greatly oversold. Openness to capital flows was supposed to boost domestic investment and reduce macroeconomic volatility. Instead, it has accomplished pretty much the opposite.

We have long known that portfolio and short-term inflows fuel consumption booms and real-estate bubbles, with disastrous consequences when market sentiment inevitably sours and finance dries up. Governments that enjoyed the rollercoaster ride on the way up should not have been surprised by the plunge that inevitably follows.

Third, floating exchange rates are flawed shock absorbers. In theory, market-determined currency values are supposed to isolate the domestic economy from the vagaries of international finance, rising when money floods in and falling when the flows are reversed. In reality, few economies can bear the requisite currency alignments without pain.

Sharp currency revaluations wreak havoc on a country’s international competitiveness. And rapid depreciations are a central bank’s nightmare, given the inflationary consequences. Floating exchange rates may moderate the adjustment difficulties, but they do not eliminate them.

Fourth, faith in global economic-policy coordination is misplaced. America’s fiscal and monetary policies, for example, will always be driven by domestic considerations first (if not second and third as well). And European countries can barely look after their own common interests, let alone the world’s. It is naïve for emerging-market governments to expect major financial centers to adjust their policies in response to economic conditions elsewhere.

For the most part, that is not a bad thing. The Fed’s huge monthly purchases of long-term assets – so-called quantitative easing – have benefited the world as a whole by propping up demand and economic activity in the US. Without QE, which the Fed is now gradually tapering, world trade would have taken a much bigger hit. Similarly, the rest of the world will benefit when Europeans are able to get their policies right and boost their economies.

The rest is in the hands of officials in the developing world. They must resist the temptation to binge on foreign finance when it is cheap and plentiful. In the midst of a foreign-capital bonanza, stagnant levels of private investment in tradable goods are a particularly powerful danger signal that no amount of government mythmaking should be allowed to override. Officials face a simple choice: maintain strong prudential controls on capital flows, or be prepared to invest a large share of resources in self-insurance by accumulating large foreign reserves.

The deeper problem lies with the excessive financialization of the global economy that has occurred since the 1990’s. The policy dilemmas that have resulted – rising inequality, greater volatility, reduced room to manage the real economy – will continue to preoccupy policymakers in the decades ahead.

It is true, but unhelpful, to say that governments have only themselves to blame for having recklessly rushed into this wild ride. It is now time to think about how the world can create a saner balance between finance and the real economy.

Read more at http://www.project-syndicate.org/commentary/dani-rodrik-reviews-the-fundamental-lessons-about-emerging-economies-that-economists-have-refused-to-learn#bwUevcSjVlZBMS5W.99

The Final Swindle Of Private American Wealth Has Begun

February 6, 2014 8:12 pm / Leave a comment

The Final Swindle Of Private American Wealth Has Begun.

Wednesday, 05 February 2014 02:41 Brandon Smith

I began writing analysis on the macro-economic situation of the American financial structure back in 2006, and in the eight years since, I have seen an undeniably steady trend of fiscal decline.

I have never had any doubt that the U.S. economy as we know it was headed for total and catastrophic collapse, the only question was when, exactly, the final trigger event would occur. As I have pointed out in the past, economic implosion is a process. It grows over time, like the ice shelf on a mountain developing into a potential avalanche. It is easy to shrug off the danger because the visible destruction is not immediate, it is latent; but when the avalanche finally begins, it is far too late for most people to escape…

If you view the progressive financial breakdown in America as some kind of “comedy of errors” or a trial of unlucky coincidences, then there is not much I can do to educate you on the reasons behind the carnage. If, however, you understand that there is a deliberate motivation behind American collapse, then what I have to say here will not fall on biased ears.

The financial crash of 2008, the same crash which has been ongoing for years, is NOT an accident. It is a concerted and engineered crisis meant to position the U.S. for currency disintegration and the institution of a global basket currency controlled by an unaccountable supranational governing body like the International Monetary Fund (IMF). The American populace is being conditioned through economic fear to accept the institutionalization of global financial control and the loss of sovereignty.

Anyone skeptical of this conclusion is welcome to study my numerous past examinations on the issue of globalization; I don’t have the time within this article to re-explain, and frankly, with so much information on deliberate dollar destruction available to the public today I’ve grown tired of anyone with a lack of awareness.

If you continue to believe that the Fed actually exists to “help” stabilize our economy or our currency, then you will never find the logic behind what they do. If you understand that the goal of the Fed and the globalists is to dismantle the dollar and the U.S. economic system to make way for something “new”, then certain recent events and policy initiatives do start to make sense.

The year of 2014 has been looming as a serious concern for me since the final quarter of 2013, and you can read about those concerns and the evidence that supports them in my articleExpect Devastating Global Economic Changes In 2014.

At the end of 2013 we saw at least three major events that could have sent America spiraling into total collapse. The first was the announcement of possible taper measures by the Fed, which have now begun. The second was the possible invasion of Syria which the Obama Administration is still desperate for despite successful efforts by the liberty movement to deny him public support for war. And, the third event was the last debt ceiling debate (or debt ceiling theater depending on how you look at it), which placed the U.S. squarely on the edge of fiscal default.

As we begin 2014, these same threatening issues remain (along with many others), only at greater levels and with more prominence. New developments reinforce my original position that this year will be remembered by historians as the year in which the final breakdown of the U.S. monetary dynamic was set in motion. Here are some of those developments explained…

Taper Of QE3

When I first suggested that a Fed taper was not only possible but probable months ago, I was met with a bit (a lot) of criticism from some in the alternative economic world. You can read my taper articles here and here.

This was understandable. The Fed uses multiple stimulus outlets besides QE in order to manipulate U.S. markets. Artificially lowering interest rates is very much a form of stimulus in itself, for instance.

However, I think a dangerous blindness to threats beyond money printing has developed within our community of analysts and this must be remedied. People need to realize first that the Fed does NOT care about the continued health of our economy, and they may not care about presenting a facade of health for much longer either. Alternative analysts also need to come to grips with the reality that overt money printing is not the only method at the disposal of globalists when destroying the greenback. A debt default is just as likely to cause loss of world reserve status and devaluation – no printing press required. Blame goes to government and political gridlock while the banks slither away in the midst of the chaos.

The taper of QE3 is not a “head fake”, it is very real, but there are many hidden motivations behind such cuts.

Currently, $20 billion has been trimmed from the $85 billion per month program, and we are already beginning to see what APPEAR to be market effects, including a flight from emerging market currencies from Argentina to Turkey. A couple of years ago investors viewed these markets as among the few places they could exploit to make a positive return, or in other words, one of the few places they could successfully gamble. The Fed taper, though, seems to be shifting the flow of capital away from emerging markets.

The mainstream argument is that stimulus was flowing into such markets, giving them liquidity support, and the taper is drying up that liquidity. Whether this is actually true is hard to say, given that without a full audit we have no idea how much fiat the Federal Reserve has actually created and how much of it they send out into foreign markets.

I stand more on the position that the Fed taper was actually begun in preparation for a slowdown in global markets that was already in progress. In fact, I believe central bankers have been well aware that a decline in every sector was coming, and are moving to insulate themselves.

Is it just a “coincidence” that the central bankers have initiated their taper of QE right when global manufacturing numbers begin to plummet?

http://www.agweb.com/article/us_stocks_drop_as_manufacturing_gauge_falls_more_than_forecast_BLMG/

http://www.bloomberg.com/news/2014-02-01/china-manufacturing-gauge-falls-to-six-month-low.html

Is it just “coincidence” the taper was started right when the Baltic Dry Index, a global indicator of shipping demand, has lost over 50% of its value in the past few weeks?

http://investmenttools.com/futures/bdi_baltic_dry_index.htm

Is it just “coincidence” that the taper is running tandem with dismal retail sales growth reports from across the globe coming in from the final quarter of 2013?

http://www.businessweek.com/news/2014-02-04/euro-is-near-10-week-low-before-retail-sales-data-ecb-meeting

http://www.scmp.com/business/economy/article/1421025/no-christmas-cheer-hong-kongs-retailers

http://business.time.com/2013/11/14/walmart-sales-dip-as-low-income-americans-close-wallets/

And, is it just a “coincidence” that the Fed taper is accelerating right as the next debt ceiling debate begins in March, and when reports are being released by the Congressional Budget Office that over 2 million jobs (in work hours) may be lost due to Obamacare?

http://www.reuters.com/article/2014/02/04/us-usa-fiscal-obamacare-idUSBREA131B120140204

No, I do not think any of this is coincidence.  Most if not all of these negative indicators needed months to generate, so they could not have been caused by the taper itself.  The only explanation beyond “coincidence” is that the Federal Reserve WANTED to launch the taper program and protect itself before these signals began to reach the public.

Look at it this way – The taper program distances the bankers from responsibility for crisis in our financial framework, at least in the eyes of the general public. If a market calamity takes place WHILE stimulus measures are still at full speed, this makes the banks look rather guilty, or at least incompetent. People would begin to question the validity of central bank methods, and they might even question the validity of the central bank’s existence. The Fed is creating space between itself and the economy because they know that a trigger event is coming. They want to ensure that they are not blamed and that stimulus itself is not seen as ineffective, or seen as the cause.

We all know that the claims of recovery are utter nonsense. Beyond the numerous warning signs listed above, one need only look at true unemployment numbers, household wage decline, and record low personal savings of the average American. The taper is not in response to an improving economic environment. Rather, the taper is a signal for the next stage of collapse.

Stocks are beginning to plummet around the world and all mainstream pundits are pointing fingers at a reduction in stimulus which has very little to do with anything. What is the message they want us to digest? That we “can’t live” without the aid and oversight of central banks.

The real reason stocks and other indicators are stumbling is because the effectiveness of stimulus manipulation has a shelf life, and that shelf life is over for the Federal Reserve. I suspect they will continue cutting QE every month for the next year as stocks decline.  Will the Fed restart QE?  If they do, it will probably not occur until after a substantial breakdown has ensued and the public is sufficiently shell-shocked.  The possibility also exists that the Fed will never return to stimulus measures (if debt default is the plan), and QE stimulus will eventually be replaced by IMF “aid”.

Government Controlled Investment

Last month, just as taper measures were being implemented, the White House launched an investment program called MyRA; a retirement IRA program in which middle class and low wage Americans can invest part of their paycheck in government bonds.

That’s right, if you wanted to know where the money was going to come from to support U.S. debt if the Fed cuts QE, guess what, the money is going to come from YOU.

For a decade or so China was the primary buyer and crutch for U.S. debt spending. After the derivatives crash of 2008, the Federal Reserve became the largest purchaser of Treasury bonds. With the decline of foreign interest in long term U.S. debt, and the taper in full effect, it only makes sense that the government would seek out an alternative source of capital to continue the debt cycle. The MyRA program turns the general American public into a new cash stream, but there’s more going on here than meets the eye…

I find it rather suspicious that a government-controlled retirement program is suddenly introduced just as the Fed has begun to taper, as stocks are beginning to fall, and as questions arise over the U.S. debt ceiling. I have three major concerns:

First, is it possible that like the Fed, the government is also aware that a crash in stocks is coming? And, are they offering the MyRA program as an easy outlet (or trap) for people to pour in what little savings they have as panic over declining equities accelerates?  Bonds do tend to look appetizing to uninformed investors during an equities rout.

Second, the program is currently voluntary, but what if the plan is to make it mandatory? Obama has already signed mandatory health insurance “taxation” into law, which is meant to steal a portion of every paycheck. Why not steal an even larger portion from every paycheck in order to support U.S. debt? It’s for the “greater good,” after all.

Third, is this a deliberate strategy to corral the last vestiges of private American wealth into the corner of U.S. bonds, so that this wealth can be confiscated or annihilated? What happens if there is indeed an eventual debt default, as I believe there will be? Will Americans be herded into bonds by a crisis in stocks only to have bonds implode as well? Will they be conned into bond investment out of a “patriotic duty” to save the nation from default? Or, will the government just take their money through legislative wrangling, as was done in Cyprus not long ago?

The Final Swindle

Again, the next debt ceiling debate is slated for the end of this month. If the government decides to kick the can down the road for another quarter, I believe this will be the last time. The most recent actions of the Fed and the government signal preparations for a stock implosion and ultimate debt calamity. Default would have immediate effects in foreign markets, but the appearance of U.S. stability could drag on for a time, giving the globalists ample opportunity to siphon every ounce of financial blood from the public.

It is difficult to say how the next year will play out, but one thing is certain; something very strange and ugly is afoot. The goal of the globalists is to engineer desperation. To create a catastrophe and then force the masses to beg for help. How many hands of “friendship” will be offered in the wake of a U.S. wealth and currency crisis? What offers for “aid” will come from the IMF? How much of our country and how many of our people will be collateralized to secure that aid? And, how many Americans will go along with the swindle because they were not prepared in advance?

 

Charles Hugh Smith: What If Nations Were Less Dependent on One Another? | Peak Prosperity

January 23, 2014 7:18 am / Leave a comment

Charles Hugh Smith: What If Nations Were Less Dependent on One Another? | Peak Prosperity.

Autarky is more than a ten-dollar word for self-sufficiency, as it implies a number of questions that “self-sufficiency” alone might not.

Autarky vs. Self-Sufficiency

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, ‘self-sufficiency’ in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

Where self-sufficiency might suggest a binary state – you’re either self-sufficient or you’re not – autarky invites an exploration of which parts of one’s economy and political order are self-sufficient and which ones are critically dependent on foreign approval, capital, resources, and expertise.

In terms of military freedom of action, some nations are able to commit military forces and project power without the aid or approval of other nations. These nations have military autarky, though they might be entirely dependent on foreign countries for critical resources, capital, expertise, etc.

In this case, though their military may be self-sufficient in terms of capabilities (power projection, control of airspace, etc.), any dependency in other critical areas introduces an element of political, financial, or resource vulnerability should the key suppliers disapprove of a military action. These vulnerabilities impose often-ambiguous but nonetheless very real limits on freedom of action.

The key take-away from this brief overview is that autarky has two distinct states. One is absolute: i.e., Can a nation grow, process, and distribute enough food to feed its population if trade with other nations ceased?, and the other is relative: Is the we-can-feed-ourselves self-sufficiency of the subsistence-survival variety that requires great sacrifice and a drastic re-ordering of national priorities and capital? Or is it relatively painless in terms of national sacrifices and priorities?

Clearly, relative autarky invokes a series of trade-offs: Is the freedom of action and reduction in vulnerability gained by increasing autarky worth a national re-ordering of values, priorities, and capital, and quite possibly broad-based, long-term sacrifices?

There is an additional issue raised by autarky: Is the self-sufficiency a matter of being blessed with abundant resources, or is it the result of conscious national policy and resolve?

Autarky as Policy

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S. (Source)

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

Assessing the Trade-Offs

This highlights the critical nature of the autarchic thresholds of systemic costs and freedom of action. Above a difficult-to-define threshold, the trade-off required to increase self-sufficiency to the point of being meaningful is too high in sacrifice or cost to the economy or society; the trade-offs required aren’t worth the gain in freedom of action and self-sufficiency.

Put another way: Below a difficult-to-define threshold, an increase in self-sufficiency does not yield either lower or more reliable economic costs, nor does it decrease the nation’s vulnerability to blackmail, price shocks, etc.

In other words, though dependence always has potentially negative consequences, it can also be cheaper, more convenient, and more profitable than autarky.

The diffused benefits of autarky are often overshadowed by the presumed burdens of increasing self-sufficiency. But this trade-off can be illusory. Though the status-quo players benefiting from dependence on foreign markets, trade, and capital will shrilly claim that the nation is doomed should their foreign-derived profits be sacrificed in favor of increasing autarky, a desire for more autarky often pushes the economy and society into a highly positive and productive search for greater efficiencies and more productive uses of capital.

Is the sacrifice needed to reach self-sufficiency as steep as presumed, or is a new order of efficiency enough to meaningfully reduce dependence on foreign resources and capital?

A Thought Experiment in American Autarky

If we look at America’s consumption of fossil fuels and its dependence on oil imports to feed its consumption, autarky forces us to ask: Exactly how difficult would it be to lower consumption enough to eliminate the need for imported oil? Would the economy suffer a death-blow if vehicle, heating, and appliance-efficiency standards were raised, and business travel declined in favor of telecommuting and teleconferencing, etc.?

The answer of those profiting from the status quo is, of course, “Yes, the U.S. will be fatally harmed if energy consumption declines,” but the reality is that such creative destruction of wasteful inefficiencies and consumption is the heart of free enterprise and the rising productivity that creates widespread prosperity.

If the U.S. had listened to the 1970s-era defenders-of-the-status-quo doomsdayers, who claimed that environmental codes and higher energy-efficiency standards would doom the nation, the U.S. economy would in fact be doomed by the absurdly inefficient energy consumption of that era. The U.S. economy has remained vibrant and productive precisely because the defenders-of-the-status-quo doomsdayers lost the political conflict between the forces of improved efficiency and productivity and the defenders of the inefficient, wasteful, and diminishing-returns status quo.

There is one other element in the calculus of dependence, vulnerability, and freedom of action implicit in any discussion of autarky. Despite the rapid increase in production of oil and gas in the U.S., America remains dependent on imports of oil. But not all foreign sources of oil, capital, expertise, etc. are equal; some suppliers may be stable, close allies, and share borders and standards of trade (for example: Canada, Mexico, and the U.S.), while others may be distant, unstable, and unreliable.

In other words, autarky may not be worth the cost if a nation is dependent on stable, close neighbors, but the value of autarky rises very quickly when a nation’s survival is dependent on distant, unstable nations with few ties other than the profitable export of resources.

Though a survey of America’s relative dependence and self-sufficiency would require a book, let’s look at a few charts to get a taste of America’s declining dependence on foreign-supplied oil.

Declines in consumption have the same effect in terms of reducing dependency as do increases in domestic production. Has the U.S. economy imploded as miles driven have declined? Or has the increased efficiency this implies boosted productivity?

U.S. imports of petroleum have declined:

U.S. domestic crude oil production has increased:

U.S. natural gas production has risen:

The U.S. oil/gas rig count is still far lower than the peak in the 1980s:

There are many issues raised by these charts, including the sustainability of increased production, the possibility of further declines in consumption, policies that affect production and consumption, and so on, but similar charts of grain, capital, expertise, goods, etc. would help to fill out the complex set of issues raised by declining consumption and increasing domestic production and productivity.

In finance, dependence can mean dependence on other nations for capital and/or profits. What is the consequence of rising autarky for an economy such as America’s that is heavily dependent on foreign markets and trade for the stupendous profitability of its corporations?

In Part II: The Consequences of American Autarky, we discuss this and other ramifications of America’s rising autarky.

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale. Could the U.S. shift production from overseas to domestic suppliers, and reduce its consumption of oil and other resources imported from other nations?

Click here to access Part II of this report (free executive summary; enrollment required for full access).

Are we trading away our rights and environment? | Science Matters | David Suzuki Foundation

January 22, 2014 2:35 pm / Leave a comment

Are we trading away our rights and environment? | Science Matters | David Suzuki Foundation.

Photo: Are we trading away our rights and environment?

(Credit: Gord McKenna via Flickr)

By David Suzuki with contributions from with contributions from David Suzuki Foundation Communications Manager Ian Hanington.

Global trade has advantages. For starters, it allows those of us who live through winter to eat fresh produce year-round. And it provides economic benefits to farmers who grow that food. That could change as oil, the world’s main transport fuel, becomes increasingly scarce, hard to obtain and costly, but we’ll be trading with other nations for the foreseeable future.

Because countries often have differing political and economic systems, agreements are needed to protect those invested in trade. Canada has signed numerous deals, from the North American Free Trade Agreement (NAFTA) to several Foreign Investment Promotion and Protection Agreements (FIPA), and is subject to the rules of global trade bodies, such as the World Trade Organization (WTO).

Treaties, agreements and organizations to help settle disputes may be necessary, but they often favour the interests of business over citizens. With Canada set to sign a 31-year trade deal with China, a repressive and undemocratic country with state-owned corporations, we need to be cautious.

Should we sign agreements if they subject our workers to unfair competition from lower-paid employees from investor nations, hinder our ability to protect the environment or give foreign companies and governments excessive control over local policies and valuable resources? Under some agreements, basics like protecting the air, water and land we all need for survival can become difficult and expensive.

One recent case could put Canada on the hook for $250 million. Quebec has put a hold on fracking pending a study into the environmental impacts of blasting massive amounts of water, sand and chemicals into the ground to fracture rock and release gas deposits. A U.S. resource company plans to sue Canada under Chapter 11 of NAFTA, claiming compensation for the moratorium’s damage to its drilling interests. Similar disputes have already cost Canada millions of dollars.

Ontario also wants assurances that fracking is safe before it allows the practice. That province is facing costs and hurdles because of another conflict between trade and environment. Japan and the European Union filed a complaint with theWTO, claiming a requirement under the Ontario Green Energy Act that wind and solar projects must use a set percentage of local materials is unfair.

Many of the problems arise because of an investor-state arbitration mechanism, which is included in NAFTA, as well as the proposed Canada-China FIPA, Canada-European Union Comprehensive Economic and Trade Agreement and Trans-Pacific Partnership. It allows foreign investors to bring claims before outside arbitrators if they believe their economic interests are being harmed by a nation’s actions or policies. So economics trump national interests.

This has caused many countries, including Australia, South Africa, India and several in Latin America, to avoid signing deals that include the investor-state arbitration mechanism. In Australia’s case, the country recognized the pitfalls when tobacco companies, including Philip Morris, attempted to claim damages under a bilateral investment treaty after the federal government introduced a science-based law requiring cigarettes to be sold in plain, unappealing packages.

According to Australian National University law professor Thomas Faunce, Philip Morris then lobbied the U.S. government to include a similar mechanism in a new trade agreement it was negotiating with Australia. In an article for Troy Media, Faunce wrote that, with such a mechanism, the International Centre for the Settlement of Investment Disputes “would, in effect, become the final arbitrators on major Australian public policy questions concerning mineral royalties, fossil fuel and renewable energy, water, telecommunications, banking, agriculture and power.”

The 31-year trade agreement between Canada and China is worrisome, with its 15-year opt-out clause (compared to just six months for NAFTA), but the inclusion of the mechanism in other agreements is also cause for concern. At the very least, we could be on the hook for millions or billions of dollars if our environmental, health, labour or other policies were deemed to harm the interests of those investing in or trading with Canada.

The government’s desire to expand global trade may be understandable, but we mustn’t give away too much. We must tell our elected representatives to at least delay the Canada-China FIPA until it has been examined more thoroughly, and to reconsider the inclusion of investor-state arbitration mechanisms in all trade deals.

Ponzi World (Over 3 Billion NOT Served): Put A Fork In It: The Collapse in Globalization Is Well Underway

January 12, 2014 8:49 am / Leave a comment

Ponzi World (Over 3 Billion NOT Served): Put A Fork In It: The Collapse in Globalization Is Well Underway.

It took five years of Extend and Pretend, but global thought dealers have finally squandered enough financial resources to kill the globalized ponzi model for posterity. All of Harvard’s frat boys plus 520 global interest rate cuts combined with $33 trillion of fiscal and monetary stimulus, can’t put Humpty Dumpty together again…

Capacity Utilization is Falling
The vast majority still believe that interest rates have been falling (Treasury bonds rallying) these past years, due to Central Bank stimulus programs. Therefore, according to conventional wisdom, the Fed’s tapering of monetary stimulus MUST cause interest rates to rise:
“The search for bond alternatives is urgent. Interest rates almost certainly will rise this year as the Federal Reserve continues scaling back its massive stimulus program — and bond prices fall as interest rates rise”
Unfortunately, even a one-eyed man looking sideways can see below that interest rates (red) fall EVERY time the Fed ends one of its quantitative easing programs. The economy is in a state of deep underlying deflation. Therefore every time the Fed takes its foot off the gas, deflation accelerates and risk assets sell off aka. stocks and interest rates fall.
The Mother of All Output Gaps
The longer-term view of interest rates (below) is the scariest chart on the internet. The implications of this chart have even me wanting to change my underwear. Despite trillions in monetary inflation, forward inflation expectations are still falling. The bond market has already determined that deflation is inevitable. Central Banks can’t save globalization from cannibalizing the world economy and leaving nothing in its wake except massively expanded supply capacity and collapsed demand i.e. the mother of all output gaps.

The Mystery of the Missing Jobs
Therefore, the real reason there are no jobs is simply because there is too much global spare capacity and under the fundamentally imbalanced globalization paradigm, the output gap just keeps growing.

 
Long-term interest rates over the past 20 years:
The trend in interest rates is still down even though the money supply and economy are still expanding. Totally unbelievable. Wait until that black line (S&PCasino) collapses; as we see in 2008, interest rates went straight down with the stock market. This time nominal interest rates will go firmly negative, even if real (deflation-adjusted) rates remain positive:
 
 
Game Over, Man
The Fed did its best (below) to save globalization from self-imploding, but they can’t save something that is totally imbalanced and unsustainable from collapsing. With respect to jobs and debt-adjusted GDP, The underlying economic collapse is already well advanced despite what the public at large has been led to believe.
 
Low interest rates are only confirming what the jobs market is clearly saying about spare capacity.
The Labor Force Participation Rate – now at a fresh 35 year low – is the best indication that the globalized pseudo-economy is throwing off massive amounts of spare capacity aka. people. It was either this, or lower profits, so DowCasino took priority…

Obamanation

Using 2008 as a baseline for GDP and the deficit, then we see that debt-adjusted incremental GDP is firmly negative. This implies a Keynesian/Fiscal economic multiplier of less than 1 i.e. a negative ROI for each dollar of debt. Conventional demand (and supply) side economic theory is irretrievably broken. We are in uncharted territory on a rudderless ship.

The illusion-formerly-known-as-the-economy is 120% borrowed money. We can thank the grandchildren for giving up their future so that today’s shrink-wrapped zombies could have a few more years of shopping sprees:

 
China “Won” the Globalized Trade War – A Totally Pyrrhic (Empty) Victory
Over two decades ago, the Chinese Communist Party set out to create the leading capitalist economy on the planet. You can’t make this shit up. Fast forward and they have now surpassed the U.S. in global trade as of just this week.
It was text book export mercantilism. China ran the long game against America’s political attention deficit retards. No different than how England amassed Spain’s gold back in the 1600s:
The Balance of our Forraign Trade is The Rule of Our Treasure
“We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.”

U.S. (Im)balance of Trade:
Lesson learned: No nation is obligated to be mercantilist in its trade relations, however, those that are not mercantilist certainly can’t trade with those that are.

America is Run by Political Retards
Apparently people four hundred years ago were not this stupid…

In any event, China is now Communist in name only and have thereby become the world’s largest Fascist state followed by the U.S. and Russia both of which are puppet democracies owned by and for ultra wealthy oligarchs. China’s *reward* for this metamorphosis is a society populated by millions of factory wage slaves making $.80/hour minimum wage, unsustainably polluted cities, trillions of non-amortizingunsecured foreign (Ponzi) debt and what will ultimately prove to be thousands of idled factories closely followed by widespread discontent.

Congratulations. You finally made it.

Rhyme and Reason: Why 2014 Doesn’t Have to be 1914 | The Diplomat

January 3, 2014 10:23 am / 1 Comment on Rhyme and Reason: Why 2014 Doesn’t Have to be 1914 | The Diplomat

Rhyme and Reason: Why 2014 Doesn’t Have to be 1914 | The Diplomat.

In a recent Brookings Institution essay entitled “The Rhyme of History: Lessons of the Great War,” historian Margaret Macmillan argues that there are strong and haunting parallels between today’s geopolitical landscape and Europe of 1914. Pivoting off the well-know Mark Twain adage that history does not repeat itself, but does rhyme, Macmillan suggests that the one-hundredth anniversary of World War I encourages us to reflect on the “valuable warnings” of the past. The actual and potential conflicts in the year ahead are many, and some of the same structural forces that lead to the Great War a century ago will be prevalent in 2014.

Macmillan is an eminent historian (her book, Paris 1919 is a must-read), but analogies between 1914 Europe and the world today should not be drawn hastily. World War I continues to preoccupy scholars and pundits alike, in part because it was so destructive, and in part because there is still no consensus on why exactly it occurred. With the centennial of the conflict approaching, we can expect to see 1914 references made a great deal — particularly with respect to the power transition that is currently in progress in the Pacific —  but we should remain duly skeptical of this tempting parallel. Many of the conditions that were present in antebellum Europe do indeed prevail today.  Whether these forces actually raise the risk of war is far from established, however, and the expectation that they do may itself increase the chance of conflict.

In her Brookings essay, Macmillan identifies several conditions that were present in Europe before the Great War that, she argues, also raise the risk of conflict today.  The first of these conditions is globalization and its unintended consequences. In both 1914 and at present, there existed the common assumption that the world was becoming too interconnected to resort to war — conflict would be prohibitively costly. But, Macmillan points out, a hundred years ago as now, those who preached interdependence often ignored the fact that globalization can lead to job loss, foster intense localism and nativism, and provide a breeding ground for radical ideologies and movements (including those that employ terrorism). Globalization, Macmillan warns us, can also heighten interstate rivalries.

Related to this is a second trend — rising nationalism and sectarianism. Once trapped in interstate rivalries, leaders may seize upon nationalism and bitter historical enmity to appeal to their publics. In 1914, the predominant antagonisms were the Anglo-German and Russo-German rivalries; today they include Sino-American and Sino-Japanese competition.  Third, Macmillan reminds us that tightly-knit defensive alliances may encourage conflict or cause it to spread. In 1914, Germany saw itself as inextricably bound to Austria, as France did to Russia. Today, she warns, the United States could easily be drawn into war in either the Middle East or East Asia by its alliance ties.

Finally, Macmillan warns that “World Policemen” may be forced into retirement, leaving a vacuum of instability and uncertainty. By the early 20th century, the British clearly could not sustain the demands and costs of their empire. Likewise, Macmillan avers, the United States will not be able to preserve hegemony indefinitely. Even if it its reach is primarily confined to Asia, the most obvious challenge to U.S. influence will come from a rising China, and crises or conflicts may break out unless the dominant powers can establish a stable international order.

Macmillan is hardly the first to point to these conditions as potential precursors to conflict. With respect to China’s rise, analysts have argued frequently that Washington and Beijing’s national security interests put the two countries on a collision course. Some have gone so far as to insist that this clash is inevitable.  But in her comparison of the international conditions that preceded the Great War and those that prevail today, Macmillan fails to address one truly crucial question: Why did the forces of globalization, nationalism, interlocking alliances, and power transition combine to produce war in 1914 specifically?

The prevailing patterns that Macmillan identifies as historical rhymes may all be thought of as permissive conditions to conflict: these forces may have helped to pave the way to the Great War’s onset, but none alone was the immediate cause of war in 1914.  Moreover, these forces were almost certainly present in Europe prior to that fateful year. Why, then, did they not combine to produce a major war when Austria annexed Bosnia in 1908? Why did they not stoke the Balkan Wars of 1912 and 1913 and produce global conflagration then? If we are to accept that any specific set of conditions caused the First World War in 1914, we must also be able to explain why those forces did not produce war earlier or later, or why conflict could not have been avoided altogether despite their prevalence.

Indeed, in the copious literature on World War I, scholars have attempted to dissect these important counterfactuals. Some argue that the structural conditions that Macmillan identifies really did make a European conflict inevitable — interlocking alliances, the Anglo-German power transition, nationalism, and other factors meant that war would have occurred in 1915 or 1916 if it did not in 1914. But other analysts insist that the Great War was the immediate result of assassination of the Austrian Archduke Franz Ferdinand. If he had not been killed in Sarajevo on June 28, 1914 — or if he had been shot and lived — the great powers might have avoided war, not just in that year, but in perpetuity. If an idiosyncratic event like the Archduke’s assassination is the key to explaining the war, however, it is not clear how much credence we should give to other underlying factors. Macmillan’s background conditions for conflict may be insufficient to bring about a war, and indeed, may not even be necessary. And if this is true, then the parallels that can be drawn between the onset of the First World War and geopolitics today may be impoverished at best.

So is this a simple warning that decision makers should approach historical analogies with caution? It is that, but also more. Among the many causes of the First World War that international relations scholars have identified was the widespread belief in European capitals that a great power conflict was highly likely. Combined with prevailing military technologies and strategies of the time, this assumption led statesmen to think that they would be advantaged if they struck first, rather than waiting for an adversary attack that was sure to come in due course.  By overemphasizing historical parallels, we risk convincing ourselves that conflict is imminent, when in fact it remains eminently avoidable. If we were to combine Macmillan’s warnings about economic interdependence, nationalism, alliances, and power transitions, for example, it would be tempting to flag the next fracas over the Senkakus/Diaoyus, where all of these forces are clearly present, as the new Sarajevo. Combined with great power military strategies that may be escalatory, conflict anticipation via analogy could produce disastrous results indeed.

With the one-hundredth anniversary of the First World War fast upon us, and a power transition manifestly under way, Macmillan’s essay will certainly not be the last analysis to draw connections between 1914 and present-day geopolitics. Indeed, there is surely value in paying heed to the similarities and differences between the two eras. By listening anxiously for historical rhymes that portend major conflict, however, we risk deafness to the multitude of factors that make the challenges of the present day unique, and soluble far short of war. A rhyme, after all, is a correspondence of sound, but not of meaning.

Here’s to wishing the world a 2014 that is considerably more peaceful than the centennial it will mark.

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