Jun 182017
 
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Thomas Cole Destruction of Empire 1836

 

The Conflicts Forum, directed by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, sent me another unpublished article by Alastair and asked if the Automatic Earth would publish it. But of course. Previous articles by Alastair published here are: ‘End of Growth’ Sparks Wide Discontent in October 2016, Obstacles to Trump’s ‘Growth’ Plans in November 2016 and What is this ‘Crisis’ of Modernity? in January 2017.

Here’s Alastair again:

 

 

Alastair Crooke: David Stockman routinely refers to President Trump as the ‘Great Disrupter’. But this is not a bad quality, he insists. Rather, it is a necessary one: Stockman argues (my paraphrasing) that Trump represents the outside force, the externality, that tips a ‘world system’ over the brink: It has to tip over the brink, because systems become too ossified, too far out on their ‘branch’ to be able to reform themselves. It does not really matter so much, whether the agency of this tipping process (President Trump in this instance), fully comprehends his pivotal role, or plays it out in an intelligent and subtle way, or in a heavy-handed, and unsubtle manner. Either serve the purpose. And that purpose is to disrupt.

Why should disruption be somehow a ‘quality’? It is because, during a period when ‘a system’ is coming apart, (history tells us), one can reach a point at which there is no possibility of revival within the old, but still prevailing, system. An externality of some sort – maybe war, or some other calamity or a Trump – is necessary to tip the congealed system ‘over’: thus, the external intrusion can be the catalyst for (often traumatic) transformational change.

Stockman puts it starkly: “the single most important thing to know about the present risk environment [he is pointing here to both the political risk as well as financial risk environment], is that it is extreme, and unprecedented. In essence, the ruling elites and their mainstream media megaphones have arrogantly decided that the 2016 [US Presidential] election was a correctible error”.

But complacency simply is endemic: “The utter fragility of the latest and greatest Fed bubble could not be better proxied than in this astounding fact. To wit, during the last 5,000 trading days (20 years), the VIX (a measure of market volatility) has closed below 10 on just 11 occasions. And 7 of those have been during the last month! … That’s complacency begging to be monkey-hammered”, Stockman says.

Former Presidential candidate, Pat Buchanan concurs: “President Trump may be chief of state, head of government and commander in chief, but his administration is shot through with disloyalists plotting to bring him down.

We are approaching something of a civil war where the capital city seeks the overthrow of the sovereign, and [to achieve] its own restoration. Thus far, it is a nonviolent struggle, though street clashes between pro- and anti-Trump forces are increasingly marked by fistfights and brawls. Police are having difficulty keeping people apart. A few have been arrested carrying concealed weapons.

That the objective of this city is to bring Trump down, via a deep state-media coup, is no secret. Few deny it.”

The extraordinary successful ‘manufacture’ and ‘parachuting-in’ of Macron into the French Presidential election by the French élite, precisely has given to the globalised Deep State (including their US counterparts), renewed confidence that Europe and America’s slide towards ‘populism’, is indeed a ‘correctable error’. European élites now can barely contain their revived schadenfreude at the Brexiters’ and at the Populists’ presumed discomfort (see here).

 


Thomas Cole Consummation of Empire 1836

 

But despite the palpable danger to the integrity of the political system itself, Stockman notes, “it is no inconsiderable understatement to suggest that the S&P 500 at 2440 is about as fragile as the ‘market’ has ever been.

Any untoward pinprick could send it into a tailspin … Doug Kass said it best in his recent commentary: “Over history, as we have learned, a Minksy Moment develops when investor sentiment becomes complacent after long periods of prosperity and the data is ignored, and doesn’t seem to matter anymore, as I wrote in “It’s a ‘Bohemian Rhapsody’ Market: Nothing Really Matters … to investors.” In short, the market has become ‘zombie’ (in the sense of residing within a psychological defence mechanism – as, when to contemplate the alternative – simply is too threatening to the psyche) [emphasis added].

Daniel Henninger, in a Wall Street Journal op-ed, writes: “Donald Trump’s election has caused psychological unhingement in much of the population. But the Trump phenomenon only accelerated forces that were plummeting in this direction before the 2016 election…

“Impossible to miss, though, is how jacked up emotional intensity has become in American politics. The campaign rallies of both Mr. Trump and Bernie Sanders often sat on the edge of violence. Reporters describe political town hall meetings as full of “angry” voters. Shouting down the opposition in these forums or on campus has been virtually internalized as standard behavior. Refusal to reason is the new normal. And then, the unreason is euphemized as free speech.

Explaining away these impulses as a routine turn of the populist political cycle is insufficient. Something more permanent is happening.”

It is not, of course just the markets which are threatened by unperceived risk. Trump shall not be forgiven for challenging the sacrosant meme of a world divided between (good) ‘liberal’ democracies (led by the US and its European allies) and (bad) illiberal autocracies (led today, by President Putin’s Russia): by snubbing Nato and withdrawing from the Paris climate agreement, Professor Michael Klare writes, “we’ve been told, President Trump is dismantling the liberal world order created by Franklin D Roosevelt at the end of World War II”.

 


Thomas Cole Destruction of Empire 1836
 

An offence, it seems, against something somehow sacral: recently, US comedienne Kathy Griffin posted a video of herself holding the bloody, severed head of Donald Trump. “But that wasn’t the end of it” Henninger notes. “We may assume that as Ms. Griffin was creating her video, the artists at New York’s Public Theatre, were rehearsing their production of Julius Caesar, the one in which Central Park audiences watch ‘Caesar’ as a blond-haired Donald Trump, who is pulled down from a podium by men in suits, and assassinated with plunging knives … Whatever once fastened the doors of people’s minds to something secure and stable has become unhinged.”

Mike Vlahos (Professor at the US Naval War college and John Hopkins) tells us that, as a military historian and global strategist, he became curious to know just why it is that ‘world systems’ do ‘come apart’. His first, intuitive sense was that their collapse generally was brought about by some massive external force such as war, pestilence or famine, and by the concomitant mass migrations of peoples.

But when he and his students completed their research, he concluded that though these factors had often played an important part, they were not the prime cause of the system coming apart. Rather, he identified a number of key triggers:

· The élites became stratified, and politics frozen
· The peoples’ allegiance became taken for granted, at the same time that the élites chose to ignore threats to the peoples’ way of life
· Social mobility declined, and change is fiercely resisted
· Rather, élites work to maximize their wealth and status.
· Elite authority becomes excessively militarized – and justified as ‘saving civilization’.

He concludes from this study, “the situation that we inhabit today […] here in the imperial city in Washington DC, is that it is absolutely hollowed out … it is incapable of offering anything to its own people, the American people … I think we have reached a point where there is no possibility of revival within the current system that exists. The current system is set upon … is determined to eat itself out in a kind of civil war that is coming, and at the end of that, it will be done, will be finished”.

“The Methoni, one of the great nations of the late Bronze Age, had this same problem with the élites and the 1% that we have today, and they were overthrown. That’s 3300 years ago, and it keeps happening again and again. And the very structure of the decadent relationships in late periods where élites refuse to accommodate, refuse to adapt, refuse to be sensitive to needs of the larger whole of society, means this has to happen. There has to be an overthrow … for things eventually to get better, to be renewed. In other words, you can’t renew from within”.

Is this the situation today? The pre-conditions that Professor Vlahos relates, in terms of élite hubris, self-regard, and disdain for the real concerns of people are there (the polarization of US society at the US election provides the empirical evidence for this). And Stockman, in calling Trump the ‘Great Disrupter’ plainly implies that he might be precisely the ‘externality’ (coming from outside the élite) – that might tip things ‘over’. This surely is what Stockman means when he warns about ‘the present risk environment’ being extreme.

Of course, the usual retort is that Trump offers no coherent alternative conceptual vision for the future, but only seized successfully upon a number of key insights: the power of cultural nationalism, the pain felt by the casualties of globalism, the impact of a hollowed-out US economy, and the need to put America first. This is true. These insights do not constitute a vision for the future, but why should one expect that, from the ‘Disrupter’? His ‘agency’ is that of catalyst, not that of final ‘constructor’. That comes later.

 


Thomas Cole Desolation of Empire 1836

 

So, from whence does ultimate societal renewal come? The classic answer is that after ‘disruption’ nothing much is left standing amidst the (metaphoric) ruins of whatever stood as the reigning ‘modernity’. Historically, renewal was effected through a communal ‘reaching back’- beyond the roots of whatever represented the contemporary crisis – to delve back, deep into the archetypal cultural history of a people. The rummaging in collective memory, allows a narrative to shape, about why the present ‘hurt’ befell its people, and to bring forward, transformed into contemporary meaning, some ‘solution’: a new meta-historical understanding.

Plainly, this (a type of spiritual renewal) is not President Trump’s ‘bag’. (Steve Bannon’s the more so, perhaps?)

What does all this mean in practical terms? First, it suggests that most of us still prefer not to address the stark reality that “the objective of this city (DC), is to bring Trump down, via a deep state-media coup” and the bitter political trench warfare, which this portends. We prefer to rest in complacency, (as zombies for now), until a crisis squarely hits us – in a personal way.

Secondly, thoughts of an easy return to the status quo ante (such as via Vice-President Pence standing-in), is problematic (Macron’s election in France notwithstanding). Since the élites (all of them), have, in their ‘war’ against ‘populists’ and deplorables, totally lost legitimacy and authority for a substantive part of their populations. And they will not – cannot – adapt. For, that is their nature. This is the moment, Professor Vlahos notes, when a system – i.e. US operational governance – begins to ‘come apart’. Individuals, cabals within government, whole departments of state, look to their own self-awarded ‘authority’, rather than to that of the government as mandated by the electorate.

Thus we have this past week, the Senate voting 97-2 to impose further sanctions on Russia. Another wrench jammed into Trump’s foreign policy wheels – and explicitly conceived to paralyse and impede the President.

Thirdly, the intent is – like some Amazonian reptile venom – to ‘bite’ him with so much innuendo and assorted investigations and further allegations, that Trump, like the reptile’s victim, remains awake – but incapable of moving a muscle: A true zombie, in fact, as the reptile feeds on its living corpse.

Fourth, this zombified US President, will shortly face the requirement to negotiate with Congress an exit from a bubbling financial sphere soaring upwards, whilst a moribund real economy trails downwards – under pressure from the fast-approaching debt-ceiling deadline. The Senate’s slap at the President’s face with the Russia sanctions vote suggests it is more likely that he will be tossed another spanner: this time aimed at the wheels of the ‘Trump reflation’ programme.

What other insights might history offer? Two, perhaps: Professor Vlahos, during his discussion with John Batchelor, the latter points out that, even at the very moment that the hub of the Roman Empire already had fallen apart, the collapsing Empire was celebrated the most, when it was imitated at the furthest edges of Empire: by the peoples of Gaul and Germany, for example. Are we not seeing the same today, in Europe, as Merkel and Macron vow to keep the liberal, globalist values of the American Empire alive — at the edges of the American Empire — in Europe?

And lastly, the constituency that historically led renewal? Professor Vlahos: “The Roman legions, the Czarist armies, the German Imperial armies and the Ottoman armies”.

The Pentagon élites should note well.

 

 

Apr 232017
 
 April 23, 2017  Posted by at 2:31 pm Finance Tagged with: , , , , , , , , , ,  11 Responses »
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René Magritte Le Cri du Coeur 1960

 

Austerity is over, proclaimed the IMF this week. And no doubt attributed that to the ‘successful’ period of ‘five years of belt tightening’ a.k.a. ‘gradual fiscal consolidation’ it has, along with its econo-religious ilk, imposed on many of the world’s people. Only, it’s not true of course. Austerity is not over. You can ask many of those same people about that. It’s certainly not true in Greece.

IMF Says Austerity Is Over

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor.

In Greece, the government did not increase spending in 2016. Nor is the country’s era of spending cuts at an end. So did the IMF ‘forget’ about Greece? Or does it not count it as part of the rich world? Greece is a member of the EU, and the EU is absolutely part of the rich world, so that can’t be it. Something Freudian, wishful thinking perhaps?

However this may be, it’s obvious the IMF are not done with Greece yet. And neither are the rest of the Troika. They are still demanding measures that are dead certain to plunge the Greeks much further into their abyss in the future. As my friend Steve Keen put it to me recently: “Dreadful. It will become Europe’s Somalia.”

An excellent example of this is the Greek primary budget surplus. The Troika has been demanding that it reach 3.5% of GDP for the next number of years (the number changes all the time, 3, 5, 10?). Which is the worst thing it could do, at least for the Greek people and the Greek economy. Not for those who seek to buy Greek assets on the cheap.

 

But sure enough, the Hellenic Statistical Authority (ELSTAT) jubilantly announced on Friday that the 2016 primary surplus was 4.19% (8 times more than the 0.5% expected). This is bad news for Greeks, though they don’t know it. It is also a condition for receiving the next phase of the current bailout. Here’s what that comes down to: in order to save itself from default/bankruptcy, the country is required to destroy its economy.

And that’s not all: the surplus is a requirement to get a next bailout tranche, and debt relief, but as a reward for achieving that surplus, Greece can now expect to get less … debt relief. Because obviously they’re doing great, right?! They managed to squeeze another €7.3 billion out of their poor. So they should always be able to do that in every subsequent year.

The government in Athens sees the surplus as a ‘weapon’ that can be used in the never-ending bailout negotiations, but the Troika will simply move the goalposts again; that’s its MO.

A country in a shape as bad as Greece’s needs stimulus, not a budget surplus; a deficit would be much more helpful. You could perhaps demand that the country goes for a 0% deficit, though even that is far from ideal. But never a surplus. Every penny of the surplus should have been spent to make sure the economy doesn’t get even worse.

Greek news outlet Kathimerini gets it sort of right, though its headline should have read “Greek Primary Surplus Chokes Economy“.

Greek Primary Surplus Chokes Market

The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19% of GDP, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to €7.369 billion against a target for €879 million, or just 0.5% of GDP. A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9% of GDP or €6.937 billion.

The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program. This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7% of GDP – which includes the cost of paying interest to the country’s creditors. There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure.

The amount of €6-6.5 billion collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016. On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets. On the other hand, however, the overperformance of the budget may weaken the argument in favor of lightening the country’s debt load.

Eurogroup head Dijsselbloem sees no shame in admitting this last point :

Dijsselbloem Sees ‘Tough’ Greek Debt Relief Talks With IMF

“That will be a tough discussion with the IMF,” said Dijsselbloem, who is also the Dutch Finance Minister in a caretaker cabinet, “There are some political constraints where we can go and where we can’t go.” The level of Greece’s primary budget surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed.

That’s just plain insane, malicious even. Greek PM Tsipras should never have accepted any such thing, neither the surplus demands nor the fact that they affect debt relief, since both assure a further demise of the economy.

Because: where does the surplus come from? Easy: from Troika-mandated pension cuts and rising tax levels. That means the Greek government is taking money OUT of the economy. And not a little bit, but a full 4% of GDP, over €7 billion. An economy from which so much has already vanished.

The €7.369 billion primary surplus, in a country of somewhere between 10 and 11 million people, means some €700 per capita has been taken out of the economy in 2016. Money that could have been used to spend inside that economy, saving jobs, and keeping people fed and sheltered. For a family of 3.5 people that means €200 per month less to spend on necessities (the only thing most Greeks can spend any money on).

I’ve listed some of the things a number of times before that have happened to Greece since the EU and IMF declared de facto financial war on the country. Here are a few (there are many more where these came from):

25-30% of working age Greeks are unemployed (and that’s just official numbers), well over 1 million people; over 50% of young people are unemployed. Only one in ten unemployed Greeks receive an unemployment benefit (€360 per month), and only for one year. 9 out of 10 get nothing.

Which means 52% of Greek households are forced to live off the pension of an elderly family member. 60% of Greek pensioners receive pensions below €700. 45% of pensioners live below the poverty line with pensions below €665. Pensions have been cut some 12 times already. More cuts are in the pipeline.

40% of -small- businesses have said they expect to close in 2017. Even if it’s just half that, imagine the number of additional jobs that will disappear.

 

But the Troika demands don’t stop there; they are manifold. On top of the pension cuts and the primary surplus requirement, there are the tax hikes. So the vast majority of Greeks have ever less money to spend, the government takes money out of the economy to achieve a surplus, and on top of that everything gets more expensive because of rising taxes. Did I ever mention businesses must pay their taxes up front for a full year?

The Troika is not “rebalancing Greece’s public finances in a growth-friendly manner”, as Dijsselbloem put it, it is strangling the economy. And then strangling it some more.

There may have been all sorts of things wrong in Greece, including financially. But that is true to some degree for every country. And there’s no doubt there was, and still is, a lot of corruption. But that would seem to mean the EU must help fight that corruption, not suffocate the poor.

 


Yes, that’s about a 30% decline in GDP since 2007

 

The ECB effectively closed down the Greek banking system in 2015, in a move that’s likely illegal. It asked for a legal opinion on the move but refuses to publish that opinion. As if Europeans have no right to know what the legal status is of what their central bank does.

The ECB also keeps on refusing to include Greece in its QE program. It buys bonds and securities from Germany, which doesn’t need the stimulus, and not those of Greece, which does have that need. Maybe someone should ask for a legal opinion on that too.

The surplus requirements will be the nail in the coffin that do Greece in. Our economies depend for their GDP numbers on consumer spending, to the tune of 60-70%. Since Greek ‘consumers’ can only spend on basic necessities, that number may be even higher there. And that is the number the country is required to cut even more. Where do you think GDP is headed in that scenario? And unemployment, and the economy at large?

The question must be: don’t the Troika people understand what they’re doing? It’s real basic economics. Or do they have an alternative agenda, one that is diametrically opposed to the “rebalancing Greece’s public finances in a growth-friendly manner” line? It has to be one of the two; those are all the flavors we have.

You can perhaps have an idea that a country can spend money on wrong, wasteful things. But that risk is close to zilch in Greece, where many if not most people already can’t afford the necessities. Necessities and waste are mutually exclusive. A lot more money is wasted in Dijsselbloem’s Holland than in Greece.

In a situation like the one Greece is in, deflation is a certainty, and it’s a deadly kind of deflation. What makes it worse is that this remains hidden because barely a soul knows what deflation is.

Greece’s deflation hides behind rising taxes. Which is why taxes should never be counted towards inflation; it would mean all a government has to do to raise inflation is to raise taxes; a truly dumb idea. Which is nevertheless used everywhere on a daily basis.

In reality, inflation/deflation is money/credit supply multiplied by the velocity of money. And in Greece both are falling rapidly. The primary surplus requirements make it that much worse. It really is the worst thing one could invent for the country.

For the Greek economy, for its businesses, for its people, to survive and at some point perhaps even claw back some of the 30% of GDP it lost since 2007, what is needed is a way to make sure money can flow. Not in wasteful ways, but in ways that allow for people to buy food and clothing and pay for rent and power.

If you want to do that, taking 4% of GDP out of an economy, and 3.5% annually for years to come, is the very worst thing. That can only make things worse. And if the Greek economy deteriorates further, how can the country ever repay the debts it supposedly has? Isn’t that a lesson learned from the 1919 Versailles treaty?

The economists at the IMF and the EU/ECB, and the politicians they serve, either don’t understand basic economics, or they have their eyes on some other prize.