Nov 212016
 
 November 21, 2016  Posted by at 4:45 pm Finance Tagged with: , , , , , , , , , ,  7 Responses »


Theodor Horydczak “Dome of US Capitol through trees at night” 1943

 

For the second time in a few weeks (see ‘End of Growth’ Sparks Wide Discontent), former British diplomat Alastair Crooke quotes me extensively, and I gladly return the favor. Crooke here attempts to list -some of- the difficulties Donald Trump will face in executing the -economic- measures he promised to take in his campaign. Crooke argues that, as I’ve indicated repeatedly, for instance in America is The Poisoned Chalice, the financial crisis that never ended may be one of his biggest problems.

Here, again, is Alastair Crooke:

 

 

We are plainly at a pivotal moment. President-Elect Trump wants to make dramatic changes in his nation’s course. His battle cry of wanting to make “America Great Again” evokes – and almost certainly is intended to evoke – the epic American economic expansions of the Nineteenth and Twentieth centuries.

Trump wants to reverse the off-shoring of American jobs; he wants to revive America’s manufacturing base; he wants to recast the terms of international trade; he wants growth; and he wants jobs in the U.S. – and he wants to turn America’s foreign policy around 180 degrees.

The run-down PIX Theatre sign reads "Vote Trump" on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

The run-down PIX Theatre sign reads “Vote Trump” on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

It is an agenda that is, as it were, quite laudable. Many Americans want just this, and the transition in which we are presently in – dictated by the global elusiveness and search for growth (whatever is meant now by this term “growth”), clearly requires a different economic approach from that followed in recent decades.

As Raúl Ilargi Meijer has perceptively posited, greater self-reliance “is the future of the world, ‘post-growth’, and post-globalization. Every country, and every society, needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world … It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left, once unfettered growth hits the skids. …

“Our entire world views and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands, and flyover countries …

“Donald Trump looks very much like the ideal fit for this transition … What matters [here] is that he promises to bring back jobs to America, and that’s what the country needs … Not so they can then export their products, but to consume them at home, and sell them in the domestic market …There’s nothing wrong or negative with an American buying products made in America instead of in China.

“There’s nothing economically – let alone morally – wrong with people producing what they and their families and close neighbours themselves want, and need, without hauling it halfway around the world for a meagre profit. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves, at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.”

A Great Wish

That’s Trump’s ostensible great wish, (it seems). It is not an unworthy one, but things have changed: America is no longer what it was in the Nineteenth or Twentieth centuries, neither in terms of untapped natural resources, nor societally. And nor is the rest of the world the same either.

Mr. Trump rather unfortunately may find that his chief task will not be the management of this Great Re-orientation, but more prosaically, fending off the headwinds which he will face as he hauls on the tiller of the economy.

In short, there is a real prospect that his ambitious economic “remake” may well be prematurely punctured by financial crisis.

These headwinds will not be of his making, and for the main part, they lie beyond human agency per se. They are structural, and they are multiple. They represent the accumulation of an earlier monetary doctrine which will fetter the President-elect into a small corner from which any chosen exit will carry adverse implications.

Ditto for anyone else trying to steer any ship of state in this contemporary global economy. Paradoxically – in an era moving toward greater self-sufficiency – what success Trump may have, however, will likely depend not on self-reliance so much as he would like.

For his foreign policy about turn, he will depend on finding common interest with Russian President Vladimir Putin (that should not be too hard) – and for the economic “about turn” – on Trump’s ability not to confront China, but to come to some modus vivendi with President Xi (less easy).

“Things are not what they were.” Complexity “theory” tells us that trying to repeat what worked earlier – in very different conditions – will likely not work if repeated later. In the Clinton era, for example, 85 percent of the U.S. population growth derived from the working-age population. The headwind that Trump will face is that, over the next eight years, 80 percent of the population growth will comprise 65+ year olds. And 65+ year olds are not a good engine of economic growth. This is not an uniquely American problem; it is a global trend too.

“The peak growth” (according to Econimica blog), “in the annual combined working age population (15-64 year/olds) among all the 35 wealthy OECD nations, China, Brazil, and Russia has collapsed since its 1981 peak. The annual growth in the working age population among these nations has fallen from +29 million a year to just +1 million in 2016 … but from here on, the working age population will be declining every year … These nations make up almost three quarters of all global demand for oil and exports in general. But their combined working age populations will shrink every year, from here on (surely for decades and perhaps far longer). Global demand for nearly everything is set to suffer.

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

And then there is China: It too is passing through a difficult “transition” from the old economy to an “innovative” one. It too, has an aging population and a debt problem (with a debt-to-gross domestic ratio reaching 247 percent). Trump argues that China deliberately holds down the value of its currency to gain unfair trade advantage, and he further suggests that he intends to confront the Chinese government on this key issue.

Again, Trump does have a point (many nations are managing their exchange rates precisely in order to try to “steal” a little bit extra growth from the diminished global pot). But as noted at Zerohedge, citing the analysis of One River Asset Management executive Eric Peters:

“What’s good for the US in this case [the rising dollar and interest rates in anticipation of ‘Trumponomics’], is not good for emerging markets (EMs). Emerging markets benefit from a weaker dollar, and you’re not going to get that. Emerging markets benefit from global capital flows moving in their direction and that’s not happening either. Back in February, emerging markets were in sharp decline, driven by (1) a strong dollar, (2) rising US interest rates, and (3) slowing Chinese growth. Then China spurred a massive credit stimulus, the Fed became wildly dovish, and the dollar declined sharply.

“Interest rates collapsed throughout the year. As the growing pool of dollar, euro and yen liquidity searched for a decent return, it headed to emerging markets. Trump has reignited the dollar rally, and his fiscal stimulus will force interest rates higher. This reversed everything. [the dollars are heading home]

“And to be sure, the Beijing boys don’t want to see material weakness ahead of next autumn’s Party Congress. But we’re currently near peak impulse from China’s Q1 stimulus.”

In short, Peters is saying that, with the appreciating dollar and rising interest rate environment, growth from emerging markets as a whole will falter, since emerging markets have effectively leveraged their economies to Chinese growth. It used to be the case that they were closely tied to U.S. growth, but it is now China which dominates the EMs’ trade flows [i.e. without China growth, the EMs languish]. The question is, can America reboot its growth whilst China and the EMs languish? It is another structural shift, whereas heretofore, it was vice versa: without U.S. growth, the EMs and China languished. Now it is the converse.

Hollowed-Out Economies

There are other structural changes of course which will make it harder for the industrially hollowed-out economies of the West to recuperate jobs off-shored earlier. Firstly, there has been a systemic shift of innovation and technology eastwards (often to a more skilled and better-educated workforce). This represents not only an economic event, but a redistribution of power too. In any case, technology in this new era is being more job destructive than creative.

In one sense, Trump’s economic plan to “get America working again” through massive debt-financed, infrastructure projects, harks back to the Reagan era, which was also a period in which the dollar was strong. But yet again, “things today are not what they were then.” Inflation then was at 13 percent, Interest rates were around 20 percent, and crucially, the U.S. debt to GDP ratio was a mere 35 percent (compared to today’s estimate of 71.8 percent or 104.5 percent with external debt included).

Then, as Jim Rickards has suggested, the strong dollar was deflationary (deliberately so), and interest rates had nowhere to go, but down. It was the beginning of the three decades’ bond boom, which finally seems to have come to an end, coincident with Trump’s election. Today, inflation has nowhere to go but up – as have interest rates – and the bond market, nowhere to go, but (perilously) down.

Growth and Jobs?

Can Trump then achieve growth and jobs through infrastructure expenditure? Well, “growth” is an ambiguous, shape-shifting term. The first chart shows both sides of the equation … the annual GDP growth and the annual federal debt incurred, spent, and (thus counted as part of the growth) to achieve the purported growth.

Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

The second chart shows the annual GDP minus the annual growth in federal debt to achieve that “GDP growth.” In other words, unlike in the earlier Reagan times, more recently, the debt is producing no growth – but … well … just more debt, mostly.

In fact, what the second chart is reflecting is the dilution – through money “printing” – of purchasing power: away from one entity (the American consumer), through the intermediation of the financial sector, to other entities (mostly financial entities, and to corporations buying back their own shares). This is debt deflation: the American consumer ends having less and less purchasing power (in the sense of residual discretionary income).

The point here is that “growth” is becoming rarer everywhere. Russia and China, like everyone else, are in search for new sources for growth.

As Rickards has said, debt is the “devil” that can undo Trump’s whole schema: a “$1 trillion infrastructure refurbishment plan, along with his proposal to rebuild the military, will — at least in the short-term — significantly increase annual deficits. In fact, deficits are already soaring; the fiscal 2016 budget hole jumped to $587 billion, up from $438 in the prior year, for a huge 34% increase…in addition to this, Trump’s protectionist trade policies would implement either a 35% tariff on certain imports or would require these goods to be produced inside the United States, at much higher prices. For example, the increase in labor costs from goods made in China would be 190% when compared to the federally mandated minimum wage earner in the United States. Hence, inflation is on the way.”

In sum, self-sufficiency implies higher domestic costs and price rises for consumers.

Debt will rise. And there is seemingly already a buyers’ strike against U.S. government debt underway: well over a third of a $1 trillion worth of Treasuries were disposed of, and sold in the year to Aug. 31 by foreign Central Banks. And who is buying it? (Below, the chart shows what this purchasing looks like, as a percentage of total debt issued by the Treasury). Well, foreign central banks have disappeared. (The Chinese have not bought a U.S. Treasury bond since 2011.)

(Above: who purchased the marketable debt as a percentage, by period) Source: https://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(Above: who purchased the marketable debt as a percentage, by period)
Source.

 

It is the American public who are buying. Will they be willing to take on Trump’s $1 trillion infrastructure spree? Or, will it be “printed” in yet another dilution of the American consumer’s purchasing power? The question of whether the infrastructure splurge does give growth hangs very much in the balance to such answers. (Equity shares in construction firms will do okay, of course).

The bottom line: (Michael Pento, Pento Report): “If interest rates continue to rise it won’t just be bond prices that will collapse. It will be every asset that has been priced off that so called ‘risk free rate of return’ offered by sovereign debt. The painful lesson will then be learned that having a virtual zero interest rate policy for the past 90 months wasn’t at all risk free. All of the asset prices negative interest rates have so massively distorted including; corporate debt, municipal bonds, REITs, CLOs, equities, commodities, luxury cars, art, all fixed income assets and their proxies, and everything in between, will fall concurrently along with the global economy.

“For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concurrently with collapsing real estate, equity and bond prices.”

A Pending Financial Crisis

Trump, to be fair, has said consistently throughout the election campaign that whoever won the Presidential campaign to take office in January would face a financial crisis. Perhaps he will not face the “violent unwind” of the QE and bond bubble as some experts have predicted, but many more – according to Bank of America’s survey of 177 fund managers over the last six days, and controlling just under half a trillion of assets – expect a “stagflationary bond crash.”

This has major political implications. Trump is setting out to do no less than transform the economy and foreign policy of the U.S. He is doing this against a backdrop of many of the followers of the liberal élite, so angered at the election outcome, that they reject completely his electoral legitimacy (and, with the élites themselves staying mum at this rejection of the U.S. democratic process). Movements are being organized to wreck his Presidency (see here for example). If Trump does indeed experience a severe financial “unwind” at a time of such domestic anger and agitation, matters could turn quite ugly.

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

Nov 132016
 
 November 13, 2016  Posted by at 5:57 pm Finance Tagged with: , , , , , , , , ,  16 Responses »


Esther Bubley Waiting for Greyhound bus trip from Memphis to Louisville, KY 1943

 

Been scribbling several some post-election notes over the past few days, it seemed a good idea to not publish things too soon after the upset, even if I at least had the advantage that it wasn’t that much of a surprise or upset. But I’ve read far too many people too eager to write about how they haven’t moved an inch, and too many others who have -mostly reluctantly- moved but don’t know how or where to. It’s okay to think about such matters first, guys and dolls. Make that: it’s better. There’s too much nonsense out there as is. Why bother adding to the pile? Here’s a few thoughts in no particular order:

 

 

The transition we find ourselves in, into an era as profoundly different as it will be from the one that preceded it, can only possibly be chaotic. Smooth is not an option. Because it takes much time for people to recognize let alone accept that there is such a transition to begin with, and not everyone acknowledges or accepts it at the same time. Many never will at all, they will be left behind in their own realities tied down by the chains of what once was.

This transition is the one away from economic growth and globalization -centralization in general- and towards smaller, less centered and grandiose, politics and markets. It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left once unfettered growth hits the skids. It doesn’t have to be anywhere near as bad as people would have you believe, or at least not necessarily so. What could make it real bad, though, is the widespread resistance and denial which seem certain to meet it.

Our entire worldviews and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands and flyover countries, even as we experience Brexit and Trump and similar movements set to come to many more countries.

Donald Trump looks very much like the ideal fit for this transition – but nor because he understands the issue itself, or its implications. What matters is he promises to bring back jobs to America, and that’s what the country needs. Not so they can then export their products, but to consume them at home, and sell them in the domestic market.

That is the future of the world post-growth, and post-globalization. Every country and every society needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world. What would be terrible is if all we do is try and restart growth and globalization, because that would be a hideous waste of time and resources.

You’ll be flooded in the years to come, even more than today if you can imagine, with terms like protectionism and isolationism and even populism, but ignore all that. There’s nothing economically -let alone morally- wrong with people producing what they and their families and close neighbors themselves want and need without hauling it halfway around the world for a meagre profit, handing over control of their societies to strangers in the process.

There’s nothing wrong or negative with an American buying products made in America instead of in China. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.

 

 

Earlier this week I read what looks to be an apt observation: ‘Every white person in New York who didn’t vote for Trump is now out in the streets protesting against him’. But the people who protest now are miles off target and months too late: they should have stood up for Bernie when it became clear that the Hillary camp and the DNC conspired to oust him. Indeed, Bernie himself should have stood up back then, not for himself but for his supporters; they would have stood up with him.

Whether they all like it or not, being asleep and/or silent when big things happen that count, does carry a price. If you drop the ball, you can’t just pick it back up again and pretend it didn’t fall. Shouting ‘not my president’ in the wake of an election is a sign of weakness, no matter how well-intentioned. The protests should have taken place before the election, not after.

Moreover, to a large extent people are up in protest against the image the Hillary campaign and the media have painted of Trump, not the man himself. A difference they cannot see. Would these same people have been protesting if Hillary had won? No, they wouldn’t. But why?

Many voices expressed the wish that Americans would vote for Hillary, a story about a woman and a glass ceiling, instead of for the male and allegedly sexist and misogynist Donald Trump. Simply because she’s a woman, and it’s time for a female president.

These voices have been consistently and for a long time been blind to the fact that Hillary’s campaign and Foundation, in legal, shady and downright illegal ways, have long been financed to a substantial degree by uber-rich men in charge of Middle East oil extracting nations who have far more misogynist views and attitudes towards women than Trump will ever have.

These men carry things like misogyny, racism, xenophobia and homophobia high and proudly in their banners. Also, they’re well on their way towards obliterating not just an entire country in Yemen, but indeed an entire people, all with the enthusiastic support of Obama, Hillary and their friends and donors in the arms industry. And lest we forget, they sponsor ISIS too. Is that the future Americans want?

 

 

The bright side is the chances of a war with Russia have gone down substantially. While the odds have gone up dramatically of much fewer US servicemen and -women being sent abroad to engage in endless and countless battles and wars that never seemed to have much to do with the US, going back all the way to Korea and Vietnam.

How can either of these things can be perceived as negative? The continuation and expansion of -often proxy- hostilities versus Moscow would have been cast in stone had Hillary been elected, it was a milestone of her entire campaign. And a major part of this would have been fought at some desert location in the Middle East.

Where America has needlessly squandered the lives of many of its young and finest, to and in a mad scramble over control of oil resources which has resulted in nothing but a shapeless chaos that has equally needlessly killed millions of people, sent millions of others fleeing their homes and razed entire ancient civilizations, accomplishments that will follow America around the world for many years to come. Is that the future Americans want? Double down?

There’s -undeniably- still a risk that Donald Trump will succumb to the mighty hand of the military industrial complex. But at the same time, he may well be the country’s -and the world’s- best if not only chance at making that hand that much less mighty. There may be many things wrong with Trump -there are- but being in the pockets of arms manufacturers and other doctors of death is so far not among them, to our best knowledge.

 

 

Hillary and her crowd ran the entire election process from inside a cocoon, built largely on hubris and a lack of contact with the world outside. They had the media so much on their side that TV and newspapers became part of the Hillary cocoon, and reporters got locked into a groupthink mode that then in its turn infected the campaign itself.

What I mean is you can’t stop at saying Trump is a disaster, so let’s pick the other side, it was always very much a choice between two disasters. And at the same time, as I wrote at the Automatic Earth the day of the election, the US presidency is a poisoned chalice. There’s nothing simple about this.

Trump means a big clean-up for the GOP, and the Hillary loss means the chance for the Democrats to do the same. You bet those folks realize achingly well they could have won with Bernie. Hopefully that wing can take over substantially from the lying conniving machinery the DNC has turned out to be.

Someone summed it up as: Trump swept aside the Republicans, the Democrats, the Bush dynasty and the Clinton dynasty, all in one fell swoop, and we should perhaps be thankful to him for that.

 

 

Trump has run his campaign catering to the anger that exists among Americans. And people experience and label that as ‘terrible’ and ‘awful’. His Republican friends and opponents find it terrible, because it scares the bejeezus out of them, and they’re too scared to go anywhere near that anger. Trump embraced the anger. Because he knew from the start, instinctively, that it was the only way he could win.

And you can think like the majority of your peers do, that all that commingling with the anger, with racists and bigots and what have you, is inexcusable. But what you miss out on if you take that approach and hold on to it, is that in that case the anger does not get addressed at all. It’s instead left free to just wander over the land and fester and grow on society, out of reach of politics, media, everything.

A certain by now very vilified cartoonist explained that what Trump does is to ‘feel’ what the angry crowd wants, and then play into it by making over the top statements targeted at the anger. That way this crowd will follow him, gather around him. This has worked like a charm. But no, that doesn’t make him look like a certain German dictator.

Because it does not mean that Trump is going to literally do everything he said in the over the top statements he made. It’s all just a basic sales trick. Trump makes the angry people feel like he knows, and cares about, their grievances. Just like a car salesman makes you think he knows just what you want and need in a car, and praises the assets of that car in such a way that it touches that part of you which makes you want the car.

But that doesn’t mean at the end of the day he’ll drive the same car home that you just bought off of him. He makes you think he is like you, and knows what you want, so he can sell you that car. That’s all. He’s judged you to be the right ‘target’ for that vehicle.

That is how Trump has reeled in America’s hidden anger, how he has gathered its lost hidden mob. And before you say anything else, it’s perhaps a good idea to wonder where that anger would go without Trump. Because it’s not going to go away by itself. It’s been growing and festering for a long time, and it’s well-armed, lest you forget.

The question then becomes: would America be a better, or a safer, place if the entire angry part of its population had again, and still, been ignored by everyone? Or is it better to have them gathered under the umbrella of Donald Trump? Take your pick. Don’t be shy.

Another way to phrase the issue is this: without the exact same sales tactics that Trump used to ‘gather the anger’ around him, the TV ads (most ads in general) you see on a daily basis would look completely different. Whatever products these ads sell, from detergents to cars, they do it by referring to your unconscious, not your rational abilities.

The ads, like Trump, sell feelings, not facts (if you don’t get that, you’re lost).

Yet nobody would think of taking the companies whose products are advertized this way to court -nobody even gets really angry with them- because the happy smily people and unending open roads bathed in sunshine from the ads do not magically appear once you purchase the product. We would even find that crazy, that anyone might take the images shown in the ads, literally.

We should interpret Trump’s campaign words along those same lines, the same way we ‘undergo’ the ads that play to our subconscious. The problem is, how do you do that? How do you interpret what you are largely unaware of on a rational level?

The president-elect will now need the same skills in order to ‘come down that mountain’ without antagonizing each and every side of the discussion, of the nation. He’ll have to convince the liberal camp that he didn’t mean everything he said in a literal sense, while at the same time keeping his ‘angry mob’ satisfied that he will do enough of what he promised them.

That will take a lot of persuading. But at the same time that happens to be the one thing he’s really good at. He’ll have to convince his voters that he’s not breaking his promises, just adjusting them in ways that will, if at all possible, be even more beneficial to them than the original ones.

Difficult, but if he can convince them that there are signs, delivered relatively fast, that their living conditions are improving, he may succeed. They just vent their anger at people that are visibly not themselves, but that’s not where the anger stems from.

 

 

There are all sorts of nasty things going on, racists and supremacist etc. But you can’t say that Trump caused that to happen. The most you could say is that he gives the people involved in that stuff the idea that because someone finally hears them, they can, are allowed to, make themselves heard.

But just because a few loose cannons let loose, doesn’t mean America has 60 million loose cannons who all voted for Trump and should all be condemned including Trump himself for good measure because there’s a few incidents. Not only is that a misinterpretation of what goes on, it prevents you from understanding what lies behind.

Those incidents at least have a lot to do with the fact that so many ignored Americans live in what Washington has long considered flyover country. It would be a lot more positive and productive at this point in time if everyone looks at what they themselves have gotten wrong over the past years -not just this election campaign- before pointing fingers at everyone but themselves.

But seeing the dug-in heels in Britain almost five months after the Brexit vote, it’s hard to get your hopes up about people coming together, or even doing some genuine introspection. It’s easier to just remain stuck in your comfy little rut.

Thing is, the world is rapidly changing -it already has-, America is changing, Britain is, and many more countries will, it just takes an election to show how much. We’re transitioning to a next phase, and trying to deny we are with all our might, good luck and good night.

Or in a more poetic fashion – we can do that too-:

 

the blizzard of the world
has crossed the threshold
and it has overturned
the order of the soul

 

 

 

 

Oct 232016
 
 October 23, 2016  Posted by at 7:55 pm Finance Tagged with: , , , , , , ,  Comments Off on Ungovernability


Inge Morath Street Corner at World’s End London 1954

 

Over the summer I introduced a two-fold assertion: 1) global economic growth is over (and has been for years and won’t come back for many more years) and 2) the end of growth marks the end of all centralization, including globalization. You can read all about these themes in “Globalization Is Dead, But The Idea Is Not” and “Why There is Trump” There are also extensive quotes of the second essay in wicked former UK MI6 spymaster Alastair Crooke’s “‘End of Growth’ Sparks Wide Discontent”.

When I say ‘the end of growth’, I don’t mean that in a Limits to Growth kind of way, or peak oil or things like that. Not because I seek to invalidate such things, but because I mean economics, finance only. Our economies simply ceased growing, and quite a few years ago. The only reason that is not, and very widely, recognized is the $21 trillion and change that central banks have conjured up ostensibly to kickstart a recovery that always remains just around the corner.

That those $21 trillion will have massive negative effects on all of us is not my point either right now. Just that growth is gone. And that’s hard enough to swallow for a system that’s based uniquely on that growth. That is what this ‘essay’ is about: what consequences that will have.

All that said, I don’t have the idea that too many people are willing to accept the notion of the end of eternal economic growth (let alone right this minute), nor of globalization’s demise. Which may be partially understandable, but not more than that. Instead, quite a few people may honestly feel that the end of growth will make ‘leaders’ try for more, not less, centralization/globalization, but that, if it happens, is temporary. Unless, as I wrote earlier, we see dictators in the west.

Because, as I said in those articles, the overbearing principle is, and must be, that when centralized power ceases to deliver benefits to people, they will no longer accept that decisions about their – ever poorer- lives are taken by people hundreds or thousands of miles away from where they live. People allow that only when they reap sufficient benefits from it. With growth gone, there are no such benefits left. Look at Greece and Italy and Brexit, and look at why Trump is where he is.

 

Since it will apparently take a while for the above to sink in – which is not because I’m wrong-, I’m a little hesitant to introduce the next assertion, which is very closely related to the other two and takes it a step further. That assertion is that there are multiple countries in the western world -and perhaps beyond- today that run a serious risk of becoming de facto ungovernable. I’ll refrain from using the term anarchy.

I’ve been playing around in my head for a while with the thought that it is striking that the last two major global powers, which together have dominated world politics and economics for over 200 years, look well on their way towards becoming ungovernable. It is perhaps even more striking that nobody appears to understand or even contemplate this.

Both Britain and America are caught in an apparent trap in which various groups of their citizens blame each other for everything that’s going wrong with their lives -which admittedly is plenty-. But that’s where the end of growth and globalization comes in: societies are in urgent need of new ways of organizing themselves, of formulating new goals, priorities and policies.

And since nary a soul recognizes that the old ways have expired, this is bound to be a very difficult process. Before formulating anything new, we will first see (well, we already do) forces, movements and individuals rise to the fore whose claim to fame is kicking against the existing grain without providing much in the way of -coherent- ideas of what should come next.

In fact, most of these ‘transitory forces’ don’t even realize or acknowledge the need for any novel paradigms; they -often hugely- gain in popularity basing themselves on talk of tweaking existing paradigms, on the notion of pretty much leaving things as they are but with a few different focus points here and there. Re-arranging deckchairs.

And if anyone would try on ‘real change’, they’d likely be voted down in record numbers, because the end of growth will mean loss of wealth and prosperity everywhere. And neither the people nor the times are ready for that message. Let alone the media machine or the establishment it serves. Which would rather go to war than admit they lost and give up their profits.

 

Before moving on to the most prominent and perhaps urgent examples, the US and UK, let’s take a look at a handful or so European countries. By the way, the European Union is a prime example of an entity that is caught blinded on the way towards being ungovernable like a deer in 27/28 pairs of headlights. No growth, no EU.

In the same way that, as I explained in the earlier articles, all supranational entities face the fate of the dodo. Or at least the existing ones do, with their structures geared towards ever increasing centralization of power and money. Countries, societies, people will always find ways to trade and cooperate, and they will again, but the next time they do it will be only if and when they keep control over decisions that concern what’s important to them.

But on to those European countries on their way towards challenging existing power structures and governability. Italy has a -constitutional- referendum on December 4, and it looks right now like PM Renzi will lose that, opening the way for our friend Beppe Grillo and his M5S Five Star movement to take over. Beppe wasn’t against the euro when we met in 2010, but he is now. And M5S has since grown hugely, into a solid national force.

In the rich core of the EU, there are general elections in Holland in March 2017, France in April and Germany in September 2017. Holland’s traditional parties have been losing clout for a long time, and Geert Wilders’ anti-Islam anti-EU pro-Freedom party scores big in the polls. And that in a country that says it’s doing great, talks about raising wages across the board and is stuck in a massive housing bubble.

France has a president, Hollande, who’s polling lower numbers (a while ago it was 6%) than any US president probably ever did in history, and that’s saying something. France has new crown princes on Hollande’s Socialist side in PM Manuel Valls and Economy Minister Emmanuel Macron, but they are badly tainted by Hollande’s ‘achievements’.

They have old crown princes for the Republican conservative party in ex-PM Sarkozy and the for some reason very popular Alain Juppé, but both can really only try and steal votes from Marine Le Pen’s Front National by leaning ever further right. Which leaves Le Pen, who has sworn to take France out of the EU, as the no. 1 contender.

Given what might happen in Italy, Holland and France, one must wonder what the September 2017 German elections will even matter anymore when they happen. Unless an M5S type movement stands up there, Merkel will have no choice but to pull sharply to the right to try and hold off the right wing AfD from getting into a kingmaker position. Germany’s once proud and strong left wing movement looks bound for near extinction.

Belgium and Spain don’t have elections scheduled for 2017, but both have recently endured long periods without functioning governments, and both look no closer to solving the issues than they were before. Just look at Wallonia blocking the CETA trade deal between the EU and Canada. One might say they already are, for all intents and purposes, on the verge of being ungovernable.

Grillo, Wilders, Le Pen and Spain’s Podemos are very different people and movements, but what they have in common is they can produce such a backlash in their respective countries, win or lose, that they can render the existing political structures obsolete and thereby their countries ungovernable. Maybe, then, those structures are already obsolete, and maybe that’s why they’ve gained such popularity?!

 

Plenty of candidates in Europe for governmental chaos; and I haven’t even touched on many countries, including in Eastern Europe, where the end of growth will shatter many dreams and promises of better lives that have been put on hold indefinitely. Even as many Czechs and Polish workers risk being sent back home from countries like Britain. Europe truly is a continent full of powder kegs. Even before you add refugees.

However, I still think the US and UK are first in line when it comes to the risk of being rendered ungovernable. Partly simply because of timing, and partly because the differences between various ‘groups’ and movements are as pronounced as they are already today. Both countries are running out of carpet to sweep their dirt under.

A conspicuous part in all this is played by the nations’ respective media, who seem to have given up all attempts at pretending to be neutral, a.k.a. ‘journalistic’. Traditional media, newspapers and radio and TV channels, used to have reporters and then, separately, they would have opinion columns, and the difference would be clear. But that’s all gone, every single article is now an opinion piece, which goes a long way towards explaining why people turn their backs on them.

The MSM media are digging their own graves. Or, rather, their graves were being digitally dug anyway, and they’re greatly speeding up the process of their own demise. What America and Britain would need right now is a ‘traditional media outlet’ -just one- that is actually objective; the first one that tries that approach could make a killing, but all are scared of being killed in the process.

Moreover, most ‘reporters’ have fooled themselves into thinking that they ARE objective; that ‘objective’ means Trump and Brexit MUST be condemned, as well as everyone and everything that has anything to do with the two, and some that don’t, like Putin. Which happens to play a major role into how both countries inexorably slide down into a state of chaos.

Their traditional political parties are self-immolating as we speak, and yet in neither country is there space for new parties to stand up. That seems to be a major difference (perhaps it’s an Anglo thing?) from countries in continental Europe, and even there things are screaming out of hand. The post-growth model appears to be: new parties or not, the incumbents are toast. Plenty room for big gaping holes.

 

Post Brexit, the UK has the Tories, who lost the Brexit vote but for some reason are still in power, just with a different figurehead. But they are hopelessly divided in pro-Brexit and pro-EU factions, and they appear so far to be messing up anything at all having to do with Brexit. All the egos collide too, of course; egos are all that politics has left to provide us.

Then there’s the Labor Party, which is equally hopelessly divided into the pro-Corbyn camp and the anti-Corbyn ‘Blairites’, which have conducted a kind of guerrilla warfare that might put the Viet Cong to shame. The Blairites have made such a fuss over Corbyn not being electable that they made their wishes come true like a boomerang. But that’s the MPs, not the voters or even the party members, who are behind Corbyn in massive droves.

The UK doesn’t have a general election scheduled until 2020, but with all the infighting and even more importantly the ‘real’ start of Brexit that’s supposed to come in early 2017, and/or a potential parliamentary vote seeking to make the referendum null and void, it’s hard to see how the country could NOT descend into total chaos way before 2020.

The people who were comfortable before June 23 blame it all on ‘Brexiteers’, but they conveniently forget that before that date they completely ignored the people who did vote to Leave the EU, and are therefore now grasping at straws when it comes to explanations. The term ‘deplorables’ has been patented by the Hillary camp, but it seems to express quite well how Remain feels about Brexit voters today. And that’s toxic for any society.

This is just not good enough. Brexit voters from what I can see are a mix between those who have been hit hardest by former PM Cameron and his goon squad (and ignored by Remainers), and those who really find the EU a failed experiment, an aspect I rarely see discussed in Britain. They should be elated to be rid of Brussels, but it’s all only about how much money they will have short term, not about identity or pride or anything.

A country full of people pointing fingers at others, while remaining blind to their own failures. The mote and the beam, a recipe for mayhem. So you have this entire godawful political mess, and now imagine throwing in the end of growth, and deteriorating economic circumstances from here on in.

Britain had better start some kind of National Conversation first on where it wants to go, hire something in the vein of a bunch of National Therapists to tell people it’s not okay to blame everything on somebody else, whether they’re Brits or foreigners, or, with Scotland planning another independence vote, we could be back all the way to Braveheart.

 

That leaves the US. The country that has elections before any of the other ‘basket cases’. And, this being America, the land that’s better than anyone at painting pictures of itself as tempting as they can be false, the antagonism is dripping off the walls and through the streets. The land that discusses which lives matter.

It’s glaringly obvious that the majority of the US media would like you to believe that when it comes to ungovernability, a Trump victory would be a sure bet to lead the US into political mayhem. That may be true, though it’s by no means guaranteed, they make it up as they go along, but a Hillary win may well end up being even worse.

As I wrote mid-September in “Hillary Became Unelectable Long Ago”, Mrs. Clinton faces a ton of unanswered questions that will not just go away just because she might win a vote. If anything, scrutiny may well increase, and a lot, if she wins on November 8. And that’s not just because the Donald is a sore loser (which also may or may not be true).

There are a lot of intelligence (FBI) voices protesting the decision to not charge Hillary for her email shenanigans. There are plenty of serious issues related to the capture of the DNC by Hillary’s campaign, and the subsequent ousting of Bernie Sanders and all his supporters. The campaign went so far as to pay people to -violently- disrupt Trump events. Now spell democracy for me.

What may play an even bigger role going forward is the unrelenting blame game played by the campaign on Russia and Vladimir Putin, a litany of allegations for which precious little proof, if any, has been presented. Trying to link Putin to Trump to Julian Assange may have seemed a winning election strategy, and it may prove to be one, crazy as it is, but on November 9 the world will still keep turning and-a churning. And where are they all then?

Trump will not forget this. The Republicans won’t. The FBI won’t. All the people who support Wikileaks won’t. Vladimir Putin won’t. And neither will the leaders of a lot of other countries. They have now seen that sovereign nations and their leaders can be used as cannon fodder in a US election, or any other US political purposes, and that’s going to make them feel queasy, and then some, for a long time.

It’s very hard to see how Hillary and her people, as well as the American media, can climb down from the stance they’ve taken. It’s not exactly something you can easily apologize for after the fact. So the only thing to do would be to dig in and persevere.

 

For the media, as I said, it’ll be merely another step towards irrelevance. Just a bit steeper. For Hillary and her supporters, it won’t be that smooth of a way down. When they dig in deeper into their trenches, all that’s left them is to try and escalate the Russia tension.

But while an attack on Russia may go down reasonable well in American minds, Hillary would need to involve NATO, and there are plenty of member countries, and their citizens, who will not accept anything of the kind, no matter what their leaders say. The fact that NATO relies on unity would become a liability instead of an asset, in the same way that the EU will experience.

NATO would fall apart if the US under a Hillary presidency attacks Russia. So would the EU, which will fall apart anyway. And that’s just on the international front.

Domestically, the Obama reign has been ‘saved’ by those trillions from the Fed, by the crazy growth in debt, both public and private, and by a list as long as your arm of questionable ‘official’ data, unemployment numbers, personal ‘wealth’, that sort of thing. While we all know that there would not be a Trump if those numbers reflected Americans’ real lives.

Trump may go away, though it won’t be in silence, but what he represents will not. And what he represents is 180º squarely removed from Hillary. And it’s not going to be subdued, silent or obedient. Blaming that on Trump, or on things he says, misses the point by a mile.

Given what the Hillary campaign has perpetrated, given the links to the Clinton Foundation, and given a ton of other things, it’s not all that crazy that Trump says he may not accept an election result off the bat. And given what many voices in the Democratic party, including Obama, have said in the past about elections and systems being rigged, it’s nonsense to try and demonize him for suggesting that.

Of course American elections can be rigged. Hanging chads or not. As long as people have to wait in line for hours in certain districts to cast their vote, and as long as Diebold machines are used, they can be rigged. But you can’t say it out loud?

 

Look, if Trump wins, how docile will the Democrat crowd be, given the propaganda machine targeted at Putin and Assange and anyone else (Bernie!) who dared stand in Hillary’s way? If the result is close, will Hillary accept it without a single protest or question? She won’t. But if Trump says he’ll keep you in suspense about the exact same thing, he’s a threat to democracy itself?

Points of view and belief are so far apart that indeed, democracy is under threat. But not because of Trump. That threat goes back to times long before him.

Hillary owes her position, and her wealth, to the Saudis and Qataris and Wall Street banks and US industrial/military neocons. And they will all demand that she return the favor. But they want something completely different than the people who vote for her. And since the economy is shrinking, she will have to take whatever it is they demand in return for putting her on her pedestal, away from the people who voted for her.

And no matter how much propaganda is unleashed upon Americans, as they see their lives deteriorate, they will be on to this, more and more. And they will lean towards Trump or Bernie Sanders -or someone else in the future-, anyone they feel expresses their frustration.

Hillary won’t be able to ‘cure’ the economy any more than Obama has, she won’t have the Fed’s virtual trillions to help her veil the real state of the economy, and she’s already close to the lowest ‘likeability’ rate in history to begin with.

I’m thinking Trump would probably be an awful president, but he perhaps wouldn’t be the worst option. And I’m saying that from the point of view of keeping America governable going forward, something he may well screw up yuugely, but at least he’s not certain to.

It’ll be hard to keep America quiet in the years to come whoever wins, and I’m going to have to think about this more, I just wanted to say for now that what many people think and claim is a given, is not. And that is a big thing given that the elections are only 16 days away.

Oct 152016
 


Notre Dame Gargoyle, Paris France, 19th century

Former British diplomat and MI6 ‘ranking figure’ Alastair Crooke quotes my September 26 article “Why There is Trump” so extensively in this article for Consortium News that I thought I might as well post the whole thing here at the Automatic Earth too. The other sources he also quotes -John Gray, Stephen Hadley among them- help to put my points in a solid perspective, which is nice to see. I can only hope that this will open more people’s eyes to the fact that in the end of growth and centralization, we are witnessing the “most important global development in decades.”

Here’s Alastair Crooke:

 

 

Raul Ilargi Meijer, the long-standing economics commentator, has written both succinctly – and provocatively: “It’s over! The entire model our societies have been based on for at least as long as we ourselves have lived, is over! That’s why there’s Trump.

“There is no growth. There hasn’t been any real growth for years. All there is left are empty hollow sunshiny S&P stock market numbers propped up with ultra-cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

Donald Trump speaking with supporters at a campaign rally at Veterans Memorial Coliseum at the Arizona State Fairgrounds in Phoenix, Arizona. June 18, 2016. (Photo by Gage Skidmore)

Donald Trump speaking with supporters at a campaign rally at Veterans Memorial Coliseum at the Arizona State Fairgrounds in Phoenix, Arizona. June 18, 2016. (Photo by Gage Skidmore)

“These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of Oz [Wizard of Oz] over people’s eyes for so long, and it’s no longer so long.

“That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.”

Meijer continues: “We are smack in the middle of the most important global development in decades, in some respects arguably even in centuries, a veritable revolution, which will continue to be the most important factor to shape the world for years to come, and I don’t see anybody talking about it. That has me puzzled.

“The development in question is the end of global economic growth, which will lead inexorably to the end of centralization (including globalization). It will also mean the end of the existence of most, and especially the most powerful, international institutions.

“In the same way it will be the end of -almost- all traditional political parties, which have ruled their countries for decades and are already today at or near record low support levels (if you’re not clear on what’s going on, look there, look at Europe!)

“This is not a matter of what anyone, or any group of people, might want or prefer, it’s a matter of ‘forces’ that are beyond our control, that are bigger and more far-reaching than our mere opinions, even though they may be man-made.

“Tons of smart and less smart folks are breaking their heads over where Trump and Brexit and Le Pen and all these ‘new’ and scary things and people and parties originate, and they come up with little but shaky theories about how it’s all about older people, and poorer and racist and bigoted people, stupid people, people who never voted, you name it.

“But nobody seems to really know or understand. Which is odd, because it’s not that hard. That is, this all happens because growth is over. And if growth is over, so are expansion and centralization in all the myriad of shapes and forms they come in.”

Further, Meijer writes: “Global is gone as a main driving force, pan-European is gone, and whether the United States will stay united is far from a done deal. We are moving towards a mass movement of dozens of separate countries and states and societies looking inward. All of which are in some form of -impending- trouble or another.

“What makes the entire situation so hard to grasp for everyone is that nobody wants to acknowledge any of this. Even though tales of often bitter poverty emanate from all the exact same places that Trump and Brexit and Le Pen come from too.

“That the politico-econo-media machine churns out positive growth messages 24/7 goes some way towards explaining the lack of acknowledgement and self-reflection, but only some way. The rest is due to who we ourselves are. We think we deserve eternal growth.”

 

The End of ‘Growth’

Well, is global “growth over”? Of course Raul Ilargi is talking “aggregate” (and there will be instances of growth within any contraction). But what is clear is that debt-driven investment and low-interest-rate policies are having less and less effect – or no effect at all – in producing growth – either in terms of domestic or trade growth, as Tyler Durden at ZeroHedge writes:

President Barack Obama runs onto a stage in Rockville, Maryland, Oct. 3, 2013 (Official White House Photo by Pete Souza)

President Barack Obama runs onto a stage in Rockville, Maryland, Oct. 3, 2013 (Official White House Photo by Pete Souza)

“After almost two years of the quantitative easing program in the Euro Area, economic figures have remained very weak. As GEFIRA details, inflation is still fluctuating near zero, while GDP growth in the region has started to slow down instead of accelerating. According to the ECB data, to generate €1.0 of GDP growth, €18.5 had to be printed in the QE, … This year, the ECB printed nearly €600 billion within the frame of asset purchase programme (QE).”

Central Banks can and do create money, but that is not the same as creating wealth or purchasing power. By channelling their credit creation through the intermediary of banks granting loans to their favored clients, Central Banks grant to one set of entities purchasing power – a purchasing power that must necessarily have been transferred from another set of entities within Europe (i.e. transferred from ordinary Europeans in the case of the ECB), who, of course will have less purchasing power, less discretionary spending income.

The devaluation of purchasing power is not so obvious (no runaway inflation), because all major currencies are devaluing more or less pari passu – and because the authorities periodically steam hammer down the price of gold, so that there is no evident standard by which people can “see” for themselves the extent of their currencies’ joint downward float.

And world trade is grinding down too, as Lambert Strether of Corrente rather elegantly explains: “Back to shipping: I started following shipping … partly because it’s fun, but more because shipping is about stuff, and tracking stuff seemed like a far more attractive way of getting a handle on ‘the economy’ than economics statistics, let alone whatever books the Wall Streeters were talking on any given day. And don’t get me started on Larry Summers.

“So what I noticed was decline, and not downward blips followed by rebounds, but decline, for months and then a year. Decline in rail, even when you back out coal and grain, and decline in demand for freight cars. Decline in trucking, and decline in the demand for trucks. Air freight wobbly. No Christmas bounce at the Pacific ports. And now we have the Hanjin debacle — all that capital tied up in stranded ships, though granted only $12 billion or so — and the universal admission that somehow “we” invested w-a-a-a-a-a-y too much money in big ships and boats, implying (I suppose) that we need to ship a lot less stuff than we thought, at least across the oceans.

“Meanwhile, and in seeming contradiction not only to a slow collapse of global trade, but to the opposition to ‘trade deals,’ warehousing is one of the few real estate bright spots, and supply chain management is an exciting field. It’s disproportionately full of sociopaths, and therefore growing and dynamic!

“And the economics statistics seem to say nothing is wrong. Consumers are the engine of the economy and they are confident. But at the end of the day, people need stuff; life is lived in the material world, even if you think you live it on your device. It’s an enigma! So what I’m seeing is a contradiction: Less stuff is moving, but the numbers say ‘this is fine.’ Am I right, here? So in what follows, I’m going to assume that numbers don’t matter, but stuff does.”

 

Fake Elixir

Or, to be more faux-empirical: as Bloomberg notes in A Weaker Currency is no longer the Elixir, It Once Was: “global central banks have cut policy rates 667 times since 2008, according to Bank of America. During that period, the dollar’s 10 main peers have fallen 14%, yet Group-of-Eight economies have grown an average of just 1%. Since the late 1990s, a 10% inflation-adjusted depreciation in currencies of 23 advanced economies boosted net exports by just 0.6% of GDP, according to Goldman Sachs. That compares with 1.3% of GDP in the two decades prior. U.S. trade with all nations slipped to $3.7 trillion in 2015, from $3.9 trillion in 2014.”

Chinese President Xi Jinping greets President Barack Obama upon arrival for the G20 Summit at the Hangzhou International Expo Center in Hangzhou, China, Sept. 4, 2016. (Official White House Photo by Pete Souza)

Chinese President Xi Jinping greets President Barack Obama upon arrival for the G20 Summit at the Hangzhou International Expo Center in Hangzhou, China, Sept. 4, 2016. (Official White House Photo by Pete Souza)

With “growth over,” so too is globalization: Even the Financial Times agrees, as its commentator Martin Wolf writes in his comment, The Tide of Globalisation is Turning: “Globalisation has at best stalled. Could it even go into reverse? Yes. It requires peace among the great powers … Does globalisation’s stalling matter? Yes.”

Globalization is stalling – not because of political tensions (a useful “scapegoat”), but because growth is flaccid as a result of a veritable concatenation of factors causing its arrest – and because we have entered into debt deflation that is squeezing what’s left of discretionary, consumption-available, income. But Wolf is right. Ratcheting tensions with Russia and China will not somehow solve America’s weakening command over the global financial system – even if capital flight to the dollar might give the U.S. financial system a transient “high.”

So what might the “turning tide” of globalization actually mean? Does it mean the end of the neo-liberalist, financialized world? That is hard to say. But expect no rapid “u-turn” – and no apologies. The Great Financial Crisis of 2008 – at the time – was thought by many to mark the end to neo-liberalism. But it never happened – instead, a period of fiscal retrenchment and austerity was imposed that contributed to a deepening distrust of the status quo, and a crisis rooted in a widespread, popular sense that “their societies” were headed in the wrong direction.

Neo-liberalism is deeply entrenched – not least in Europe’s Troika and in the Eurogroup that oversees creditor interests, and which, under European Union rules, has come to dominate E.U. financial and tax policy.

It is too early to say from whence the economic challenge to prevailing orthodoxy will come, but in Russia there is a group of prominent economists gathered together as the Stolypin Club, who are evincing a renewed interest in that old adversary of Adam Smith, Friedrich List (d. 1846), who evolved a “national system of political economy.” List upheld the (differing interests) of the nation to that of the individual. He gave prominence to the national idea, and insisted on the special requirements of each nation according to its circumstances, and especially to the degree of its development. He famously doubted the sincerity of calls to free trade from developed nations, in particular those by Britain. He was, as it were, the arch anti-globalist.

 

A Post-Globalism

One can see that this might well fit the current post-globalist mood. List’s acceptance of the need for a national industrial strategy and the reassertion of the role of the state as the final guarantor of social cohesion is not some whimsy pursued by a few Russian economists. It is entering the mainstream. The May government in the U.K. precisely is breaking with the neoliberal model that has ruled British politics since the 1980s – and is breaking towards a List-ian approach.

U.S. Secretary of State John Kerry sits with British Prime Minister Theresa May in the White Room No. 10 Downing Street in London, U.K., on July 19, 2016. [State Department Photo]

U.S. Secretary of State John Kerry sits with British Prime Minister Theresa May in the White Room No. 10 Downing Street in London, U.K., on July 19, 2016. [State Department Photo]

Be that as it may (whether this approach swims more widely back into fashion), the very contemporary British professor and political philosopher, John Gray has suggested the key point is: “The resurgence of the state is one of the ways in which the present time differs from the ‘new times’ diagnosed by Martin Jacques and other commentators in the 1980s. Then, it seemed national boundaries were melting away and a global free market was coming into being. It’s a prospect I never found credible.

“A globalised economy existed before 1914, but it rested on a lack of democracy. Unchecked mobility of capital and labour may raise productivity and create wealth on an unprecedented scale, but it is also highly disruptive in its impact on the lives of working people – particularly when capitalism hits one of its periodic crises. When the global market gets into grave trouble, neoliberalism is junked in order to meet a popular demand for security. That is what is happening today.

“If the tension between global capitalism and the nation state was one of the contradictions of Thatcherism, the conflict between globalization and democracy has undone the left. From Bill Clinton and Tony Blair onwards, the center-left embraced the project of a global free market with an enthusiasm as ardent as any on the right. If globalisation was at odds with social cohesion, society had to be re-engineered to become an adjunct of the market. The result was that large sections of the population were left to moulder in stagnation or poverty, some without any prospect of finding a productive place in society.”

If Gray is correct that when globalized economics strikes trouble, people will demand that the state must pay attention to their own parochial, national economic situation (and not to the utopian concerns of the centralizing élite), it suggests that just as globalization is over – so too is centralization (in all its many manifestations).

The E.U., of course, as an icon of introverted centralization, should sit up, and pay attention. Jason Cowley, the editor of the (Leftist) New Statesman says: “In any event … however you define it, [the onset of ‘New Times’] will not lead to a social-democratic revival: it looks as if, in many Western countries, we are entering an age in which centre-left parties cannot form ruling majorities, having leaked support to nationalists, populists and more radical alternatives.”

 

The Problem of Self-Delusion

So, to return to Ilargi’s point, that “we are smack in the middle of the most important global development in decades … and I don’t see anybody talking about it. That has me puzzled” and to which he answers that ultimately, the “silence” is due to ourselves: “We think we deserve eternal growth.”

President Barack Obama answers questions at a press conference at Konstantinovsky Palace during the G20 Summit in Saint Petersburg, Russia, Sept. 6, 2013. (Official White House Photo by Pete Souza)

President Barack Obama answers questions at a press conference at Konstantinovsky Palace during the G20 Summit in Saint Petersburg, Russia, Sept. 6, 2013. (Official White House Photo by Pete Souza)

He is surely right that it somehow answers to the Christian meme of linear progress (material here, rather than spiritual); but more pragmatically, doesn’t “growth” underpin the whole Western financialized, global system: “it was about lifting the ‘others’ out of their poverty”?

Recall, Stephen Hadley, the former U.S. National Security Adviser to President George W. Bush, warning plainly that foreign-policy experts rather should pay careful attention to the growing public anger: that “globalization was a mistake” and that “the elites have sleep-walked the [U.S.] into danger.”

“This election isn’t just about Donald Trump,” Hadley argued. “It’s about the discontents of our democracy, and how we are going to address them … whoever is elected, will have to deal with these discontents.”

In short, if globalization is giving way to discontent, the lack of growth can undermine the whole financialized global project. Stiglitz tells us that this has been evident for the past 15 years — last month he noted that he had warned then of: “growing opposition in the developing world to globalizing reforms: It seemed a mystery: people in developing countries had been told that globalization would increase overall wellbeing. So why had so many people become so hostile to it? How can something that our political leaders – and many an economist – said would make everyone better off, be so reviled? One answer occasionally heard from the neoliberal economists who advocated for these policies is that people are better off. They just don’t know it. Their discontent is a matter for psychiatrists, not economists.”

This “new” discontent, Stiglitz now says, is extended into advanced economies. Perhaps this is what Hadley means when he says, “globalization was a mistake.” It is now threatening American financial hegemony, and therefore its political hegemony too.

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

Oct 072016
 


Andre Kertesz Bumper cars at amusement park in Neuilly-sur-Seine, near Paris 1930

I read a lot, been doing it for years, about finance and affiliated topics (a wide horizon of them), which means I’ve inevitably seen a wholesale lot of nonsense fly by. But for some reason, and I think I know why, Q3 2016 has been gunning for a top -or bottom- seat in that regard, and Q4 is looking to do it one better/worse.

Apart from the fast increasingly brainless political ‘discussions’ that don’t deserve the name, in the US and UK and beyond, there are the transnational organizations, NATO, IMF, EU and all those things, all suffocating in their own hubris, things I’ve dealt with before in for instance Globalization Is Dead, But The Idea Is Not and Why There is Trump. But none of it still seems to have trickled through anywhere that I can see.

The end of growth exposes the stupidity and ignorance of all but (and even that’s a maybe) a precious few (of our) ‘leaders’. There is no other way this could have run, because an era of growth simply selects for different people to float to the top of the pond than a period of contraction does. Can we agree on that?

‘Growth leaders’ only have to seduce voters into believing that they can keep growth going, and create more of it (though in reality they have no control over it at all). Anyone can do that. So ‘anyone’ who’s sufficiently hooked on power games will apply.

‘Contraction leaders’ have a much harder time; they must convince voters that they can minimize the ‘suffering of the herd’. Which is invariably a herd that no-one wants to belong to. A tough sell.

Any end to growth will and must therefore inevitably change the structure of a democracy, any democracy, any society for that matter. It will lead to new leaders, and new parties, coming to the front. And it should not surprise anyone that some of these new leaders and parties will question the very structure of the democracy they are part of, if only because that structure is already undergoing change anyway.

The tight connection between an era of economic growth (and/or contraction) and the politicians that ‘rule’ during that era is reflected in Hazel Henderson’s“economics is nothing but politics in disguise”.

 

On the one hand you have the incumbent class seeking to hold on to their waning power, churning out false positive numbers and claiming that theirs is the only way to go (just more of it), and on the other hand you have a loose affiliation – to the extent there’s any affiliation at all- of left and right, individuals and parties, who smell change that they can use to their own benefit.

They just mostly don’t know how to use it yet. But they’ll find out, or some of them will. Blaming people and groups of people for what’s gone wrong will be a major way forward, because it’s just so easy. It’s another reason why the incumbents class, the traditional parties, will go the way of the dodo: they will be blamed, and rightly so in most cases, for the fall of the economic system.

That’ll be the number one criteria: if you’re -perceived as- part of the old guard, you’re out. Not at the flick of a switch, but nevertheless the rise of Trump and Farage and all those folks has been much faster than just about anyone would have thought possible until very recently.

They feed on discontent, but they can do so only because that discontent has been completely ignored by the ruling classes everywhere. Which has a lot to do with the rulers in all these instances we see pop up now still being well-off, while the lower rungs of societies definitely are not.

Moreover, if most people still had comfortable middle-class lives, the dislike of immigrants and refugees would have been so much less that Trump and Wilders and Le Pen and Alternative for Deutschland could never have ‘struck gold’. It’s the perception that the ‘new’ people are somehow to blame for one’s deteriorating living conditions that makes it fertile ground for whoever wants to use it.

And since the far left can’t go there, the right takes over by default. Bernie Sanders and Jeremy Corbyn have brave ideas on redistribution of wealth, but there is still too much resistance, at the moment, to that, from the incumbent class and their voters, to have much chance of getting anywhere.

Of course the traditional right wing smells the opportunity too, so Hillary (yeah, she’s right wing) and Theresa May and Sarkozy and Merkel are all orchestrating sharp turns to the right, away from their once comfortable seats in the center. They all sense that power will not be emanating from the center going forward, and it’s power, much more than principles, that they are after.

 

But enough about politicians and their parties, who can and will all be voted out of power. Much harder to get rid of will be the transnational organizations, like the EU and IMF (there are many more), though they represent the ‘doomed construction’ perhaps even more than mere local or national power-hungries. The leading principle is simple: What has all the centralization led to? To today’s contracting economies.

To that end, let’s just tear into a recent random Bloomberg piece on this week’s IMF meeting, and the ‘expert opinions’ on it:

Existential Threat To World Order Confronts Elite At IMF Meeting

Policy-making elites converge on Washington this week for meetings that epitomize a faith in globalization that’s at odds with the growing backlash against the inequities it creates. From Britain’s vote to leave the EU to Donald Trump’s championing of “America First,” pressures are mounting to roll back the economic integration that has been a hallmark of gatherings of the IMF and World Bank for more than 70 years. Fed by stagnant wages and diminishing job security, the populist uprising threatens to depress a world economy that IMF Managing Director Christine Lagarde says is already “weak and fragile.”

The calls for less integration and more trade barriers also pose risks for elevated financial markets that remain susceptible to sudden swings in investor sentiment , as underscored by recent jitters over Deutsche Bank’s financial health. “The backlash against globalization is manifesting itself in increased nationalistic sentiment, against the outside world and in favor of increasing isolation,” said Louis Kuijs at Oxford Economics in Hong Kong, a former IMF official. “If we lose consensus on what kind of a world we want to have, the world will probably be worse off.”

Oh, but we do have consensus, Louis: Ever more people don’t want what they have now. That too is consensus. And since you said that what it takes is consensus, we should be fine then, right?!

Also, I find the term ‘elevated markets’ interesting, even if I don’t know what it’s supposed to mean. I can only guess.

In its latest World Economic Outlook released Tuesday, the fund highlighted the threats from the anti-trade movement to an already subdued global expansion. After growth of 3.2% in 2015, the world economy’s expansion will slow to 3.1% this year before rebounding to 3.4% in 2017, according to the report, keeping those estimates unchanged from July projections. The forecasts for U.S. growth were cut to 1.6% this year and 2.2% in 2017.

“We’d like to see an end to the creeping protectionism in the world and more progress on moving ahead with free-trade agreements and other trade-creating measures,” Maurice Obstfeld, director of the IMF’s research department, said in a Bloomberg Television interview with Tom Keene. Lagarde said last week that policy makers attending the Oct. 7-9 annual meeting of the IMF and World Bank have two tasks. First, do no harm, which above all means resisting the temptation to throw up protectionist barriers to trade. And second, take action to boost lackluster global growth and make it more inclusive.

I can see how a vote against the likes of Hollande, Hillary or Cameron constitutes a “the backlash against globalization”. What I don’t see is how that has now become the same as the anti-trade movement. When did Trump express any feelings against trade? Against international trade deals as they exist and are further prepared, yes.

But those deals don’t define ‘trade’ to the exclusion of all other definitions. As for ‘protectionism’, that’s just a term designed to make something perfectly fine and normal look bad. Every single society on the planet should protect its basic necessities from being controlled by foreigners, either for money or for power.

Nothing good can come of relinquishing that control for any society, ever. There‘s not a thing wrong with protecting your control of your own water and food and shelter, and these are indeed things that should never be traded or negotiated in global markets.

So claiming that ‘do no harm’ equals NOT protecting your basics is nothing but a self-serving and dangerous kind of baloney coming your way courtesy of those people whose sociopathic plush seats and plusher bank accounts depend on your ongoing personal loss of control over what you need to survive.

It’s what any ‘body’ does that has reached the limits of its growth: it starts feeding on its host. Be it a cancerous tumor, the Roman Empire or our present perennial-growth driven economic models, they’re all the same same thing because they are fueled by the same -thoughtless- principle.


Ilargi: See that upward line at the end? Well, it’s an IMF growth ‘forecast’. Which are always so wrong, and always revised downward, that you must wonder if the term ‘forecast’ is even appropriate

 

Achieving even those modest objectives may prove elusive. Free trade has become polling poison in the U.S. presidential campaign, with Democratic nominee Hillary Clinton now criticizing a trade deal with Pacific nations, which isn’t yet ratified in the U.S., that she had praised when it was being negotiated. Republican challenger Trump has lashed out at Mexico and China, threatening to slap big tariffs on imports from both nations. Rattled by the U.K.’s June vote to leave the EU, European leaders know it may just be the start of a political earthquake that’s threatening the continent’s old certainties.

In case you didn’t catch it, “..the continent’s old certainties” is a goal-seeked term. Old in this case means not older than, say, 1950, if that. Look back 100 years and “the continent’s old certainties” dress in a whole other meaning.

Next year sees elections in Germany and France, the euro area’s two largest economies, and in the Netherlands. In all three countries anti-establishment forces are gaining ground. With growing resentment of the EU from Budapest to Madrid, policy makers have described the current surge in populism as the greatest threat to the bloc since its creation out of the ashes of World War II. There are also growing signs that the union and Britain are heading for a so-called “hard exit” that would sharply reduce the bloc’s trade and financial ties with the island nation. U.K. Prime Minister Theresa May said on Oct. 2 that she’ll begin her country’s withdrawal from the EU in the first quarter of next year.

I have addressed the misleading use of the term ‘populism’ before. In its core, it simple means something like: for, and by, the people. How that can be presented as somehow being a threat to democracy is a mystery to me. They should have picked another term, but settled on this one.

And in the western media consensus, it comprises anything from Trump to Beppe Grillo, via Hungary’s Orban and Nigel Farage, Spain’s Podemos, Greece’s Syriza and Germany’s AfD. All these completely different movements have one thing only in common: they protest the failed and fast deteriorating status quo, and receive a lot of support from their people for doing that.

Because it’s the people that bear the brunt of the failure, not the leadership; even Greece’s politicians still pay themselves a comparatively lush salary.

As for Britain, it’s the textbook example of utter blindness. Those who were/are well provided for, be they politically left or right, missed out on what was happening around them so much they had no idea Brexit was a real option. And in the 15 weeks since the Brexit vote, all anyone has done in the UK is seeking to blame someone, anyone but themselves for what they all failed to see coming.

Perhaps the biggest beneficiary of free trade over the past generation, China, still restricts access to many of its key industries, with economists worried about increasingly mercantilist policies. It’s also seeking a larger role in the existing global framework, with entry of the yuan into the IMF’s basket of reserve currencies on Oct. 1 the most recent example. An all-out trade war would be a disaster for China’s economy, with Trump’s threatened tariff potentially wiping off almost 5% of its GDP, according to a calculation by Daiwa Capital Markets.

John Williamson, whose Washington Consensus of open trade and deregulation was effectively the governing ethos for the IMF and World Bank for decades, said the 2008-09 financial meltdown had undercut support for economic integration. “There was agreement on globalization before the crisis and that’s one thing that’s been lost since the financial crisis,” said Williamson, a former senior fellow at Peterson Institute for International Economics who is now retired.

The growing opposition to economic integration has been fueled by a sub-par global recovery. “Perhaps the most striking macroeconomic fact about advanced economies today is how anemic demand remains in the face of zero interest rates,” former IMF chief economist Olivier Blanchard wrote last week in a policy brief for the Peterson Institute.

These ‘experts’ seem to have an idea there’s something amiss, but they don’t have the answers. Which is impossible to come and say out loud if you’re an expert. Experts must pretend to know it all, or at least know why they don’t know. “There was agreement on globalization before the crisis”, and now it’s no longer there. That they see.

That they ain’t coming back, neither the agreement on it nor globalization itself, is a step too far for them. To publicly acknowledge, at least. That Blanchard expresses surprise about ‘anemic demand’ at the same time that interest rates are equally anemic is something else.

That both are two sides of the same coin, or at least may be, is something he should at least mention. That is to say, low rates induce deflation, though they are allegedly supposed to induce the opposite. Economists are mostly very misguided people.

 

The world economy is getting some lift after rising at an annual rate just shy of 3% in the first half of this year, according to David Hensley, director of global economics for JPMorgan. But much of the boost will come from a lessening of drags rather than from a big burst of fresh growth, said Peter Hooper at Deutsche Bank Securities, a former Federal Reserve official. Recessions in Brazil and Russia are set to come to an end, while in the U.S. cutbacks in inventories and in oil and gas drilling will wane.

Please allow me to chip in here. ‘Lessening of drags’ in a nonsense term. And so is the idea that “..recessions in Brazil and Russia are set to come to an end”. That’s all goal-seeked day-dreaming. Smoke or drink something nice with it and you’ll feel good for a few hours, but that doesn’t make it real.

“I’m characterizing the global economy as something akin to a driverless car that’s stuck in the slow lane,” said David Stockton, a former Fed official and now chief economist at consultants LH Meyer. “Everybody feels like they’re being taken for a ride but they’re pretty nervous because they can’t see anybody in control.”

I really like this one, because off the bat I thought Stockton had it all wrong. What I think is the appropriate metaphor, is not “a driverless car that’s stuck in the slow lane”, but one of those cars in a carousel at a carnival, a merry-go-round, where you can sit in it forever and you always end up in the same spot. And the only one who’s in control in the boss who hollers that you need to pay another quarter if you want to keep on riding.

Or, alternatively, and to stay at the carnival, it’s a bumper car, which allows you to hit other cars and get hit, but never to leave the rink. That’s the global economy. Not getting anywhere, and running out of quarters fast.

Still, for the first time in the past few years, Stockton said he sees a real upside risk to his forecast of continued global growth of around 3% next year. And that’s coming from the possibility of looser fiscal policy in the U.S. and Europe. In the U.S., both Clinton and Trump have pledged to boost infrastructure spending on roads, bridges and the like. In Europe, rising populism provides a powerful incentive for governments to abandon austerity ahead of the elections next year – and perhaps beyond. Whether such a shift will be enough to mollify those who have been on the losing side of globalization for decades is debatable, however.

“The consensus in policy-making circles was that more trade meant better economic growth,” said Standard Chartered head of Greater China economic research Ding Shuang, who worked at the IMF from 1997 to 2010. “But the benefits weren’t shared equitably, so now we see a round of anti-globalization, anti-free trade. “Globalization will stall for the moment, until we can find a way to share those benefits,” he added.

Globalization is done. And while we can discuss whether that’s of necessity or not, and I continue to contend that the end of growth equals the end of all centralization including globalization, fact is that globalization was never designed to share anything at all, other than perhaps wealth among elites, and low wages among everyone else.

The EU and IMF have not delivered on what they promised, in the same way that traditional parties have not, from the US to UK to basically all of Europe. They promised growth, and growth is gone. They may have delivered for their pay masters, but they lost the rest of the world.

Anything else is just hot air. But that doesn’t mean they will hesitate to use their control of the military and police to hold on to what they got. In fact, that’s guaranteed. But it would only be viable in a dictatorial society, and even then.

We are transcending into an entirely different stage of our lives, our economies, our societies. Growth is gone, it went out the window long ago only to be replaced with debt. And that’s going to take a lot of getting used to. But there’s nothing that says we couldn’t see it coming.

Sep 262016
 
 September 26, 2016  Posted by at 9:33 pm Finance Tagged with: , , , , , , , ,  10 Responses »


Dorothea Lange Family of rural rehabilitation client, Tulare County, CA 1938

 

It’s over! The entire model our societies have been based on for at least as long as we ourselves have lived, is over! That’s why there’s Trump.

There is no growth. There hasn’t been any real growth for years. All there is left are empty hollow sunshiny S&P stock market numbers propped up with ultra cheap debt and buybacks, and employment figures that hide untold millions hiding from the labor force. And most of all there’s debt, public as well as private, that has served to keep an illusion of growth alive and now increasingly no longer can.

These false growth numbers have one purpose only: for the public to keep the incumbent powers that be in their plush seats. But they could always ever only pull the curtain of Oz over people’s eyes for so long, and it’s no longer so long.

That’s what the ascent of Trump means, and Brexit, Le Pen, and all the others. It’s over. What has driven us for all our lives has lost both its direction and its energy.

We are smack in the middle of the most important global development in decades, in some respects arguably even in centuries, a veritable revolution, which will continue to be the most important factor to shape the world for years to come, and I don’t see anybody talking about it. That has me puzzled.

The development in question is the end of global economic growth, which will lead inexorably to the end of centralization (including globalization). It will also mean the end of the existence of most, and especially the most powerful, international institutions.

In the same way it will be the end of -almost- all traditional political parties, which have ruled their countries for decades and are already today at or near record low support levels (if you’re not clear on what’s going on, look there, look at Europe!)

This is not a matter of what anyone, or any group of people, might want or prefer, it’s a matter of ‘forces’ that are beyond our control, that are bigger and more far-reaching than our mere opinions, even though they may be man-made.

Tons of smart and less smart folks are breaking their heads over where Trump and Brexit and Le Pen and all these ‘new’ and scary things and people and parties originate, and they come up with little but shaky theories about how it’s all about older people, and poorer and racist and bigoted people, stupid people, people who never voted, you name it.

But nobody seems to really know or understand. Which is odd, because it’s not that hard. That is, this all happens because growth is over. And if growth is over, so are expansion and centralization in all the myriad of shapes and forms they come in.

Global is gone as a main driving force, pan-European is gone, and whether the United States will stay united is far from a done deal. We are moving towards a mass movement of dozens of separate countries and states and societies looking inward. All of which are in some form of -impending- trouble or another.

What makes the entire situation so hard to grasp for everyone is that nobody wants to acknowledge any of this. Even though tales of often bitter poverty emanate from all the exact same places that Trump and Brexit and Le Pen come from too.

That the politico-econo-media machine churns out positive growth messages 24/7 goes some way towards explaining the lack of acknowledgement and self-reflection, but only some way. The rest is due to who we ourselves are. We think we deserve eternal growth.

And of course it’s confusing that the protests against the ‘old regimes’ and the growth and centralization -first- manifest in the rise of faces and voices who do not reject all of the above offhand. That is to say, the likes of Marine Le Pen, Donald Trump and Nigel Farage may be against more centralization, but none of them has a clue about growth being over. They don’t get that part anymore than Hillary or Hollande or Merkel do.

So why these people? Look closer and you see that in the US, UK and France, there is nobody left who used to speak for the ‘poor and poorer’. While at the same time, the numbers of poor and poorer increase at a rapid clip. They just have nowhere left to turn to. There is literally no left left.

Dems in the US, Labour in the UK, and Hollande’s ‘Socialists’ in France have all become part of the two-headed monster that is the political center, and that is (held) responsible for the deterioration in people’s lives. Moreover, at least for now, the actual left wing may try to stand up in the form of Jeremy Corbyn or Bernie Sanders, but they are both being stangled by the two-headed monster’s fake left in their countries and their own parties.

Donald Trump, and I say this mere hours before the first debate, may still lose the election, but it doesn’t truly matter. He’s just the figure head -dare we say bobble head?- for a development, even a revolution, that he doesn’t control any more than you and I do. He’s got a role to play but he didn’t write it.

If he wins, his program too, like all the others, will be targeted towards more growth, and there’s no such thing available. And while in a no-growth scenario it’ll be a good thing for America to bring jobs back home, as is trump’s message, they won’t spell anything that even comes close to growth.

‘Leaders’ such as Trump and Le Pen can only be seen as intermediate figures necessary for nations, and indeed the world, to adapt to an entirely different paradigm. One that is at best based on consolidation, on trying not to lose too much, instead of trying to conquer the world.

But also one that is likely to lead to warfare and mayhem, because nobody’s been willing to address even the possibility of no more growth, and therefore everyone will be looking to squeeze growth out of any available place, starting with their neighbors, and the globe’s weakest. It’s the Roman empire all over again, where the core strangled the periphery ever harder until the Barbarians and the Visigoths decided it was enough and then some.

That is the meaning of Donald Trump, and of Brexit. You’re not going to understand these things without taking a few steps back, and without looking at history, and especially without acknowledging the possibility that, in economics, perpetual growth may indeed be what physics has always said it was: an impossible pipedream.

Trump has a role to play in this whether he wins the election or not. He’s the big red flashing American warning sign that the increase in poverty that has so far been felt only among those who it has hit, will shake the familiar political landscape on its foundations, and that this landscape will never return.

Look at European political parties established for decades and you see the exact same thing. Only there you often have other ‘escape valves’, because new parties are easier to form and get onto national forums. But it’s still the same thing.

Centralization, globalization, UN, NATO, IMF, all these ‘principles’ and organizations will see their influence and support dwindle, and rapidly. It’s really over. Debt did it. Or rather, our doomed mission to hide our downfall behind a veil of ever more debt did.

And Donald Trump has a role to play in that. If Hillary wins, it’ll only be more, and ever more, and spastically more, attempts to convince everyone that more globalization is the way to go, and that going to war with Putin and sending young Americans into battle in fields lost before they enter is the way of the future.

Both will be failures. All we really get to do is try to decide who may be the lesser failure.

But anyway, that’s where Trump comes from, and he doesn’t understand the half of it. Trump is there because everything else failed. And he will fail too, win or lose.

 

 

Aug 102016
 


Dorothea Lange Youngest little girl of motherless family 1939

 

We can, every single one of us, agree that we’re either in or just past a -financial- crisis. But that seems to be all we can agree on. Because some call it the GFC, others a recession, and still others a depression. And some insist on seeing it as ‘in the past’, and solved, while others see it as a continuing issue.

I personally have the idea that if you think central banks -and perhaps governments- have the ability and the tools to prevent or cure financial crises, you’re in the more optimistic camp. And if you don’t, you’re a pessimist. A third option might be to think that no matter what central bankers do, things will solve themselves, but I don’t see much of that being floated. Not anymore.

What I do see are countless numbers of bankers and economists and pundits and reporters holding up high the concept of globalization (a.k.a. free trade, Open Society) as the savior of mankind and its economy.

And I’m thinking that no matter how great you think the entire centralization issue is, be it global or on a more moderate scale, it’s a lost case. Because centralization dies the moment it can no longer show obvious benefits for people and societies ‘being centralized’. Unless you’re talking a dictatorship.

This is because when you centralize, when you make people, communities, societies, countries, subject to -the authority of- larger entities, they will want something in return for what they give up. They will only accept that some ‘higher power’ located further away from where they live takes decisions on their behalf, if they benefit from these decisions.

And that in turn is only possible when there is growth, i.e. when the entire system is expanding. Obviously, it’s possible also to achieve this only in selected parts of the system, as long as if you’re willing to squeeze other parts. That’s what we see in Europe today, where Germany and Holland live the high life while Greece and Italy get poorer by the day. But that can’t and won’t last. Of necessity. It’s an inbuilt feature.

Schäuble and Dijsselbloem squeezed Greece so hard they could only convince it to stay inside the EU by threatening to strangle it to -near- death. Problem is, they then actually did that. Bad mistake, and the end of the EU down the road. Because the EU has nothing left of the advantages of the centralized power; it no longer has any benefits on offer for the periphery.

Instead, the ‘Union’ needs to squeeze the periphery to hold the center together. Otherwise, the center cannot hold. And that is something those of us with even just a remote sense of history recognize all too well. It reminds us of the latter days of the Roman Empire. And Rome is merely the most obvious example. What we see play out is a regurgitation of something the world has seen countless times before. The Maximum Power Principle in all its shining luster. And the endgame is the Barbarians will come rushing in…

Still, while I have my own interests in Greece, which seems to be turning into my third home country, it would be a mistake to focus on its case alone. Greece is just a symptom. Greece is merely an early sign that globalization as a model is going going gone.

Obviously, centralists/globalists, especially in Europe, try to tell us the country is an exception, and Greeks were terribly irresponsible and all that, but that will no longer fly. Not when, just to name a very real possibility, either some of Italy’s banks go belly up or the upcoming Italian constitutional referendum goes against the EU-friendly government. And while the Beautiful Brexit, at the very opposite point of the old continent, is a big flashing loud siren red buoy that makes that exact point, it’s merely the first such buoy.

But Europe is not the world. Greece and Britain and Italy may be sure signs that the EU is falling apart, but they’re not the entire globe. At the same time, the Union is a pivotal part of that globe, certainly when it comes to trade. And it’s based very much on the idea(l) of centralization of power, economics, finance, even culture. Unfortunately (?!), the entire notion depends on continuing economic growth, and growth has left the building.

 

 

Centralization/Globalization is the only ideology/religion that we have left, but it has one inbuilt weakness that dooms it as a system if not as an ideology. That is, it cannot exist without forever expanding, it needs perpetual growth or it must die. But if/when you want to, whether you’re an economist or a policy maker, develop policies for the future, you have to at least consider the possibility, and discuss it too, that there is no way back to ‘healthy’ growth. Or else we can just hire a parrot to take your place.

So here’s a few graphs that show us where global trade, the central and pivotal point of globalization, is going. Note that globalization can only continue to exist while trade, profits, benefits, keep growing. Once they no longer do, it will go into reverse (again, bar a dictator):

Here’s Japan’s exports and imports. Note the past 20 months:

 

 

Japan’s imports have been down, in the double digits, for close to 3 years?!

Next: China’s exports and imports. Not the exact same thing, but an obvious pattern.

 

 

If only imports OR exports were going down for specific countries, that’d be one thing. But for both China and Japan, in the graphs above, both are plunging. Let’s turn to the US:

 

 

Pattern: US imports from China have been falling over the past year (or even more over 5 years, take your pick), and not a little bit.

 

 

And imports from the EU show the same pattern in an almost eerily similar way.

Question then is: what about US exports, do they follow the same fold that Japan and China do? Yup! They do.

 

 

And that’s not all either. This one’s from the NY Times a few days ago:

 

 

And this one from last year, forgot where I got it from:

 

 

Now, you may want to argue that all this is temporary, that some kind of cycle is just around the corner and will revive the economy, and globalization. By now I’d be curious to see how anyone would want to make that case, but given the religious character of the centralization idea, there’s no doubt many would want to give it a go.

Most of the trends in the graphs above have been declining for 5 years or so. While at the same time the central banks in these countries have been accelerating their stimulus policies in ways no-one could even imagine they would -or could- just 10 years ago.

All of the untold trillions in stimulus haven’t been able to lift the real economy one bit. They instead caused a rise in asset prices, stocks, housing, that is actually hurting that real economy. While NIRP and ZIRP are murdering 95% of the people’s hope to retire when they thought they could, or ever, for that matter.

No, it’s a done deal. Globalization is pining for the fjords. But because it’s become such a religion, and because its high priests have so much invested in it, it’ll be hard to kill it off even just as an -abstract- idea. I’d say wherever you live and whenever your next election is, don’t vote for anyone who promotes any centralization ideas. Or growth. Because those ideas are all in some state of decomposing, and hence whoever promotes them is a zombie.

 

 

Lastly, The Economist had a piece on July 30 cheerleading for both Hillary Clinton and ‘Open Society’, a term which somehow -presumably because it sounds real jolly- has become synonymous with globalization. As if your society will be hermetically sealed off if you want to step on the brakes even just a little when it comes to ever more centralization and globalization.

The boys at Saxo Bank, Mike McKenna and Steen Jakobsen, commented on the Economist piece, and they have some good points:

Priced Out Of The ‘Open Society’

[..] The biggest problem facing globalism, however, is neither its hypocrisy nor its will-to-power – these are ordinary human failings common to all ideologies. Its biggest problem is much simpler: it’s very expensive. The world has seen versions of the wealthy, cosmopolitan ideal before. In both Imperial Rome and Achaemenid Persia, for example, societies characterised by extensive trade networks, multicultural metropoli and the rule of law (relative to the times) eventually succumbed to rampant inequality, inter-community strife, and expensive foreign wars in the case of Rome and a death-spiral of economic stagnation and constant tax hikes in the case of Persia.

That’s the center vs periphery issue all empires run into. US, EU, and all the supra-national organizations, IMF, World Bank, NATO, (EU itself), etc, they’ve established. None of that will remain once the benefits for the periphery stop. McKenna is on to this:

It seems near-axiomatic that, in the absence of the sort of strong GDP growth that characterised the post-World War Two era, the pluralist ideal might begin to show strains along the seams of its own construction. Such strains can be inter-ethnic, ideological, religious, or whatever else, but the legitimacy of The Economists’s favoured worldview largely came about due to the wealth and living standards it was seen to provide in the post-WW2 and Cold War era. Now that this is beginning to falter, so too are the politicians and institutions that have long championed it. In Jakobsen’s view, the rising tide of populist nationalism is in no way the solution, but it is a sign that globalisation’s elites have grown distant from the population as a whole.

I’d venture that the elites were always distant from the people, but as long as the people saw their wealth grow they either didn’t notice or didn’t care.

“The world has become elitist in every way,” says Saxo Bank’s chief economist. “We as a society have to recognise that productivity comes from raising the average education level… the key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract.” Put another way, would the political careers of Trump, Le Pen, Viktor Orban, and other such nationalist leaders be where they are if the post-crisis environment had been one of healthy wage growth, inflation, an increase in “breadwinner” jobs, and GDP expansion?

Here I have to part ways with Steen (and Mike). Why do ‘we’ need to be more productive? Why do we need to produce more? Who says we don’t produce enough? When we look around us, what is it that tells us we should make more, and buy more, and want more? Is there really such a thing as “healthy wage growth”? And what says that we need “GDP expansion”?

Most people do not spend a great deal of time imagining ideal economic and political systems. Most just want to live satisfying lives among their friends and family, and to feel as if their leaders are doing all they can to enable such a situation. What matters are the data, and if these are not made to become more encouraging, calls for this particular empire’s downfall will come with the same fervour and the same increasing frequency that they have throughout history.

The problem is not that people are choosing the wrong system, it is that they are unhappy enough to want to change course at all. Unless the developed world can find a way to reform itself out of its present malaise, no amount of media-class vituperation over xenophobia, insularity or “the uneducated” will be sufficient to turn the tide.

McKenna answers my question, unwillingly or not. Because, no, ‘Most just want to live satisfying lives among their friends and family..’ is not the same as “they want GDP expansion”, no matter how you phrase it. That’s just an idea. For all we know, the truth may be the exact opposite. The neverending quest for GDP expansion may be the very thing that prevents people from living “satisfying lives among their friends and family”.

How many people see the satisfaction in their lives destroyed by the very rat race they’re in? Moreover, how many see their satisfaction destroyed by being on the losing end of that quest? And how many simply by the demands it puts on them?

The connection between “satisfying lives” and “GDP expansion” is one made by economists, bankers, politicians and other voices driven by ideologies such as globalization. Whether your life is satisfying or not is not somehow one-on-one dependent on GDP expansion. That idea is not only ideological, it’s as stupid as it is dangerous.

And it’s silly too. Most westerners don’t need more stuff. They need more “satisfying lives among their friends and family”. But they’re stuck on a treadmill. If you want to give your kids decent health care and education anno 2016, you better keep running to stand still.

Mike McKenna and Steen Jakobsen seem to understand exactly what the problem is. But they don’t have the answer. Steen thinks it is about ‘more productivity’.

And I think that may well be the problem, not the solution. I also think it’s no use wanting more productivity, because the economic model we’re chasing is dead and gone. A zombie pushing up the daisies.

But since it’s the only one we have, and even smart people like the Saxo Bank guys can’t see beyond it, it seems obvious that getting rid of the zombie idea may take a lot of sweat and tears and, especially, blood.

 

 

Jul 312016
 
 July 31, 2016  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  1 Response »


DPC Elks Temple (Eureka Club), Rochester, NY 1908

How Slow Is US Economic Growth? ‘Close To Zero’ (CNBC)
US Non-Consumer Economy Is Now In A Recession (ZH)
US Government Entitlements – Sixth Biggest Economy On Earth (Stockman)
Helicopter Money Talk Takes Flight As Bank of Japan Runs Out Of Runway (R.)
No Clean Bill Of Health For EU Banks In Stress Test (R.)
Ireland Jails Three Top Bankers Over 2008 Banking Meltdown (R.)
Australia’s Property Market Is Completely Bonkers (Schwab)
Minsky’s Moment (Economist)
The IMF Confesses It Immolated Greece On Behalf Of The Eurogroup (YV)
Econocracy Has Split Britain Into Experts And Ordinary People (G.)
Network Close To NATO Military Leader Fueled Ukraine Conflict (Spiegel)
America’s Military Is “Lender Of Last Resort” (Cate Long)

 

 

Not a pretty picture.

How Slow Is US Economic Growth? ‘Close To Zero’ (CNBC)

While 2016’s anemic growth level isn’t an automatic disqualifier for an interest rate increase, the bar just got a little higher. Friday’s GDP reading fell below even the dimming hopes on Wall Street. The 1.2% growth ratein the second quarter combined with a downward revision to the first three months of the year to produce an average growth rate of just 1%. In total, it was far below the Wall Street forecast of 2.6% second-quarter growth and didn’t lend a lot of credence to a Fed statement earlier this week that sounded more confident on the economy. (The Atlanta Fed was much closer, forecasting 1.8%.) In short, they are not numbers upon which a rate hawk would want to hang one’s hat.

“We’re tired of talking about rate hikes when it’s not going to happen for a while,” Diane Swonk of DS Economics told CNBC. “I really think the Fed is sidelined until the end of the year. Or, perhaps, longer. Market expectations for the next Fed hike had been sliding as the release of the GDP report got closer, and they plunged afterward. The fed funds futures market Friday morning was indicating just a 34.4% chance of a rate rise this year, with the next move pushed out until well into 2017. A day earlier, the futures market had moved to just over 50% for a 2016 move. The Fed last hiked in December 2015, which was the first move after eight years of keeping the overnight rate near zero.

To be sure, GDP growth is just one input for the central bank. Ostensibly, the Fed’s mandate is to ensure full employment and price stability, and it has come close to achieving the former while continually falling short of the latter. [..] .. the Fed has been warning about weak business investment, and Friday’s data showed those concerns were well-founded. Business investment fell 2.2%, its third consecutive quarterly decline. Gross private domestic investment tumbled 9.7%, and residential investment, which had been on the rise, reversed course and declined 6.1%, the first decrease since early 2014. Those numbers act as a counterweight to the declining jobless rate, which is down to 4.9%.

“What is really worrying is that pace has still been enough to reduce the unemployment rate further, suggesting that the economy’s potential growth rate could conceivably be close to zero,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note. The headline jobless rate has been declining, in part, due to a generational low in labor force participation, suggesting that outside a decline in labor slack, there’s little moving economic growth.

Read more …

And consumer spending is set to contract sharply.

US Non-Consumer Economy Is Now In A Recession (ZH)

While yesterday’s GDP report was an undisputed disappointment, printing at 1.2% or less than half the 2.5% expected following dramatic historical data revisions, an even more troubling finding emerged when looking at the annual growth rate of GDP.  This is how Deutsche Bank’s Dominic Konstam summarized what we showed yesterday

The latest GDP release favors our hypothesis of an imminent endogenous labor market slowdown over a more optimistic scenario in which productivity will replace employment as the engine for growth. With real GDP growing at just 1.2%, there is little evidence that productivity is ready to do the heavy lifting. We are particularly concerned because annual nominal growth has slowed to 2.4%, essentially a cyclical trough

He was looking at the following chart (which as the BEA admitted yesterday, may be revised even lower in coming quarters).

 

However, as it turns out, that was not even the biggest risk. Recall that even as overall GDP rose a paltry 1.2%, somehow the consumer-driven portion of this number soared, with Personal Consumption Expenditures surging at an annualized 2.8% rate, nearly triple that recorded in the first quarter.

This means that the non-consumer part of the US economy subtracted 1.6% from GDP growth in the second quarter. In fact, as Deutsche Bank calculates, on an annual basis, the non-consumer portion of the economy is shrinking, i.e., in a recession, not only in real terms but also in nominal terms.

Read more …

More parts of Stockman’s upcoming book ‘Trumped’.

US Government Entitlements – Sixth Biggest Economy On Earth (Stockman)

……..Because the main street economy is failing, the nation’s entitlement rolls have exploded. About 110 million citizens now receive some form of means tested benefits. When social security is included, more than 160 million citizens get checks from Washington. The total cost is now $3 trillion per year and rising rapidly. America’s entitlements sector, in fact, is the sixth biggest economy in the world. Yet in a society that is rapidly aging to the tune of 10,000 baby boom retirees per day, this 50% dependency ratio is not even remotely sustainable. As we show in a later chapter, social security itself will be bankrupt within 10 years. Still, there is another even more important aspect of the mainstream narrative’s absolute radio silence about the monumental entitlements problem.

Like in the case of the nation’s 30-year LBO, the transfer payments crisis is obfuscated by the economic blind spots of our Keynesian central banking regime. Greenspan, Bernanke, Yellen and their posse of paint-by-the-numbers economic plumbers have deified the great aggregates of consumer, business and government spending as the motor force of economic life. As more fully deconstructed below, however, this boils down to a primitive notion of bathtub economics. In this bogus economic model, it is assumed that the supply-side of the economy is always fully endowed or even over-provided. By contrast, the perennial problem is purportedly a shortfall of an ether called “aggregate demand”.

Read more …

Can we please stop talking about it, and do it already?

Helicopter Money Talk Takes Flight As Bank of Japan Runs Out Of Runway (R.)

In the narrowest sense, a government can arrange a helicopter drop of cash by selling perpetual bonds, which never need to be repaid, directly to the central bank. Economists do not expect this in Japan, but they do see a high chance of mission creep, with the BOJ perhaps committing to buy municipal bonds or debt issued by state-backed entities, giving its interventions more impact than in the treasury bond market, where it is currently buying 80 trillion yen a year of Japanese government bonds (JGBs) from financial institutions. “Compared with government debt, these assets have low trading volume and low liquidity, so BOJ purchases stand a high chance of distorting these markets,” said Shinichi Fukuda, a professor of economics at Tokyo University.

“Prices would have an upward bias, so even if the BOJ bought at market rates, this would be considered close to helicopter money.” Other options include creating a special account at the BOJ that the government can always borrow from, committing to hold a certain%age of outstanding government debt or buying corporate bonds, economists say. With the BOJ’s annual JGB purchases already more than twice the volume of new debt issued by the government, Japan has already adopted something akin to helicopter money, said Etsuro Honda, a former special adviser to the Cabinet and a key architect of Abe’s reflationary economic policy. But it has not been enough to stop consumer prices falling in June at their fastest since the BOJ began quantitative easing in 2013.

Read more …

And these are half-ass stress tests designed to let banks pass.

No Clean Bill Of Health For EU Banks In Stress Test (R.)

Banks from Italy, Ireland, Spain and Austria fared worst in the latest European Union stress test, which the region’s banking watchdog said on Friday showed there was still work to do in order to boost credit to the bloc’s economy. Eight years since the collapse of Lehman Brothers sparked a global banking meltdown, many of Europe’s banks are still saddled with billions of euros in poorly performing loans, crimping their ability to lend and putting off investors. “While a number of individual banks have clearly fared badly, the overall finding of the European Banking Authority – that Europe’s banks are resilient to another crisis – is heartening,” Anthony Kruizinga at PwC said. Italy’s Monte dei Paschi, Austria’s Raiffeisen, Spain’s Banco Popular and two of Ireland’s main banks came out with the worst results in the EBA’s test of 51 EU lenders.

“Whilst we recognize the extensive capital raising done so far, this is not a clean bill of health,” EBA Chairman Andrea Enria said in a statement. “There remains work to do.” Italy’s largest lender, UniCredit, was also among those banks which fared badly, and it said it will work with supervisors to see if it should take further measures. Germany’s biggest banks, Deutsche Bank and Commerzbank, were also among the 12 weakest banks in the test, along with British rival Barclays. Monte dei Paschi, Italy’s third largest lender, had been scrambling to pull together a rescue plan and win approval for it from the ECB ahead of the test results. The Italian bank confirmed less than an hour before the results that it had finalised a plan to sell off its entire portfolio of non-performing loans and had assembled a consortium of banks to back a €5 billion capital increase.

Read more …

More!

Ireland Jails Three Top Bankers Over 2008 Banking Meltdown (R.)

Three senior Irish bankers were jailed on Friday for up to three-and-a-half years for conspiring to defraud investors in the most prominent prosecution arising from the 2008 banking crisis that crippled the country’s economy. The trio will be among the first senior bankers globally to be jailed for their role in the collapse of a bank during the crisis. The lack of convictions until now has angered Irish taxpayers, who had to stump up €64 billion – almost 40% of annual economic output – after a property collapse forced the biggest state bank rescue in the euro zone. The crash thrust Ireland into a three-year sovereign bailout in 2010 and the finance ministry said last month that it could take another 15 years to recover the funds pumped into the banks still operating.

Former Irish Life and Permanent Chief Executive Denis Casey was sentenced to two years and nine months following the 74-day criminal trial, Ireland’s longest ever. Willie McAteer, former finance director at the failed Anglo Irish Bank, and John Bowe, its ex-head of capital markets, were given sentences of 42 months and 24 months respectively. All three were convicted of conspiring together and with others to mislead investors, depositors and lenders by setting up a €7.2 billion circular transaction scheme between March and September 2008 to bolster Anglo’s balance sheet. Irish Life placed the deposits via a non-banking subsidiary in the run-up to Anglo’s financial year-end, to allow its rival to categorize them as customer deposits, which are viewed as more secure, rather than a deposit from another bank.

Read more …

“..a couple of generations of Australians will be all the poorer for it…”

Australia’s Property Market Is Completely Bonkers (Schwab)

House prices are no longer a function of value but rather of how much people are prepared to pay. That in turn is determined by how much banks are willing to lend. And that amount continues to rise. Before the current boom started in 1997, the ratio of household debt to GDP was around 40% — it’s now more than 100% (it’s the same story for household income to household debt). In short, the banks are lending Australians a whole load of cash, and we’re using that cash to bid up the price of an unproductive asset (established housing).

The removal of housing prices from reality is almost total. Most investment advisers will tell you that the price of an asset is dependent on the income that asset generates. For example, the more a company earns (or more specifically, the more investors think that company will earn in the future), the higher its share price will rise. Given house and apartment prices are currently high (based on their terrible net rental yield) one would expect rents to be increasing significantly to justify their price. However, the data tells a very different story. CoreLogic found that Australian dwellings increased in price by 10% in the past year. In Sydney and Melbourne the price rises were even more significant, with Sydney increasing by 13% and Melbourne by 13.9%.

If the market had any degree of rationality, given the market is already expensive, rentals would have needed to rise by around 20% during the year to justify those price increases. However, CoreLogic also reported that Sydney rents were up a mere 0.4% and Melbourne up by 1.7% (both well below the inflation rate). That means if the market was insane a year ago, it’s even worse now. Already overprice property is increasing, in Sydney’s case, 20 times as fast as underlying income. The problem is no one seems to care what the banks do (least of all the government, even though taxpayers are on the hook if any of the big banks fall over, which if the history of banking is anything to go by is a virtual certainty at some point).

Moreover, successive governments’ taxation policies (negative gearing, no capital gains tax, minimal land tax) serve to exacerbate the insanity. How long will the boom last? Potentially some time. There are a lot of vested interests (banks, real estate industry, state governments, the media) who are utterly reliant on the bubble continuing. Sadly, a couple of generations of Australians will be all the poorer for it.

Read more …

“Economic stability breeds instability. Periods of prosperity give way to financial fragility. With overleveraged banks and no-money-down mortgages still fresh in the mind after the global financial crisis, Minsky’s insight might sound obvious.”

Minsky’s Moment (Economist)

Minsky distinguished between three kinds of financing. The first, which he called “hedge financing”, is the safest: firms rely on their future cashflow to repay all their borrowings. For this to work, they need to have very limited borrowings and healthy profits. The second, speculative financing, is a bit riskier: firms rely on their cashflow to repay the interest on their borrowings but must roll over their debt to repay the principal. This should be manageable as long as the economy functions smoothly, but a downturn could cause distress. The third, Ponzi financing, is the most dangerous. Cashflow covers neither principal nor interest; firms are betting only that the underlying asset will appreciate by enough to cover their liabilities. If that fails to happen, they will be left exposed.

Economies dominated by hedge financing—that is, those with strong cashflows and low debt levels—are the most stable. When speculative and, especially, Ponzi financing come to the fore, financial systems are more vulnerable. If asset values start to fall, either because of monetary tightening or some external shock, the most overstretched firms will be forced to sell their positions. This further undermines asset values, causing pain for even more firms. They could avoid this trouble by restricting themselves to hedge financing. But over time, particularly when the economy is in fine fettle, the temptation to take on debt is irresistible. When growth looks assured, why not borrow more? Banks add to the dynamic, lowering their credit standards the longer booms last.

If defaults are minimal, why not lend more? Minsky’s conclusion was unsettling. Economic stability breeds instability. Periods of prosperity give way to financial fragility. With overleveraged banks and no-money-down mortgages still fresh in the mind after the global financial crisis, Minsky’s insight might sound obvious. Of course, debt and finance matter. But for decades the study of economics paid little heed to the former and relegated the latter to a sub-discipline, not an essential element in broader theories. Minsky was a maverick. He challenged both the Keynesian backbone of macroeconomics and a prevailing belief in efficient markets.

Read more …

Yanis calling for heads to roll.

The IMF Confesses It Immolated Greece On Behalf Of The Eurogroup (YV)

[..] an urgent apology is due to the Greek people, not just by the IMF but also by the ECB and the Commission whose officials were egging the IMF on with the fiscal waterboarding of Greece. But an apology and a collective mea culpa from the troika is woefully inadequate. It needs to be followed up by the immediate dismissal of at least three functionaries. First on the list is Mr Poul Thomsen – the original IMF Greek Mission Chief whose great failure (according to the IMF’s own reports never before had a mission chief presided over a greater macroeconomic disaster) led to his promotion to the IMF’s European Chief status.

A close second spot in this list is Mr Thomas Wieser, the chair of the EuroWorkingGroup who has been part of every policy and every coup that resulted in Greece’s immolation and Europe’s ignominy, hopefully to be joined into retirement by Mr Declan Costello, whose fingerprints are all over the instruments of fiscal waterboarding. And, lastly, a gentleman that my Irish friends know only too well, Mr Klaus Masuch of the ECB. Finally, and most importantly, the apology and the dismissals will count for nothing if they are not followed by a complete U-turn over macroeconomic, fiscal and reform policies for Greece and beyond.

Is any of this going to happen? Or will the IMF’s IEO report light up the sky fleetingly, to be forgotten soon? The omens are pointing to the latter. In which case, the EU’s chances of regaining the confidence of its citizens, chances that are already too slim, will run through our leaders’ fingers like thin, white sand.

Read more …

“..the shift into an era of post-truth politics…”

Econocracy Has Split Britain Into Experts And Ordinary People (G.)

During the EU referendum debate almost the whole global economic and financial establishment lined up to warn of the consequences of Brexit, and yet 52% of the country ignored them. For many Remain voters it is a clear sign of the shift into an era of post-truth politics. While economists developed rigorous, evidence-based arguments, Leave campaigners slandered experts and appeared to pluck numbers out of the air. Yet they won. Post-truth politics is indeed a scary prospect but to avoid such a future we cannot simply blame “populist politicians” or “ill-informed voters”. We must understand the referendum in its wider context; economists must realise that they are both part of the problem and a necessary part of the solution. We are living in an econocracy.

Such a society seems like a democracy, with political parties and elections, but political goals are expressed in terms of their effect on “the economy”, and economic policymaking is viewed as a technical, not a political, activity. Areas of political life are increasingly delegated to experts, whether at the Bank of England, the government’s behavioural insights team, the Competition Commission or the Treasury. As members of Rethinking Economics, an international student movement seeking to reform the discipline of economics, we are campaigning for a more pluralist, critical and participatory approach. We conduct workshops in schools, run evening crash courses for adults, and this year launched Economy, a website providing accessible economic analysis of current affairs and a platform for lively public debate.

We want economists and citizens to join us in our mission to democratise economics. That’s because the language of economics has become the language of government, and as the experts on “the economy”, economists have secured a position of prestige and authority. Their rise has gone hand in hand with the increasing importance over the 20th century and beyond of the idea of the economy in political and social life. This idea in its modern use took hold only in the 1950s but today GDP growth is one of the central indicators of success for governments, and it is unheard of for a political party to win a general election without being viewed as competent on the economy.

We have also seen the economisation of daily life, so that parts of society as diverse as the arts and healthcare now justify their value in terms of their contribution to the economy. But in this process economists have largely ignored citizens and failed to consider their right to participate in discussion and decision-making.

Read more …

A bunch of dangerous sickos.

Network Close To NATO Military Leader Fueled Ukraine Conflict (Spiegel)

The newly leaked emails reveal a clandestine network of Western agitators around the NATO military chief, whose presence fueled the conflict in Ukraine. Many allies found in Breedlove’s alarmist public statements about alleged large Russian troop movements cause for concern early on. Earlier this year, the general was assuring the world that US European Command was “deterring Russia now and preparing to fight and win if necessary.” The emails document for the first time the questionable sources from whom Breedlove was getting his information. He had exaggerated Russian activities in eastern Ukraine with the overt goal of delivering weapons to Kiev. The general and his likeminded colleagues perceived US President Barack Obama, the commander-in-chief of all American forces, as well as German Chancellor Angela Merkel as obstacles.

Obama and Merkel were being “politically naive & counter-productive” in their calls for de-escalation, according to Phillip Karber, a central figure in Breedlove’s network who was feeding information from Ukraine to the general. “I think POTUS sees us as a threat that must be minimized,… ie do not get me into a war????” Breedlove wrote in one email, using the acronym for the president of the United States. How could Obama be persuaded to be more “engaged” in the conflict in Ukraine – read: deliver weapons – Breedlove had asked former Secretary of State Colin Powell. Breedlove sought counsel from some very prominent people, his emails show. Among them were Wesley Clark, Breedlove’s predecessor at NATO, Victoria Nuland, the assistant secretary of state for European and Eurasian affairs at the State Department, and Geoffrey Pyatt, the US ambassador to Kiev.

One name that kept popping up was Phillip Karber, an adjunct assistant professor at Georgetown University in Washington DC and president of the Potomac Foundation, a conservative think tank founded by the former defense contractor BDM. By its own account, the foundation has helped eastern European countries prepare their accession into NATO. Now the Ukrainian parliament and the government in Kiev were asking Karber for help. On February 16, 2015, when the Ukraine crisis had reached its climax, Karber wrote an email to Breedlove, Clark, Pyatt and Rose Gottemoeller, the under secretary for arms control and international security at the State Department, who will be moving to Brussels this fall to take up the post of deputy secretary general of NATO.

Karber was in Warsaw, and he said he had found surreptitious channels to get weapons to Ukraine – without the US being directly involved. According to the email, Pakistan had offered, “under the table,” to sell Ukraine 500 portable TOW-II launchers and 8,000 TOW-II missiles. The deliveries could begin within two weeks. Even the Poles were willing to start sending “well maintained T-72 tanks, plus several hundred SP 122mm guns, and SP-122 howitzers (along with copious amounts of artillery ammunition for both)” that they had leftover from the Soviet era. The sales would likely go unnoticed, Karber said, because Poland’s old weapons were “virtually undistinguishable from those of Ukraine.”

Read more …

What Trump said.

America’s Military Is “Lender Of Last Resort” (Cate Long)

America is slowly awakening from its long debt-induced slumber. It has conducted two major wars, a bailout of banks and a major stimulus program without raising taxes to pay for them. Because the Federal Reserve kept interest rates low, it was easy for politicians to continue to raise the debt ceiling and spend without making reductions in other areas of the budget. But those days have ended, the punch bowl has been removed and a new sobriety has rolled into our national capital. Even with its massive deficit problems, America has been providing security for its global allies for decades at no cost to them.

This resulted in spending 4.8% of GDP on U.S. military in 2010, which was ramped up from 3.0% in 2001, according to the Stockholm International Peace Research Institute. In contrast, you can see that European countries spent 1.73% of total GDP on military in 2010, which declined slightly from 1.99% in 2001. America has been subsidizing European military needs largely due to its role in the NATO alliance. The Council on Foreign Relations explains the new problems with this arrangement:

In 2011, then Secretary of Defense Robert Gates warned that ‘there will be dwindling appetite and patience in the U.S. . . . to expend increasingly precious funds on behalf of nations that are apparently unwilling to devote the necessary resources to be serious and capable partners in their own defense.’ France in Mali is now a case in point; the Obama administration is providing only grudging assistance to an under-resourced French intervention.

[…] French military spending…has since 2001 exhibited a marked constancy—one which is inconsistent with the country’s newfound passion for military engagement. (Libya in March 2011 was another example of the French, as well as British, military biting off more than it could chew). It also highlights the need for the Obama administration to address Gates’ prescient concern and to develop a clearer policy foundation for America’s global military ‘lender of last resort’ role.

America is woefully underfunded in infrastructure spending and many other social needs. A big question is whether it can also be the global military “lender of last resort” and still maintain its own house. The military contracting industry in America does create a lot of jobs, but in essence it also gives the benefits away free to its allies. Times must change. America must either charge for these services or understand more clearly what we gain from continued military involvement overseas.

Read more …

Jul 242016
 
 July 24, 2016  Posted by at 9:25 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


Milton Greene “Actress Marilyn Monroe in bed” 1955

China’s Growth Sucks In More Debt Bucks For Less Bang (R.)
G20 Will Use ‘All Policy Tools’ To Protect Growth As Brexit Looms (R.)
OECD’s Gurria Says No Other EU Country Will Consider Exit After Brexit (CNBC)
EU Considers Migration ‘Emergency Brake’ For UK For Up To 7 Years (O.)
Mortgages Issued By Greek Banks Declined 99% In Past Decade (Kath.)
5 Reasons Why Trump Will Win (Michael Moore)
Trump Policy Will Unravel Traditional Neocons – Michael Hudson (RNN)
WikiLeaks Trove Plunges Democrats Into Crisis On Eve Of Convention (SMH)
DNC Chair Won’t Speak At Dem Convention Following WikiLeaks Fallout (CNN)
Imagine How The Land Feels (G.)

 

 

Reuters says: “..this year it has taken six yuan for every yuan of growth,[..] twice even the level in the United States during the debt-fueled housing bubble..”

That’s questionable. ZH in 2013: “..over the past five years in the developed world, it took $18 dollars of debt (of which 28% was provided by central banks) to generate $1 of growth..”

China’s Growth Sucks In More Debt Bucks For Less Bang (R.)

As China’s economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world’s second-largest economy grew 6.7% in the first half of the year, unchanged from the first quarter, testament to policymakers’ determination to regulate the pace of slowdown after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a damngerous rise in debt, which is six times less effective at generating growth than a few years ago. “The amount of debt that China has taken in the last 5-7 years is unprecedented,” said Morgan Stanley’s head of emerging markets, Ruchir Sharma, at a book launch in Singapore.

“No developing country in history has taken on as much debt as China has taken on on a marginal basis.” While Beijing can take comfort that loose money and more deficit spending are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls “fertile (ground) for some accident to happen”. From 2003 to 2008, when annual growth averaged more than 11%, it took just one yuan of extra credit to generate one yuan of GDP growth, according to Morgan Stanley calculations. It took two for one from 2009-2010, when Beijing embarked on a massive stimulus program to ward off the effects of the global financial crisis.

The ratio had doubled again to four for one in 2015, and this year it has taken six yuan for every yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fueled housing bubble that triggered the global crisis. Total bond debt in China is up over 50% in the past 18 months to 57 trillion yuan ($8.5 trillion), equal to around 80% of GDP, and new total social financing, the widest measure of credit provided by China’s central bank, rose 10.9% in the first half of 2016 to 9.75 trillion yuan. China’s money supply has increased in tandem with new lending, and at 149 trillion yuan is now 73% higher than in the US, an economy about 60% larger. “China is the largest money printer in the world – they have been for some time. The balance is really extreme,” says Kevin Smith, CEO of U.S.-based Crescat Capital.

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Ionesco and Samuel Beckett were ahead of their time, but we’re catching up with them. Words lose ever more meaning. Example are this article, but also this WSJ headline: “Hillary Clinton Introduces Tim Kaine as ‘a Progressive Who Likes to Get Things Done'”. That may have sounded lofty even just 20 years ago, but today it’s just meaningless, if not outright repulsive.

G20 Will Use ‘All Policy Tools’ To Protect Growth As Brexit Looms (R.)

Leaders from the world’s biggest economies are poised on Sunday to renew their commitments to support global growth and better coordinate actions in the face of uncertainty over Britain’s decision to leave the EU and growing protectionism. The meeting of finance ministers and central bankers from the Group of 20 major economies in China’s southwestern city of Chengdu is the first of its kind since last month’s Brexit vote and a debut for Britain’s new finance minister. Philip Hammond faced questions about how quickly the UK planned to move ahead with formal negotiations to leave the EU. “We are taking actions to foster confidence and support growth,” a draft statement by the policymakers seen by Reuters said.

“In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable and balanced growth,” it said. The IMF this week cut its global growth forecasts because of the Brexit vote. Data on Friday seemed to bear out fears, with a British business activity index posting its biggest drop in its 20-year history. The draft communique, expected to be issued at the end of the meeting on Sunday afternoon, said Brexit added to uncertainty in the global economy but G20 members were “well positioned to proactively address the potential economic and financial consequences”.

U.S. Treasury Secretary Jack Lew said on Saturday it was important for G20 countries to boost shared growth using all policy tools, including monetary and fiscal policies as well as structural reforms, to boost efficiency. “This is a time when it is important for all of us to redouble our efforts to use all of the policy tools that we have to boost shared growth,” Lew told reporters.

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He’ll find out yet.

OECD’s Gurria Says No Other EU Country Will Consider Exit After Brexit (CNBC)

Countries in the European Union are unlikely to consider an exit from the bloc once they realize how complicated, costly and disruptive the process will be for the United Kingdom, the secretary general of the Organization for Economic Cooperation and Development (OECD) told CNBC on Saturday. “Nobody in their right mind will even attempt or even think of leaving the European Union because they will understand that it is not in their best interest,” Angel Gurria told CNBC before the start of the G-20 finance ministers and central bank governors meeting in Chengdu, China.

Gurria had recommended against the Brexit vote, but says the next step should be helping the U.K. and its partners through the proceedings in the least costly and least disruptive way. On the Italian banking crisis and whether the EU should rescue the country’s third largest bank, Monte dei Paschi di Siena, Gurria said that “national, regional and EU intervention is necessary”. However, the challenge is to define who is going to be doing what, he added. Rome is bracing for the results of critical bank stress tests that are due on July 29 and is hoping to find a solution for the battered bank ahead of that.

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Mere days after everyone said there could be no pre-Brexit discussions with the UK, of course there’s things like this anyway.

EU Considers Migration ‘Emergency Brake’ For UK For Up To 7 Years (O.)

Plans to allow the United Kingdom an exemption from EU rules on freedom of movement for up to seven years while retaining access to the single market are being considered in European capitals as part of a potential deal on Brexit. Senior British and EU sources have confirmed that despite strong initial resistance from French president François Hollande in talks with prime minister Theresa May last week, the idea of an emergency brake on the free movement of people that would go far further than the one David Cameron negotiated before the Brexit referendum is being examined.

If such an agreement were struck, and a strict time limit imposed, diplomats believe it could go a long way towards addressing concerns of the British people over immigration from EU states, while allowing the UK full trade access to the European market. While the plan will prove highly controversial in many member states, including France, Poland and other central and eastern European nations, the attraction is that it would limit the economic shock to the EU economy from Brexit by keeping the UK in the single market, and lessen the political damage to the European project that would result from complete divorce.

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Sales only to those with deep pockets. The rest of the world buys up Greece.

Mortgages Issued By Greek Banks Declined 99% In Past Decade (Kath.)

Cash was the preferred from of payment for the few people who decided to purchase real estate in the first half of the year in Greece, bank officials have suggested. Converging estimates by bank officials contacted by Kathimerini show that eight out of 10 property buyers opted for the transfer of cash between deposit accounts instead of a loan, a trend that started with the imposition of capital controls by the government just over a year ago and continues to date. The same trend is also dominant in consumer credit.

According to data compiled by Kathimerini, the new loans issued in H1 came to €75 million in mortgage credit across the banking system and to €150 million in consumer credit. This sum constitutes a historic low for the last few decades at least. Comparisons with a decade ago are staggering: The number of mortgages issued in January-June 2016 – also affected by the lawyers’ strike – came to just 800, against about 80,000 in the same period in 2006. A Bank of Greece analysis recently said that the course of loans to households is mainly determined by demand, and in the last couple of years the drop in house prices has played a decisive role in the reduction of loan issues.

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Well argued. But as Moore himself also argues, that’s a problem, not a winner.

5 Reasons Why Trump Will Win (Michael Moore)

Friends: I am sorry to be the bearer of bad news, but I gave it to you straight last summer when I told you that Donald Trump would be the Republican nominee for president. And now I have even more awful, depressing news for you: Donald J. Trump is going to win in November. This wretched, ignorant, dangerous part-time clown and full time sociopath is going to be our next president. President Trump. Go ahead and say the words, ‘cause you’ll be saying them for the next four years: “PRESIDENT TRUMP.” Never in my life have I wanted to be proven wrong more than I do right now. I can see what you’re doing right now. You’re shaking your head wildly – “No, Mike, this won’t happen!”

Unfortunately, you are living in a bubble that comes with an adjoining echo chamber where you and your friends are convinced the American people are not going to elect an idiot for president. You alternate between being appalled at him and laughing at him because of his latest crazy comment or his embarrassingly narcissistic stance on everything because everything is about him. And then you listen to Hillary and you behold our very first female president, someone the world respects, someone who is whip-smart and cares about kids, who will continue the Obama legacy because that is what the American people clearly want! Yes! Four more years of this! You need to exit that bubble right now. You need to stop living in denial and face the truth which you know deep down is very, very real.

Trying to soothe yourself with the facts – “77% of the electorate are women, people of color, young adults under 35 and Trump cant win a majority of any of them!” – or logic – “people aren’t going to vote for a buffoon or against their own best interests!” – is your brain’s way of trying to protect you from trauma. Like when you hear a loud noise on the street and you think, “oh, a tire just blew out,” or, “wow, who’s playing with firecrackers?” because you don’t want to think you just heard someone being shot with a gun. It’s the same reason why all the initial news and eyewitness reports on 9/11 said “a small plane accidentally flew into the World Trade Center.” We want to – we need to – hope for the best because, frankly, life is already a shit show and it’s hard enough struggling to get by from paycheck to paycheck. We can’t handle much more bad news. So our mental state goes to default when something scary is actually, truly happening.

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The attempts to link Trump to Russia have become a sort of hilarious boomerang.

Trump Policy Will Unravel Traditional Neocons – Michael Hudson (RNN)

On Friday, just after the RNC wrapped up with its presidential candidate, Donald Trump, Paul Krugman of the New York Times penned an article titled “Donald Trump: The Siberian Candidate.” He said in it, if elected, would Donald Trump be Vladimir Putin’s man in the White House? Krugman himself is worried as ludicrous and outrageous as the question sounds, the Trump campaign’s recent behavior has quite a few foreign policy experts wondering, he says, just what kind of hold Mr. Putin has over the Republican nominee, and whether that influence will continue if he wins. Well, let’s unravel that statement with Michael Hudson. [..] So let’s take a look at this article by Paul Krugman. Where is he going with this analysis about the Siberian candidate?

HUDSON: Well, Krugman has joined the ranks of the neocons, as well as the neoliberals, and they’re terrified that they’re losing control of the Republican Party. For the last half-century the Republican Party has been pro-Cold War, corporatist. And Trump has actually, is reversing that. Reversing the whole traditional platform. And that really worries the neocons. Until his speech, the whole Republican Convention, every speaker had avoided dealing with economic policy issues. No one referred to the party platform, which isn’t very good. And it was mostly an attack on Hillary. Chants of “lock her up.” And Trump children, aimed to try to humanize him and make him look like a loving man.

But finally came Trump’s speech, and this was for the first time, policy was there. And he’s making a left run around Hillary. He appealed twice to Bernie Sanders supporters, and the two major policies that he outlined in the speech broke radically from the Republican traditional right-wing stance. And that is called destroying the party by the right wing, and Trump said he’s not destroying the party, he’s building it up and appealing to labor, and appealing to the rational interest that otherwise had been backing Bernie Sanders.

So in terms of national security, he wanted to roll back NATO spending. And he made it clear, roll back military spending. We can spend it on infrastructure, we can spend it on employing American labor. And in the speech, he said, look, we don’t need foreign military bases and foreign spending to defend our allies. We can defend them from the United States, because in today’s world, the only kind of war we’re going to have is atomic war. Nobody’s going to invade another country. We’re not going to send American troops to invade Russia, if it were to attack. So nobody’s even talking about that. So let’s be realistic.

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Well, I said a long time ago that Clinton would not be electable. There’ll be much more of this released while the convention takes place.

WikiLeaks Trove Plunges Democrats Into Crisis On Eve Of Convention (SMH)

On the eve of the convention at which Hillary Clinton is to be confirmed as presidential candidate, the Democratic Party has been plunged into crisis – the US media is brimful of ugly and embarrassing stories from within the party’s head office, all based on 20,000 emails dropped on Friday evening by the anti-secrecy group WikiLeaks. The correspondence seems to confirm allegations by the campaign of defeated Senator Bernie Sanders that the Democratic National Committee was actively rooting for Mrs Clinton to win, a revelation that will most likely serve as a wedge between the two camps and make it even more difficult for her to persuade Sanders voters to support her.

The emails also reveal plotting within the DNC to embarrass Republican candidate Donald Trump, including drafting a fake ad to recruit “hot women” to work for him. Bad as this trove of emails is, it could presage something much worse. A brief introduction to the emails, that were released on Twitter with a link to a webpage, described them as “part one of our new Hillary Leaks series”. Naming key DNC officials, the introduction says how many of the emails came from each, including communications director Luis Miranda (10,770 emails), national finance director Jordon Kaplan (3797 emails), and finance chief of staff Scott Comer. The emails are dated through the five months to May 25, 2016.

Several of the emails address efforts to embarrass or to wrong-foot the Sanders campaign, which began almost as a non-event but surged with young voter support in particular to become a serious and determined challenger to Mrs Clinton. One email suggests that Senator Sanders be questioned on his faith, in the hope of revealing him as an atheist. It reads: “Does he believe in a God. He had skated on saying he has a Jewish heritage. I think I read he is an atheist. This could make several points difference with my peeps. My Southern Baptist peeps would draw a big difference between a Jew and an atheist.”

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“She’s been quarantined..” She should be under investigation.

DNC Chair Won’t Speak At Dem Convention Following WikiLeaks Fallout (CNN)

The head of the Democratic National Committee will not speak at the party’s convention next week, a decision reached by party officials Saturday after emails surfaced that raised questions about the committee’s impartiality during the Democratic primary. Debbie Wasserman Schultz, whose stewardship of the DNC has been under fire through most of the presidential primary process, will not have a major speaking role in an effort “to keep the peace” in the party, a Democrat familiar with the decision said. The revelation comes following the release of nearly 20,000 emails.

One email appears to show DNC staffers asking how they can reference Bernie Sanders’ faith to weaken him in the eyes of Southern voters. Another seems to depict an attorney advising the committee on how to defend Hillary Clinton against an accusation by the Sanders campaign of not living up to a joint fundraising agreement. Wasserman Schultz is expected to gavel the convention in and out, but not speak in the wake of the controversy surrounding the leaked emails, a top Democrat said. “She’s been quarantined,” another top Democrat said, following a meeting Saturday night.

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Love it. Not so much the part of how to get nature into a novel, but the idea itself. The world is alive. These fierce looking hunters singing to the land, the forest. And the land singing back:

“The place itself, in which their people had lived for millennia, was not an inanimate “environment”, a mere backdrop for human activity. It was part of that activity. It was a great being, and to live as part of it was to be in a constant exchange with it. And so they sang to it; sometimes, it sang back.”

Imagine How The Land Feels (G.)

We had climbed, slowly, to a high mountain ridge. We were two young Englishmen who were not supposed to be here – journalism was forbidden – and four local guides, members of the Lani tribe. Our guides were moving us around the highlands of West Papua, taking us to meet people who could tell us about their suffering at the hands of the occupying Indonesian army. The mountain ridge was covered in deep, old rainforest, as was the rest of the area we had walked through. This forest, to the Lani, was home. In the forest they hunted, gathered food, built their homes, lived. It was not a recreation or a resource: there was nothing romantic about it, nothing to debate. It was just life.

Now, as we reached the top of the ridge, a break in the trees opened up and we saw miles of unbroken green mountains rolling away before us to the horizon. It was a breathtaking sight. As I watched, our four guides lined up along the ridge and, facing the mountains, they sang. They sang a song to the forest whose words I didn’t understand, but whose meaning was clear enough. It was a song of thanks; of belonging. To the Lani, I learned later, the forest lived. This was no metaphor. The place itself, in which their people had lived for millennia, was not an inanimate “environment”, a mere backdrop for human activity. It was part of that activity. It was a great being, and to live as part of it was to be in a constant exchange with it. And so they sang to it; sometimes, it sang back.

When European minds experience this kind of thing, they are never quite sure what to do with it. It’s been so long since we had a sense that we dwelled in a living landscape that we don’t have the words to frame what we see. Too often, we go in one of two directions, either sentimentalising the experience or dismissing it as superstition. To us, the wild places around us (if there are any left) are “resources” to be utilised. We argue constantly about how best to use them – should we log this forest, or turn it into a national park? – but only the bravest or the most foolish would suggest that this might not be our decision to make.

To modern people, the world we walk through is not an animal, a being, a living presence; it is a machine, and our task is to learn how it works, the better to use it for our own ends. The notion that the non-human world is largely inanimate is often represented as scientific or rational, but it is really more like a modern superstition. “It is just like Man’s vanity and impertinence,” wrote Mark Twain, “to call an animal dumb because it is dumb to his dull perceptions.” We might say the same about a forest; and science, interestingly, might turn out to be on our side.

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Jul 152016
 
 July 15, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  1 Response »


Dorothea Lange Farm boy at main drugstore, Medford, Oregon 1939

(Nobody Believes) China’s Q2 GDP Growth Stable at 6.7% (ET)
Asian Shares Rise To Eight-Month Highs (R.)
US Exporters’ Gains From Chinese Economic Growth Shrink Further (WSJ)
Could Italy Bring Down The Euro? (Kern)
EU Finance Ministers Get Tough With Italian Bank Trying For Third Bailout (G.)
Who’s Buying It? (Roberts)
Canada New Home Prices Grow At Fastest Pace In Nearly 9 Years (R.)
UK MPs Decry ‘Failed’ Effort To Stop London Property Money Laundering (G.)
McKinsey Slams Globalization: “The Resentment Will Explode” (ZH)
Globalism vs. “Populism” (Smith)
President of Belgian Magistrates: Neoliberalism Is A Form Of Fascism (DDP)
In New Zealand, Lands and Rivers Can Be People -Legally Speaking- (NYT)
Obama Expected to Sign Industry-Backed GMO Label Bill Into Law (EW)
Biodiversity Is Below Safe Levels Across More Than Half Of World’s Land (G.)
Gleaning: Harvesting Spain’s Unwanted Crops To Feed The Hungry (G.)

 

 

I know, what does any of it mean with 100 people dying in Nice? Still, as many died in Syria.

“The speed of growth that it points to is increasingly hard to believe given the clear structural drags that the economy is facing..”

(Nobody Believes) China’s Q2 GDP Growth Stable at 6.7% (ET)

China’s GDP grew at 6.7% year on year in the second quarter of 2016, at least officially. However, most analysts don’t believe the official figures. “The official figure is still around 7%, but those data are made in the statistical kitchen,” says Willem Buiter, the chief economist of Citigroup. He thinks China is not growing at more than 4%. After reporting 6.7% growth over the year in the first quarter of 2016, analysts were looking for 6.6% growth in the second quarter compared to the second quarter of 2015, so China managed to engineer a small beat and create the illusion of stability. Quarterly growth even picked up from 1.1% in the first quarter to 1.8% in the second quarter.

“The speed of growth that it points to is increasingly hard to believe given the clear structural drags that the economy is facing,” research firm Capital Economics writes in a note. The analysts think China grew 4.5% based on a proprietary activity index, roughly the same as in the first quarter. Private investment was the biggest drag on growth, it just expanded 1% in May, down from 15% in early 2015. State companies have picked up the slack. A survey of thousands of companies by the China Beige Book (CBB) released earlier in July paints a similar picture. CBB says most indicators improved in the second quarter, although activity is roughly flat over the year. In most cases, less than 50% of survey respondents report an improvement in sales, hiring, capital expenditure, or bank lending.

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The harder they come…

Asian Shares Rise To Eight-Month Highs (R.)

Asian shares extended gains to eight-month highs on Friday, on track for a solid weekly rise, as better-than-expected economic data from China lifted risk sentiment that was already buoyant after record highs on Wall Street. China’s economy grew 6.7% in the second quarter from a year earlier, steady from the first quarter and slightly better than expected as the government stepped up efforts to stabilize growth in the world’s second-largest economy.

Industrial output and retail sales also beat forecasts, which helped alleviate fears of slowing momentum, though fixed-asset investment growth slipped and missed market expectations. “The data showed the signs of stabilisation, which is very encouraging,” said Julian Wang, economist for Greater China at HSBC. “However, public sector investment and housing market are slowing down. So the challenges still loom quite large in the second half of the year.”

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Well, that’s a surprise….

US Exporters’ Gains From Chinese Economic Growth Shrink Further (WSJ)

China’s economic roller coaster is taking a bite out of American exporters, hurting U.S. industries ranging from mining equipment to cotton producers and adding to criticism that China is getting more than it gives in trade with the U.S. The U.S. shipped just $42.4 billion to China in the first five months of the year, or 8.2% less than the year-earlier period and 13.8% below the peak export year of 2014, according to the Census Bureau. The export drop comes as China’s economy, while slowing, is still officially expanding at more than 6% a year. That growth is driven in part by the mountain of goods—worth $174 billion so far this year—the U.S. imports from China. That is quadruple the size of its exports to China during those months, and only slightly less than 2014 levels.

The slowdown in U.S. exports could exacerbate accusations in the 2016 presidential campaign that China is engaged in unfair trade practices. Donald Trump, the presumptive Republican nominee, has cited the trade gap with China in threatening to slap new tariffs on the country if he becomes president. U.S. companies have grown increasingly vocal in criticizing Beijing for allegedly dumping subsidized steel and other products on world markets and for refusing to open major parts of its economy to foreign investment—a roadblock that almost certainly hinders two-way trade.

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No doubt it could. But Brussels will first try and turn it into Greece….

Could Italy Bring Down The Euro? (Kern)

[..] M5S’s Luigi Di Maio, who, polls show, has a very good chance of succeeding Renzi as prime minister, has reiterated his party’s long-standing call for a referendum on the euro: “We want a consultative referendum on the euro. The euro as it is today does not work. We either have alternative currencies or a ‘euro 2.’ We entered the European Parliament to change many treaties. The mere fact that a country like Great Britain even held a referendum on whether to leave the EU signals the failure of the European Union.” A referendum on the euro would be “consultative” because Italian law does not allow such plebiscites to change international treaties, including those that involve Italy’s relations with the European Union.

But Grillo is seeking a legislative change to allow an “ad hoc” exception, similar to the one in June 1989, when Italy held a consultative referendum on whether to transfer certain powers to the European Parliament. The exception would presumably be approved if M5S wins the prime minister’s office. Meanwhile, analysts are warning that the turmoil in Italy could spread to the rest of the eurozone. The risk of contagion is due to the so-called “doom loop” that exists between European governments and European banks, which have more than doubled the holdings of their own governments’ debt from a low of €355 billion in September 2008 to €791 billion today. International banks have lent Italy more than €500 billion, according to Die Welt, which reports that French banks alone hold €250 billion of Italian debt.

German banks hold €84 billion of Italian bonds. The only question, according to analysts, is whether taxpayers or bondholders will be left holding the tab. Wolfgang Münchau warned of the consequences of a disorderly Italian exit from the euro: “An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.” As Ambrose Evans-Pritchard of the Telegraph has pointed out, however, Italy must choose between the euro and its own economic survival. Leaving the euro “may be the only way to avert a catastrophic deindustrialization of the country before it is too late.”

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…like here.

EU Finance Ministers Get Tough With Italian Bank Trying For Third Bailout (G.)

The idea of modern banking was born in Siena in 1624, when the Medici Grand Duke decided to guarantee accounts held at Monte dei Paschi, the world’s oldest bank, with the proceeds of pasture he held in the Maremma in south-western Tuscany. Nearly 400 years later, the principle established by the Tuscan ruler – that account holders and investors are protected by the state – lies at the heart of a crisis at Monte dei Paschi di Siena (MPS) that is worrying financial markets around the world. The country’s third-largest lender has already been bailed out twice in modern Italian history but is likely to need a third multibillion-euro intervention by the Italian government – a move that would need Brussels to break new rules designed to prevent such taxpayer bailouts after the 2008 global financial crisis.

So the question of who will pay for the inevitable rescue of MPS, whose share value has fallen 80% over the past year, has yet to be answered. Three weeks after the news that Britain has voted to leave the European Union shocked the markets, a debate over the fate of MPS and the economic and political repercussions of inaction is raging from Rome to Brussels and Paris to Berlin. The welfare of thousands of Italian households is at stake, as well as the political fortune of Italy’s prime minister, Matteo Renzi, who is facing the toughest political challenge of his career. It is also testing Italy’s credibility among foreign investors. “There is no way they will let the bank go and create a systemic effect,” said Wolfango Piccoli, co-president of Teneo Intelligence. “The mechanics are still unclear but there will be a third bailout of Monte dei Paschi.”

[..] Unlike the US, Spanish and Irish financial crises, the Italian banking crisis is not the result of a speculative property bubble. While other issues have exacerbated the turmoil at Monte dei Paschi’s – including a poorly judged €9bn acquisition – the primary reason the bank is in trouble is because it doled out billions of euros in loans to small businesses at a time when the scale of the recession facing Italy was gravely underestimated. From 2007 to 2013, Italy lost about a quarter of its industrial production and tens of thousands of companies collapsed. In 2013 more than 150 shops closed every day. Construction and home sales slumped and none of the sectors has recovered fast enough.

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Central banks are the only buyers left.

Who’s Buying It? (Roberts)

With the market breaking out to all-time highs, the media has started to once again reach for their party hats as headlines suggest clear sailing for investors ahead. While I certainly do not disagree the breakout is indeed bullish, and signals a continuation of the long-term bullish trend, there are more than sufficient reasons to remain somewhat cautious. Earnings are still weak, there is little evidence of economic resurgence and inflationary pressures globally remain nascent. But, for now, a rash of global Central Banks continue to support asset prices by increasing accommodative policies either through additional reductions in interest rates or direct injections of liquidity. As Matt King from Citi recently noted: “It has been a surge in net global central bank asset purchases to their highest level since 2013.”

With the ECB in full QE mode, the BOC now using $300 billion in Pension Funds to prop up prices, and the BOJ now moving towards an additional $130 billion in QE as well, the liquidity push continues. Interestingly, despite the push by Central Banks to loft asset prices higher, individual market participants as measured by the Investment Company Institute (ICI) have a different idea. As shown in the chart below, despite asset prices ringing all-time highs, net equity inflows have turned decisively negative. This was much the same case following the 2012 market rout and it wasn’t until the launch of QE3 in 2013 that investors began to once again chase the markets.

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Trudeau needs to act, and very fast, or he’ll be staring a monster in the face.

Canada New Home Prices Grow At Fastest Pace In Nearly 9 Years (R.)

Canadian new home prices in May grew at their fastest pace in almost nine years, soaring 0.7% from April on strength in the booming markets of Toronto and Vancouver, Statistics Canada said on Thursday. Analysts polled by Reuters had predicted a 0.2% advance. May’s increase was the largest since the 1.0% jump recorded in July 2007. The Liberal government is concerned about rapidly rising prices in Toronto and Vancouver and is mulling more restrictions on mortgages. The combined region of Toronto and Oshawa – which accounts for 27.92% of the entire Canadian market – posted a 1.9% gain, the highest in 27 years.

Builders cited market conditions and the price of land. Market conditions also helped drive up new home prices in Vancouver by 1.1%. Overall, housing prices increased by 2.7% from May 2015, the largest year-on-year rise since the 2.7% advance seen in September 2010. The new housing price index excludes apartments and condominiums, which the government says are a particular cause for concern and which account for one-third of new housing.

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A feature, not a bug.

UK MPs Decry ‘Failed’ Effort To Stop London Property Money Laundering (G.)

Government attempts to stop the UK property market being exploited by international money launderers are “totally inadequate” and the country has instead “laid out a welcome mat” to criminals, the House of Commons home affairs committee has said. The influential panel of MPs, chaired by the Labour backbencher Keith Vaz, said it was disgraceful that at least £100bn was being laundered through the UK every year and astonishing that just 335 out of 1.2m property transactions last year were deemed to be suspicious by law enforcement officials. That means only 0.01% of the 2.4 million buyers and sellers in the UK generated suspicious activity reports at the National Crime Agency (NCA), whose system, Vaz said, was not fit for purpose.

“The proceeds of crime legislation has failed,” Vaz said. “London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering. Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate.” The NCA’s system gathers suspicious activity reports from lawyers, accountants, bankers and other professionals but is overwhelmed with more than 380,000 reports per year, when it is designed to handle 20,000. [..] The MPs said it remained “far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market and take in clean money in perpetuity”.

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As I said many times before: when growth goes, so does centralization. It seems hard to make that connection.

McKinsey Slams Globalization: “The Resentment Will Explode” (ZH)

The IMF is getting nervous, and what it appears to be most concerned about, is a collapse of the status quo. Moments ago, in a speech in Washington, IMF head Christine Lagarde said that “The greatest challenge we face today is the risk of the world turning its back on global cooperation—the cooperation which has served us all well. We know that globalization – and increased integration – over the past generation has yielded many economic benefits for many people.” The IMF is not alone: for years, consultancy giant McKinsey towed the party line as well saying in 2010 that “the core drivers of globalization are alive and well” and adding as recently as 2014 that “to be unconnected is to fall behind.”

That appears have changing, and cracks are starting to form behind the cohesive push for globalization, at least among those who benefit the most from globalization. In a stunning study released today, one which effectively refutes all its prior conclusions on the matter, McKinsey slams the establishment’s status quo thinking and admits that the economic gains of changes in the global economy have not been widely shared lately, especially in the developed world. In the report titled “Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies” it finds that prospects for income growth have deteriorated significantly since the financial crisis, and that the benefits from globalization are now over:

This overwhelmingly positive income trend has ended. A new McKinsey Global Institute report finds that between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70% of households, or more than 540 million people. And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.

As Bloomberg reports, Britain’s vote to exit the European Union exemplifies what happens when people feel like the system is letting them down, Richard Dobbs, the co-leader of the research, said in an interview Wednesday, ahead of the report’s release. He likened the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses. “One of them will explode. I did not think that it would be the U.K. first,” said Dobbs, a senior partner of McKinsey and a member of the McKinsey Global Institute Council in London. “When we launch a new policy, let’s think about the impact on those groups” who have been left behind, Dobbs said. Sometimes the goals of fairness and efficiency can conflict, he said. “Are we prepared to damage competitiveness a bit to reduce the risk of an explosion?”

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Brandon Smith on one of my ‘hobby horses’. More good stuff in the article.

Globalism vs. “Populism” (Smith)

The globalists have used the method of false dichotomies for centuries to divide nations and peoples against each other in order to derive opportunity from chaos. That said, the above dichotomy is about as close to real as they have ever promoted. As I explained [earlier], the recent passage of the Brexit referendum in the U.K. has triggered a surge of new propaganda from establishment media outlets. The thrust of this propaganda is the notion that “populists” are behind the fight against globalization and these populists are going to foster the ruin of nations and the global economy. That is to say – globalism good, populism bad. There is a real fight between globalists and those who desire a free, decentralized and voluntary society.

They have just changed some of the labels and the language. We have yet to see how effective this strategy will be for the elites, but it is very useful for them in certain respects. The wielding of the term “populist” is about as sterilized and distant from “freedom and liberty” as you can get. It denotes not just “nationalism,” but selfish nationalism. And the association people are supposed to make in their minds is that selfish nationalism leads to destructive fascism (i.e. Nazis). Therefore, when you hear the term “populist,” the globalists hope you will think “Nazi.” Also, keep in mind that the narrative of the rise of populism coincides with grave warnings from the elites that such movements will cause global economic collapse if they continue to grow.

Of course, the elites have been fermenting an economic collapse for years. We have been experiencing many of the effects of it for some time. In a brilliant maneuver, the elites have attempted to re-label the liberty movement as “populist” (Nazis), and use liberty activists as a scapegoat for the fiscal time bomb THEY created. Will the masses buy it? I don’t know. I think that depends on how effectively we expose the strategy before the breakdown becomes too entrenched. The economic collapse itself has been handled masterfully by the elites, though. There is simply no solution that can prevent it from continuing. Even if every criminal globalist was hanging from a lamp post tomorrow and honest leadership was restored to government, the math cannot be changed and decades of struggle will be required before national economies can be made prosperous again.

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By Manuela Cadelli, President of the Magistrates’ Union of Belgium. Bit older, but interesting reasoning.

President of Belgian Magistrates: Neoliberalism Is A Form Of Fascism (DDP)

Every totalitarianism starts as distortion of language, as in the novel by George Orwell. Neoliberalism has its Newspeak and strategies of communication that enable it to deform reality. In this spirit, every budgetary cut is represented as an instance of modernization of the sectors concerned. If some of the most deprived are no longer reimbursed for medical expenses and so stop visiting the dentist, this is modernization of social security in action! Abstraction predominates in public discussion so as to occlude the implications for human beings. Thus, in relation to migrants, it is imperative that the need for hosting them does not lead to public appeals that our finances could not accommodate. Is it In the same way that other individuals qualify for assistance out of considerations of national solidarity?

Social Darwinism predominates, assigning the most stringent performance requirements to everyone and everything: to be weak is to fail. The foundations of our culture are overturned: every humanist premise is disqualified or demonetized because neoliberalism has the monopoly of rationality and realism. Margaret Thatcher said it in 1985: “There is no alternative.” Everything else is utopianism, unreason and regression. The virtue of debate and conflicting perspectives are discredited because history is ruled by necessity. This subculture harbours an existential threat of its own: shortcomings of performance condemn one to disappearance while at the same time everyone is charged with inefficiency and obliged to justify everything. Trust is broken. Evaluation reigns, and with it the bureaucracy which imposes definition and research of a plethora of targets, and indicators with which one must comply. Creativity and the critical spirit are stifled by management.

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In general, everywhere native people get an actual say, things improve.

In New Zealand, Lands and Rivers Can Be People -Legally Speaking- (NYT)

Can a stretch of land be a person in the eyes of the law? Can a body of water? In New Zealand, they can. A former national park has been granted personhood, and a river system is expected to receive the same soon. The unusual designations, something like the legal status that corporations possess, came out of agreements between New Zealand’s government and Maori groups. The two sides have argued for years over guardianship of the country’s natural features. Chris Finlayson, New Zealand’s attorney general, said the issue was resolved by taking the Maori mind-set into account. “In their worldview, ‘I am the river and the river is me,’” he said. “Their geographic region is part and parcel of who they are.”

From 1954 to 2014, Te Urewera was an 821-square-mile national park on the North Island, but when the Te Urewera Act took effect, the government gave up formal ownership, and the land became a legal entity with “all the rights, powers, duties and liabilities of a legal person,” as the statute puts it. “The settlement is a profound alternative to the human presumption of sovereignty over the natural world,” said Pita Sharples, who was the minister of Maori affairs when the law was passed. It was also “undoubtedly legally revolutionary” in New Zealand “and on a world scale,” Jacinta Ruru of the University of Otago wrote in the Maori Law Review.

Personhood means, among other things, that lawsuits to protect the land can be brought on behalf of the land itself, with no need to show harm to a particular human. Next will be the Whanganui River, New Zealand’s third longest. The local Maori tribe views it as “an indivisible and living whole, comprising the river and all tributaries from the mountains to the sea — and that’s what we are giving effect to through this settlement,” Mr. Finlayson said. It is expected to clear Parliament and become law this year.

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How crazy is this? ‘Misinformation is also information’.

Obama Expected to Sign Industry-Backed GMO Label Bill Into Law (EW)

Looks like we’re finally getting GMO labels on food products—just not the kind you can actually read. President Obama is expected to throw his weight behind a controversial bill that allows businesses to use a smartphone scannable QR code instead of clear, concise wording that informs consumers if a product contains genetically modified ingredients. The bill would also nullify state-by-state GMO labeling mandates such as Vermont’s landmark law that took effect on July 1. “While there is broad consensus that foods from genetically engineered crops are safe, we appreciate the bipartisan effort to address consumers’ interest in knowing more about their food, including whether it includes ingredients from genetically engineered crops,” White House spokeswoman Katie Hill told Bloomberg in an e-mail.

“We look forward to tracking its progress in the House and anticipate the president would sign it in its current form.” The House of Representatives is voting today on legislation from the Senate, which voted 63 to 30 in favor of the bill on July 7, less than a week after Vermont enacted its GMO label law. The bipartisan “compromise” bill was conceived after years of negotiations by Democrat Sen. Debbie Stabenow and Republican Sen. Pat Roberts and is supported by the very industry that produces and profits from such products, including the powerful Grocery Manufactures Association and world’s largest seed producer and pesticide giant Monsanto. UPDATE: The U.S. House of Representatives passed the bill by a 306-117 vote Thursday. The bill now heads to President Obama’s desk.

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Can’t stop the brilliance of the human brain.

Biodiversity Is Below Safe Levels Across More Than Half Of World’s Land (G.)

The variety of animals and plants has fallen to dangerous levels across more than half of the world’s landmass due to humanity destroying habitats to use as farmland, scientists have estimated. The unchecked loss of biodiversity is akin to playing ecological roulette and will set back efforts to bring people out of poverty in the long term, they warned. Analysing 1.8m records from 39,123 sites across Earth, the international study found that a measure of the intactness of biodiversity at sites has fallen below a safety limit across 58.1% of the world’s land. Under a proposal put forward by experts last year, a site losing more than 10% of its biodiversity is considered to have passed a precautionary threshold, beyond which the ecosystem’s ability to function could be compromised.

“It’s worrying that land use has already pushed biodiversity below the level proposed as a safe limit,” said Prof Andy Purvis, of the Natural History Museum, and one of the authors. “Until and unless we can bring biodiversity back up, we’re playing ecological roulette.” Researchers said the study, published in the journal Science on Thursday, was the most comprehensive examination yet of biodiversity loss. The decline is not just bad news for the species but in the long term could spell problems for human health and economies. “If ecosystem functions don’t continue, then yes it affects the ability of agriculture to sustain human populations and we simply don’t know at which point that will be reached,” said Dr Tim Newbold, lead author of the work and a research associate at University College London. “We are entering the zone of uncertainty.”

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There’s a man and then there’s ‘a mensch’.

Gleaning: Harvesting Spain’s Unwanted Crops To Feed The Hungry (G.)

Under a blazing Catalan sun, Abdelouahid wipes the sweat from his brow in a cabbage patch full with clouds of white butterflies. “It’s really not warm today,” he says. “It’s only hot if you stop working.” Around him, unemployed workers and environmentalists squat in green bibs, black gloves and hats, plucking cabbages that would otherwise be threshed, to distribute at food banks around Barcelona. A 39-year-old Moroccan emigré with two small children, Abdelouahid began “gleaning” – harvesting farmers’ unwanted crops – with the Espigoladors (gleaners) after losing his job in the construction industry four years ago. It is Ramadan and he is fasting but still smiling as he cuts at the green jewels.

“I don’t like to spend my days at home, sending CVs to employers, waiting for their rejection letters, or going around the restaurants trying to find food,” he says. “I prefer to do something positive. A lot of people need this food. It is better to collect it than to leave it.” Europe wastes some 88m tonnes of food each year – around 173 kg per person – with costs estimated at €143bn (£113bn). Advocates of the new gleaning movements say that its collection could reduce pressure on land use, improve diets, feed the hungry and provide work for the socially excluded.

For now, most of its recovered foods go to food banks, but the Espigoladors social enterprise has launched an “Es Imperfect” (is imperfect) brand of jams, soups and sauces made from recovered produce. The line is growing so fast that the day after the cabbage picking, the project’s founder, Mireia Barba, was called to a meeting of Cotec, King Felip VI’s national development foundation. Another fruit of the gleaning project has been an “I’m imperfect too” advertising campaign which challenges conventional ideas of food and beauty, by using photos of ordinary people holding painted fruit. The idea was to change misconceptions about browned, soft or unusually shaped fruit and veg being any less tasty.

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