Aug 262019
 
 August 26, 2019  Posted by at 1:56 pm Primers Tagged with: , , , , , , , , , ,


Joan Miro The farmer’s wife 1923

 

In Jackson Hole on Friday, Bank of England’s outgoing governor Mark Carney talked about a Synthetic Hegemonic Currency (SHC) that the world ‘must’ create, and I thought: that sounds as creepy as anything Halloween. Now, Carney is a central banker as well as a former Giant Squid partner, hence a certified cultist, but still.

He even mentioned Facebook’s Libra ‘currency’ as some sort of example for something that should replace the US dollar internationally. And that replacement is allegedly needed because countries are hoarding dollars. And/or “protecting themselves by racking up enormous piles of dollar-denominated debt.” Whichever comes first, I guess?!

I’ve read quite a few comments on Carney’s speech, but far as I’ve seen they all ignore one aspect of it: the current shape and form of globalization. See, Carney can see only one thing: more centralization, more things moving more in the same direction. Remember, he’s the man who with Michael Bloomberg in 2016 wrote “How To Make A Profit From Defeating Climate Change”. Aka things are worth doing only if they make you richer.

It’s a state of mind that works fine when you’re inside a system and an echo chamber, when you’re a central banker or a corporate banker. But there’s nothing that indicates it’s a useful state of mind when the system you’re serving must undergo change. What is as true when it comes to climate change as it is for changing the entire global economy. Carney’s got blinders on.

 

World Needs To End Risky Reliance On US Dollar: BoE’s Carney

Carney [..] said the problems in the financial system were encouraging protectionist and populist policies. [..] Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes in the banking system. As a first step to reorder the world’s financial system, countries could triple the resources of the IMF to $3 trillion as a better alternative to countries protecting themselves by racking up enormous piles of dollar-denominated debt.

In other words, to reorder the world’s financial system, you must put a ton of money into a fund that has served (and failed) to uphold the old system. Really?

“While such concerted efforts can improve the functioning of the current system, ultimately a multi-polar global economy requires a new IMFS (international monetary and financial system) to realize its full potential,” Carney said. China’s yuan represented the most likely candidate to become a reserve currency to match the dollar, but it still had a long way to go before it was ready. The best solution would be a diversified multi-polar financial system, something that could be provided by technology, Carney said.

There is no doubt that the present system is a little off balance, that the USD’s role in the financial system is way bigger then America’s share of global trade. But the yuan is completely unfit as a reserve currency because it’s not freely traded. And whether “technology” could “provide a diversified multi-polar financial system” (quite the statement) is very much in question. Perhaps that is true in theory, but Carney’s claims are not only about theory -anymore-.

Facebook’s Libra was the most high-profile proposed digital currency to date but it faced a host of fundamental issues that it had yet to address. “As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies,” Carney said.

 

The most fundamental issue about Libra would appear to be that it doesn’t exist. Then there are a whole slew of other issues, like why should Facebook and its partners play any role at all in finance. Because they’re such benign enterprises who focus on guarding your privacy? Why Carney would present it as a potential ‘solution’ is totally unclear, other than Libra is something that could fit inside his echo chamber.

I’m still nervous about crypto, too many things still go wrong, too many thefts, too many things too many people don’t understand. But I would support Bitcoin over Carney’s “network of central bank digital currencies” any day. Because that’s the creepiness of this “Synthetic Hegemonic Currency” in all its infamy.

Carney and his echo chamber banker mates seek control, we get it. But that doesn’t mean we want them to have it. Look at the present system, which they created, and the failure of which necessitates the creation of yet another system. And then they want to control that one too?

 

But that’s still all a bit of a sideshow. I’m thinking Carney is not just wearing blinders, he’s simple too late. The globalization that his proposals might serve is already past its peak. He may not be able to see beyond it, but we should.

Globalization is a process, it’s something that moves, it can’t stand still. And now that it’s fully reached China, there’s nowhere else for it to go. Sure, there are some smaller countries that might be willing to produce at even lower prices, like Vietnam or Cambodia, but they could never do it at the same scale as China has.

The same goes for Africa. Moving the entire manufacturing capacity to Africa that was transferred from the west to China starting 20-30 years ago, would be such a logistical nightmare nobody would seriously consider it, And so we have come to a standstill. Globalization can no longer move, because it has nowhere to move to. The world is as fully globalized as it ever will be. But globalization is a process.

Perhaps counterintuitively, the only thing it can really do is to move back. For a number of different reasons, I think that’s exactly what will happen. And I don’t think that’s all that bad. Trump is of course already preparing part of that move with his tariffs war. But it can, and I’m quite sure will, go much further.

If globalization only means, and is restricted to, the transfer of manufacturing anything and everything from the US and Europe to China, and that’s what it appears to mean, the drawback for the former(s) is painfully obvious. So is the one for the planet.

 

It may make sense to produce high end products, like intricate complex electronics, in one location in the world, but why on earth should China produce our underwear? Yeah, they can do it cheaper, sure, but the main effect of that is it kills our jobs. The narrative about this over the past few decades has been that we were building a ‘knowledge economy’ or a ‘service economy’, but that’s a whole lot of BS.

Not only do we now depend on China to make our underwear, all those panties and shorts and shirts have to be hauled halfway across the planet by fossil-fuel-powered behemoth container ships. While we could make them right where we live, pay people a living wage to do it, and lower pollution in the process. Not a hard choice, even if your boxers would cost a dollar more.

And whether you worry about the planet and climate and species extinction or not, enough people do to make it an ever growing factor in decision making on these topics. And there’s more. Henry Ford understood it: people must be paid enough to afford your products if your business is to be successful. The whole “globalization” towards lower wage countries has not only lowered prices in the US and Europe, but also wages.

And that in turn has opened the way towards higher pay for executives, higher stock prices and dividends etc., in other words towards more inequality. Very few people understand the mechanics that drive this, but more of them will and must as their wages become the same as those in China.

 

So anyway, Mark Carney’s grand Synthetic Hegemonic plans are too little too late. Not that that will keep him from blabbing about them, he represents the ruling classes after all, which are doing just fine and would like to be doing even finer. But even he, and they, cannot deny that globalization is like a shark that dies when it can no longer move. Scary movie title: Globalization Never Sleeps…

And Trump plays his role in this just dandy. Not that he’s the smartest guy around, far from it, but he does recognize how globalization hurts America. And that China, a third world country not long ago, is now perhaps the world’s largest economy and will have to be subject to entirely different rules and scrutiny than in, say, 1980.

China must open up its economy to US and EU products, or the latter must close theirs to what China produces. That’s what the trade war, and/or the currency war, the whole enchilada, is about. And perhaps it needed an elephant like Trump to say it, but that’s not important. The entire world economy has reached the limits of its lopsided-ness , and the imbalance must be fixed. Simple stuff.

I’ve been using underwear as an example, but we all know -or we could- how much of what we purchase daily comes from China. Well, that, too, like globalization, and because of it, has reached its peak. We will make our own underwear again. It that a bad thing? How? Henry Ford would have understood it is not, even if he might have been the first to move his production lines to Shenzhen if he would have had the option.

Ford understood the link between prices and wages, but that knowledge appears to be gone. Except perhaps in China, but their model relies exclusively on exports and that can’t last either. Ford sought to sell his cars to his own workers. Which is just about the very opposite of what today’s financial elites are after, and why Carney wants a -belated- Synthetic Hegemonic Currency.

See the point? I predict Carney and his ilk will propose a cloud-based world currency soon, ‘guaranteed’ by -probably- the IMF’s Special Drawing Rights (SDR), but that is totally unfit for the role they have in mind.

Because you don’t need such a currency to pay for the underwear that’s produced by your neighbors just down the road. You only need it for the underwear that comes from China.

 

 

 

 

Home Forums Globalization Just Peaked

This topic contains 9 replies, has 5 voices, and was last updated by  lasttwo 1 month, 3 weeks ago.

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  • #49397

    Joan Miro The farmer’s wife 1923   In Jackson Hole on Friday, Bank of England’s outgoing governor Mark Carney talked about a Synthetic Hegemonic
    [See the full post at: Globalization Just Peaked]

    #49400

    zerosum
    Participant

    “While we could make them right where we live, pay people a living wage to do it, and lower pollution in the process. Not a hard choice, even if your boxers would cost a dollar more.”

    If “Dollar Store” can sell them for an extra dollar, then if we, (the consumer), could afford pay for the underwear made by my neighbor, plus pay all those in the pipeine who want to make a profit, then it could happen. However, I wonder if all the other retailers would be able to survive if I, (the consummer), do not have enough money to buy from them.

    Hey! more than 60% cannot survive without using their credit cards. Its too late for a $15.00 minimum wage to pay for USA made goods.

    #49401

    lasttwo
    Participant

    first what is with those feet? Hobbit?

    Try an experiment. buy local as much as you can. Most food is pretty easy. Furniture is harder but possible if you can afford it. It takes work but look for a dehumidifier. there are several made in the usa hard to find but they are there they cost twice as much but last three times as long according to the reviews. Shipping so many items as resources and bringing back finished product is crazy. automation will do most of the underwear making anyway. So why not make them locally.

    #49402

    It didn’t take long for people to question whether things could be done, did it? Just a few decades.. But really “we” used to make lots of stuff before globalization, which as we know now was only ever Chinalization, took hold of our world. If we could shift so quickly then, why couldn’t we shift back just as rapidly today? Yes, things would get more expensive, but wages would rise too, so that’s neutral. Globalization has destroyed people’s understanding of economics, methinks.

    #49404

    zerosum
    Participant

    ” If we could shift so quickly then, why couldn’t we shift back just as rapidly today?”

    …. because the elite want profits to continue their lifestyle.

    …. because the elites determine what wages that they are willing to pay

    …. because the USA consummers are bankrupt.

    ….. because you are not in la-la-land and know that yesterday is gone.

    #49405

    lasttwo
    Participant

    I was fortunate enough to work in manufacturing all my life. Started on the factory floor as a piecework operator and later a machinist 16 years mostly night shift learned skills and changed companies the next company reimbursed for college and I went to night school took 8 years to get a degree. Then I joined large corporate America. Here’s the point MBA’s are taught to maximize share holder value period. I eventually walked out because another plant was moved to Mexico and the vp of operations was holding the hourly workers to 1 % raises knowing that the move was coming. I worked side by side with these people and these hardworking people busted their ass every day and this asshole just lied and lied. I could have stayed would have been promoted but I just could not. He was making 30 times what they were and the company was extremely successful. Still is. — just heartless.

    #49406

    lasttwo
    Participant

    Mark Carney rode Canada’s good economy to the Queen. THEY would like nothing better than digital currency then negative interest rates could go way negative. no way to find a mattress to hide the cash in -no cash. The bankers would make even more. For really the first time in my life I do not know how to preserve our meager savings. I know I do not want to give money to the banks and we buy things that will reduce future expenses. solar power green house. but where from here?

    #49407

    VietnamVet
    Participant

    The Farmer’s Wife and the rest of us are analog. We need fertile land, air, water and work to survive. We also need government to provide security, safety, shelter and the right to life. Nuclear arms and climate change are existential threats to our survival; also, so are greed and cognitive dissonance. Global trade is dependent on fossil fuel. Digital currency and artificial intelligence are dependent on electrical energy which didn’t exist until in the late 19th century. Common sense indicates for civilization to continue we must stop fouling our world, be extremely energy efficient, and live in the analog environment as much as possible.

    #49413

    Dr. D
    Participant

    “countries are hoarding dollars. And/or “protecting themselves by racking up enormous piles of dollar-denominated debt.”

    Wow, so according to Carney, cash and debt are the same. Assets = Liabilities. Therefore, there is no possibility of logic and there can be no double-book accounting. How the mask slips. #AntiLogos. All things illogical, unworkable, immoral, and wrong. The opposite of logic, reason, honor, truth, and fairness. He’s telling you. If you guys all do nothing but yawn, is it his fault? The devil gives you options, alternatives, that’s all. You COULD obey God, #Logos, as the angels do, or…something more interesting…

    “Carney warned that very low equilibrium interest rates had in the past coincided with wars, financial crises and abrupt changes”

    Yes, as the wealthy attempt to protect their outsized advantage at the expense of the poor, it does indeed make people grumpy. Their plan is to channel that stress and dissatisfaction into a war, so they can profit even MORE at someone’s expense. Or in our case, start a civil war, for race, gender, politics, CNN and Facebook lies, they care not what so long as it works and happens. Otherwise, they’ll have to go from a $10 Billionaire to a $1 Billionaire, and who wants that? Much rather kill 30M Americans and burn the nation to the ground.

    “[Libra] faced a host of fundamental issues”

    Yes, the exact same ones they face today: no accounting, no oversight, no restraint, and no limit on how much completely hidden currency they can create. No rules on whether those tokens are distributed on merit and work instead of favor and friends. This is why the US$ is collapsing, and why they can never replace that entirely ruinous, discredited system with one exactly identical. The people, or rather the players, won’t have it. This is also why the SDR is DOA. It is just a basket of the same fraudulent currencies that are illogical on the face and cannot be double-book accounted as cash = debt, assets = liabilities. They can only go to wheat, rice, which will cause undue price increases and starvation, or else entirely useless junk like gold, or today’s equivalent, BTC. No one starves then because no one eats or drinks gold or BTC, but they ARE in limited supply, which hot air from Carney and Draghi is not.

    “Globalization is a process, it’s something that moves”

    What you’re saying here is that Capitalism (or the modern debt version) must expand or die. That’s relatively true. The debt must increase exponentially or collapse, and China bought them the 30 extra years. However, although Africa exists, is is not exponentially larger than China, and their gambit to dominate world oil and create one world government failed. Their new plan to create EU one world taxation and currency of fraudulent hypothocated carbon credits failed. So here we are. Global financial reset. It can’t go to banker’s fantasy coins, because no one trusts them. So historically it goes to gold, but also to any commodity, anything real, which leads to resource scarcity and thus to war. We don’t have to do that, but history is not kind.

    #49417

    lasttwo
    Participant

    So Dr D. outside of immediate store of values food housing clothing. I guess the next level are things that let you keep what you have or protect against inflation, Solar panels lead iron garden land, the next level would be things that will have value to trade wine- food- gold – sliver. Real estate wont work your going to have to physically evict people with no money and because no one will have money it really wont matter. And gold and silver are iffy because you cannot eat or heat with them. The dollars feel like so much paper to me but I am struggling with how to store value. I can buy farmland but I cannot really defend it. Maybe a fishing boat or lobster traps but frankly every person around will be doing that.

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