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The problem with stagnant wages is our socio-economic system requires ever-higher incomes to function.

One of the enduring mysteries for conventional economists is why wages aren’t rising for the bottom 95% even as unemployment is low and hiring remains robust. According to classical economics, the limited supply of available workers combined with strong demand for workers should push wages higher.

Why have wages for the bottom 95% lost ground in an expanding economy?We can start our search for answers by looking at a chart of wages going back 44 years to the early 1970s. Note that the top 5% began pulling away in the 1980s, when financialization and globalization took off, and accelerated in the 1990s tech boom and the early 2000s housing bubble. The bottom 95% benefited from these booms, but at a much more modest level: wages for the bottom 95% almost returned to 0% gain as opposed to actual declines.

But after the wheels fell off the bubble in 2008/09, the “recovery” since then has seen wages for the top 5% soar and the wages for the bottom 95% crater. (This chart is for males; the next chart reflects family income.)

Here’s family income going back to the postwar boom of the late 1940s and 1950s. Note the structural change in the early 1970s and the stagnation in all income levels since 2000:

The forces that gathered steam in the 1970s, 80s and 90s that pressured wages are well-known: financialization, which benefited the top echelons at the expense of the increasingly burdened debt-serfs; globalization, which pitted American workers against an ever-expanding global work force of low-paid employees, and automation/software, which expanded from the factory floor into service sectors.

…click on the above link to read the rest of the article…

Welcome to Neocolonialism, Exploited Peasants!

October 23, 2016

Welcome to Neocolonialism, Exploited Peasants!

The U.S. peasantry has been stripmined exactly like the powerless colonial peasantry in the old colonial model.

In my latest interview with Max Keiser, Max asked a question of fundamental importance: (I paraphrase, as the interview has not yet been posted): now that the current iteration of capitalism has occupied every corner of the globe, where can it expand to for its “growth”?

My answer: neocolonialism, my term for the financialized quasi-colonial exploitation of the home domestic population. I described this dynamic in The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012).

We all know how old-fashioned colonialism worked: the imperial power takes political and economic control of previously independent lands.

In the traditional colonial model, there are two primary benefits:
1. The imperial power (the core) extracts valuable commodities and low-cost labor from its colony (the periphery)
2. The imperial power sells its own high-margin manufactured goods to the captured-market of its colony.

This buy low, sell high dynamic is the heart of colonialism, which can be understood as one example of the The Core-Periphery Model (June 11, 2013).

The book Sweetness and Power: The Place of Sugar in Modern History is an excellent history of how this model worked for Great Britain.

The Imperial Core controls finance and credit via its multinational banking sector, and it maintains high profit margins via its state-cartel model of production. The state enforces a cartel-crony-capitalist pricing structure in which competition is strictly limited to street stalls and black markets, and the corporatocracy can raise prices at will: for example, pharmaceutical products such as Epi-Pens can be repriced at will from $60 to $600 each.

If the colonists resist, the resisters are silenced and the media brought under control of the Imperial Deep State. (Sound familar? It should.)

…click on the above link to read the rest of the article…

When Did Our Elites Become Self-Serving Parasites?

October 4, 2016

When Did Our Elites Become Self-Serving Parasites?

Combine financialization, neoliberalism and moral bankruptcy, and you end up with self-serving parasitic elites.

When did our financial and political elites become self-serving parasites? Some will answer that elites have always been self-serving parasites; as tempting as it may be to offer a blanket denunciation of elites, this overlooks the eras in which elites rose to meet existential crises.

Following in Ancient Rome’s Footsteps: Moral Decay, Rising Wealth Inequality(September 30, 2015)

As historian Peter Turchin explained in his book War and Peace and War: The Rise and Fall of Empires, the value of sacrifice was a core characteristic of the early Republic’s elite:

“Unlike the selfish elites of the later periods, the aristocracy of the early Republic did not spare its blood or treasure in the service of the common interest. When 50,000 Romans, a staggering one fifth of Rome’s total manpower, perished in the battle of Cannae, as mentioned previously, the senate lost almost one third of its membership. This suggests that the senatorial aristocracy was more likely to be killed in wars than the average citizen….

The wealthy classes were also the first to volunteer extra taxes when they were needed… A graduated scale was used in which the senators paid the most, followed by the knights, and then other citizens. In addition, officers and centurions (but not common soldiers!) served without pay, saving the state 20 percent of the legion’s payroll.

The richest 1 percent of the Romans during the early Republic was only 10 to 20 times as wealthy as an average Roman citizen.”

Now compare that to the situation in Late Antiquity Rome when

“an average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no “middle class” comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles.

…click on the above link to read the rest of the article…

A Scam Too Far

September 24, 2016

A Scam Too Far

One of the more politically frustrating aspects of the last decade in the West is the unwillingness of the powers-that-be to address the radical dysfunction that underlies Western political economy. As fact, microcosm and metaphor, the ‘scandal’ of Wells Fargo bank creating millions of fake accounts, charging its customers for the privilege and then telling so-called regulators to kiss its ass, is loaded. In 2011, when the bank is said to have begun the practice, Wells Fargo was still being actively bailed out, ‘extraordinary’ measures were being taken to revive the fortunes of the rich and connected and it hadn’t yet become entirely clear that ‘change you can believe in’ meant full revival of the system that created the recurring crises of recent decades.

The relentless propaganda of economic recovery isolated ‘the economy’ from the broader system of political and economic control and posed the heavily engineered up-cycle as a permanent new state of affairs. It also pitted the facts as lived by hundreds of millions of people against the insistence by the governments and central banks of the U.S., the E.U. and Britain that recreation of the circumstances that produced the prior three crises would somehow produce widely-shared and benevolent outcomes this time around. What the Wells Fargo ‘scandal’ renders evident is that what was recovered is the system of predatory finance that exists as institutionalized capitalist taking in the service of a tiny but powerful plutocracy.

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Graph: the capitalist coup that began in the 1970s was a response to a real crisis alternatively framed as a falling rate of profit and / or declining plutocratic control over Western political economy. Financialization shifted the balance of power back toward capital through the money system. Banks create money against separable liabilities.

…click on the above link to read the rest of the article…

Rotten to the Core

April 6, 2016

Rotten to the Core

Poison Money

BALTIMORE – We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

David-Simonds-zombie-high-011 Staggering on…. Image credit: David Sidmond

Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?

nonsequitor_cartoon_comic_first-economist We can identify at least one source of the quackery…

All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

You have $100,000 in your account, right? Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

…click on the above link to read the rest of the article…

Do Any of the Current Rallies Pass “The Sniff Test”? No.

March 10, 2016

Do Any of the Current Rallies Pass “The Sniff Test”? No.

But you can’t tame the monster of speculative, legalized looting and financialization.

Everything from iron ore to copper to the Baltic Dry Index to stocks to bat guano is rallying. The problem is not a single rally passes “the sniff test:” is the rally the result of changing fundamentals, or is it merely short-covering and/or speculative hot money leaping from one rally to the next?

Every one of these rallies is bogus, a travesty of a mockery of a sham of price discovery, supposedly the core function of markets. What shift in fundamentals drove this rally? Higher profits? No, profits are declining, especially once the phony adjustments are stripped away. Is the global economy strengthening? Don’t make us laugh!

As Chris Martenson and many others have noted, “price discovery” is a joke now, as markets are either propped up by central bank “we got your back” guarantees or outright asset purchases, or driven up and down by speculative hot money flows.

Even the recent (and overdue) run-up in gold has a speculative-fever feel. Whatever the market, the game is the same: traders goose the markets higher with futures purchases, pile on with buying that attracts latecomers, who are then sold the rally at the top and left holding the bag when the rally inevitably deflates, once the speculative hot money exits.

This is not capitalism, or a functioning market: this is the end-game of legalized looting and financialization. What’s the value of real estate? If interest rates are pushed negative, then that gooses housing demand, as the cost of interest on a mortgage declines to near-zero in real terms.

What would the value be at 5% mortgage rates? What would the interest rate be in a truly private mortgage market, one that wasn’t dominated by government agencies and central banks? Nobody knows.

…click on the above link to read the rest of the article…

You Can’t Separate Empire, the State, Financialization and Crony Capitalism: It’s One Indivisible System

October 1, 2015

You Can’t Separate Empire, the State, Financialization and Crony Capitalism: It’s One Indivisible System

The great irony is what’s unsustainable melts into thin air no matter how many people want it to keep going.

Disagreement is part of discourse, and pursuing differing views of the best way forward is the heart of democracy. Disagreement is abundant, democracy is scarce, despite claims to the contrary.

If you think you can surgically extract Empire from the American System, force the State to serve the working/middle classes, end the stripmining of financialization, limit crony capitalism/regulatory capture and get Big Money out of politics–go ahead and do so. I’m not standing in your way–go for it.

But while you pursue your good governance, populist, Left/ Right /Socialist/ Libertarian, etc. reforms, please understand the system is indivisible: the Deep State, the Imperial Project (hegemony and power projection), the State, finance in all its tenacled control mechanisms (greetings, debt-serfs and student-loan-serfs), crony capitalism /regulatory capture, money buying political influence, media propaganda passing as “news”, and the evisceration of democracy (something untoward could happen if the serfs could overthrow the Power Elite at the ballot box–can’t let that happen)–it’s all one system.

Should any one organ be ripped from the body, the entire body dies. The entire system defends each subsystem as integral as a matter of survival. As a result, the naive notion that big money can be excised with only positive consequences is false: restoring democracy places the entire system at risk of implosion.

No more bread and circuses, no more Social Security checks, no more state employee pensions–it all melts into air if any subsystem stops doing its job.

The system is interdependent. Each subsystem needs the others to function. I drew up a chart of the major components (but by no means all) of the system:

…click on the above link to read the rest of the article…

Stop Financializing the Human Experience

August 11, 2015

Stop Financializing the Human Experience

In this financialized hall of mirrors, narcissism replaces identity and the authentic self is rendered incoherent.

Correspondent Dani A.M. (of Removing the Shackles) was kind enough to identify three bits of advice from my recent conversation with Max Keiser onSummer Solutions (25:45): (9:20 min: “We’ve been brainwashed into financializing the human experience.”)

1. Stop financializing the human experience

2. Acquire skills, not credentials

3. Vote with your Feet

These are the themes I’ll be addressing this week.

What does financializing the human experience mean? It means turning everything into a financial transaction that profits an enterprise and the state.Since the state needs profitable enterprises to generate its tax revenues (and to pay wages that generate payroll/income taxes), the state is an implicit partner in everyfinancializing the human experience transaction.

In an increasingly cashless, debt-dependent culture, every financial transaction generates income for banks: credit card and debit card fees, interest on credit cards, etc.

Here are some common examples:

— Mom and Dad work long hours to afford childcare. Maybe they like working for the state or Corporate America more than caring for their kids (or sharing the care of several kids with other parents), but the system incentivizes maximizing income and paying for childcare as a profitable transaction.

In other words, childcare for many has been distilled down to a financial decision.

— Dinner with friends is purchased, generating income for an enterprise, a bank and taxes for the state. If people no longer learn how to cook, then sharing a meal with friends necessarily becomes a financial transaction.

— A sense of self must be purchased via signifiers of identity and self-worth.

The obsession with brands and other signifiers of belonging reflects one thing, and only one thing: a pervasive fragility of self. Unsurprisingly, our selfhood is incredibly fragile in a culture that glorifies the impossible (thin, fit, super-smart, witty, personable, creative, wealthy oh and of course humble) and sows insecurity as a means of selling you something.

…click on the above link to read the rest of the article…

Collapse, Part 1: Greece

June 22, 2015

Collapse, Part 1: Greece

When systems are broke and broken, collapse is the only way forward.

The theme this week is collapse. It’s a big, complex topic because there are as many types of collapse as there are systems. Some systems appear stable on the surface but collapse suddenly; others visibly decay for decades before finally slipping beneath the waves of history, and some go through stages of collapse.

The taxonomy of collapse is broad, and each unsustainable system (i.e. a system that will fail despite claims to the contrary) has its unique characteristics.

Which brings us to Greece.

I have written extensively about Greece and the doomed financial arrangement known as the euro for many years–for example: Greece, Please Do The Right Thing: Default Now (June 1, 2011).

When Debt is More Important Than People, The System Is Evil (February 18, 2012)

Greece at the Crossroads: the Oligarchs Blew It (January 27, 2015)

Greece and the Endgame of the Neocolonial Model of Exploitation(February 19, 2015)

When Europe Gets Greece’s Jingle Mail: Dealing with Default (May 15, 2015)

With the bankruptcy of Greece now undeniable, we’ve finally reached the endgame of the Neocolonial-Financialization Model. There are no more markets in Greece to exploit with financialization, and the fact that the mountains of debt are unpayable can no longer be masked.

Europe’s financial Aristocracy has an unsolvable dilemma: writing off defaulted debt also writes off assets and income streams, for every debt is somebody else’s asset and income stream. When all those phantom assets are recognized as worthless, collateral vanishes and the system implodes.

The peripheral nations of the EU are effectively neocolonial debtors of the core, and the taxpayers of the core nations are now feudal serfs whose labor is devoted to making good on any loans to the periphery that go bad. (see chart of Greece’s debtors below)

…click on the above link to read the rest of the article…

The One Chart You Need to Predict the Future

March 6, 2015

The One Chart You Need to Predict the Future

We are witnessing a profound secular sea-change: the failure of expanding debt and leverage to lift the real economy of wages and household income.

When push comes to shove, you only need one chart to predict the future: debt and wages ( credit and compensation). This chart displays debt and wages as a ratio: debt/wages. What it reveals is the endgame of financialization: creating more debt no longer pushes wages higher.

I have broken the past five decades into easily recognizable economic periods. During the organic growth of the 1960s that many view as the ideal–what I term the pre-financialized economy, the line is almost flat, as debt and wages expanded in a balanced fashion.

The 1970s, a rocky period of stagflation, higher energy costs and painful adjustments to the economy, is remarkably stable when boiled down to the debt/wage ratio.

Financialization–the securitization of previously stable assets, the expansion of leverage and speculative financial instruments–began in the early 1980s. We see the effect of rapidly expanding debt on the economy: the line leaps higher and only flattens out in the tech-boom 1990s.

…click on the above link to read the rest of the article…

The Global Problem: Monetary Policy Can’t Fix an Economy’s Structural Problems

March 5, 2015

The Global Problem: Monetary Policy Can’t Fix an Economy’s Structural Problems

When we look back from 2025, it will be painfully obvious that central bank policies exacerbated the systemic crises that brought down the global financialization machine.

What with all the praise being heaped on central banks for “saving” the world from economic doomsday in 2008, it’s only natural to ask which structural problems their unprecedented policies solved in the past 6 years. After all, “saving” the world from financial collapse was relatively quick work; so what problems beyond imminent implosion did the central banks policies solve in the past 6 years?

Answer: none. zip, zero, nada. The truth is central bank policies of zero-interest rates andfree money for financiers have made many structural problems worse.

Did central bank policies resolve the structural problem of unfunded pension and retiree healthcare liabilities? No, they made it worse, as zero-interest rates have reduced the yields on pension funds, 401Ks and IRAs to mere pittances. This destruction of safe yields has driven pension funds into risky investments in junk bonds and stocks, leaving them vulnerable to devastating losses when the current credit bubble bursts.

Did central bank policies resolve the structural problem of corporate wealth buying political influence? No, they made it worse, by encouraging corporations to borrow vast sums to use on whatever they fancied–for example, lobbying and share buybacks.

Did central bank policies resolve the structural problem of rising dependence on credit for weak “growth”? No, they made it worse, as cheap money enabled the re-emergence of subprime loans to marginal borrowers. The deterioration of credit quality guarantees a credit crisis and bubble pop as marginal borrowers default.

…click on the above link to read the rest of the article…

China and the Dragon Tail of Marx

February 27, 2015

China and the Dragon Tail of Marx

The dragon tail of Marx’s end-game of overcapacity and finance capital is about to shred China’s fantasy that the state can micro-manage both capitalism and financialization with no contradictions or consequences.

Longtime readers know my one expertise is annoying the entire ideological spectrum in 1,000 words or less. Today is one of those days, so strap on your blood pressure monitor and prepare for full-spectrum annoyance, regardless of your ideological leanings.

Marxism is typically considered discredited outside of a few protected fiefdoms of academia which tend to engage in obscure debates over the labor theory of value and other signifiers of membership in the inner circle of deep Marxist thinkers.

Outside these cloistered academic circles, Marxism is dismissed for two basic reasons:

1. the predicted final crisis and implosion of capitalism did not occur

2. the vaguely outlined post-capitalist incarnation of a stateless worker’s paradise not only failed to materialize, but was used to justify destructive, murderous totalitarian regimes.

But those egregious failures of Marxist theory should not blind us to the value of his critique of capitalism. After all, he was writing in the first stages of industrialization and global finance (late 19th century), and his failure to detail a scientific socialismbeyond capitalism can be chalked up to a mix of naive idealism and a paucity of theoretical models to build on.

…click on the above link to read the rest of the article…

Greece and the Endgame of the Neocolonial Model of Exploitation

February 19, 2015

Greece and the Endgame of the Neocolonial Model of Exploitation

With the bankruptcy of Greece now undeniable, we’ve finally reached the endgame of the Neocolonial-Financialization Model.

We all know how old-fashioned colonialism worked: the imperial power takes physical control of previously independent lands and declares its ownership of the region as a newly minted colony.

What’s the benefit of controlling colonies? In the traditional colonial model, there are two primary benefits:
1. The imperial power (the core) extracts valuable commodities and low-cost labor from its colony (the periphery)
2. The imperial power sells its own high-margin manufactured goods to the captured-market of its colony.

This buy low, sell high dynamic is the heart of colonialism, which can be understood as one example of the The Core-Periphery Model (June 11, 2013).

The book Sweetness and Power: The Place of Sugar in Modern History is an excellent history of how this model worked for Great Britain.

The tensions this model generated in the colonial elites of America are brought to life in Tobacco Culture: The Mentality of the Great Tidewater Planters on the Eve of Revolution.

This traditional model of colonialism was forcibly dismantled in the 1940s-1960s. Former colonies established their political independence, a process that diminished the wealth and global reach of former colonial powers.

…click on the above link to read the rest of the article…

Oil And Debt: The BIS Examines The Consequences Of Financialization

February 7, 2015

Oil And Debt: The BIS Examines The Consequences Of Financialization

Since mid-2014, after remaining relatively stable for four years at close to $100, the price of crude oil has dropped by roughly 50% in US dollar terms. ¹

Changes in production and consumption seem to fall short of a fully satisfactory explanation of the abrupt collapse in oil prices. The last two episodes of comparable oil price declines (1996 and 2008) were associated with sizeable reductions of oil consumption and, in 1996, with a significant expansion of production. This seems to be in stark contrast to developments since mid-2014, during which time oil production has been close to prior expectations and oil consumption has been only a little weaker than forecast (Graph 1, left-hand panel). Rather, the steepness of the price decline and very large day-to-day price changes are reminiscent of a financial asset. As with other financial assets, movements in the price of oil are driven by changes in expectations about future market conditions. In this respect, the recent OPEC decision not to cut production has been key to the fall in the oil price.

However, other factors could have exacerbated the fall in oil prices. One important new element is the substantial increase in debt borne by the oil sector in recent years. The greater willingness of investors to lend against oil reserves and revenue has enabled oil firms to borrow large amounts in a period when debt levels have increased more broadly. Issuance by energy firms of both investment grade and high-yield bonds has far outpaced the already substantial overall issuance of debt securities (Graph 1, right-hand panel).

…click on the above link to read the rest of the article…

What does $200 trillion of debt really mean for the global economy?’

February 5, 2015

What does $200 trillion of debt really mean for the global economy?

A few years ago, in the depths of the recession caused by the financial crisis, I began an investigation into the consequences of several economic trends that I thought were bound to put a permanent end to the boom times that my generation, the post-war ‘baby boomers’, had grown up in. These trends included the threat to jobs caused by fierce global competition, helped by the rise of digital technology; the financialization of the economy and the relative decline of real industry; the resulting rise in inequality, and also the excessive build-up of debt, which was of course the main cause of the crash.

But the crash didn’t put an end to the build-up of debt – the credit bubble just deflated slightly, as $20 trillion or so vanished off the face of the earth. This wealth never really existed of course – it consisted only of numbers in bank accounts or over-optimistic valuations of shares or property – but even so, a lot of people saw their pension funds and other investments reduced in value.

Despite all the concerns over debt since the crisis, the credit bubble has been growing again and is now bigger than ever, both globally and in some (though not all) ‘advanced’ nations, notably Japan and the UK, two of the most indebted economies. We don’t appear to have learnt much from the crash.
What does it mean when total world debt amounts to something in the region of $200 trillion, or roughly three times annual world output?

…click on the above link to read the rest of the article…

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