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The Impending Crisis

At one time, specifically during the post-World War 2 Bretton Woods era, it looked like as if the capitalist model could be indefinitely sustainable and avoid plunging the world into major world conflicts. That era began to come to an end during the stagflation crisis of the 1970s, and came to a complete end at the end of the Cold War which ushered in the era of the so-called “globalization” which took form of unbridled competition for markets and resources. At first this competition did not show many signs of trouble. There were many “emerging markets” created as a result of the collapse of the Soviet bloc into which Western corporations could expand. However, the law of diminishing returns being what it is, the initial rapid economic growth rates could not be sustained and attempts to goose it using extremely liberal central bank policies, to the point of zero and even negative interest rates, succeeded in inflating—and bursting—several financial “bubbles”. Even today’s US economy bears many hallmarks of such a bubble, and it is only one of many. Sooner or later the proverbial “black swan” event will unleash a veritable domino effect of popping bubbles and plunge the global economy into a crisis of a magnitude it has not seen since the 1930s. A crisis against which the leading world powers have few weapons to deploy, since they have expended their monetary and fiscal “firepower” on the 2008 crisis, to little avail. The low interest rates and high levels of national debt mean that the next big crisis will not be simply “more of the same.” It will fundamentally rearrange the global economy.

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Bruno Latour on Politics in the New Climatic Regime

March 22, 2019

Bruno Latour on Politics in the New Climatic Regime

Why are so many zones of the world descending into chaos and confusion? There is no single reason, of course, but the French scholar of modernity, Bruno Latour, has a compelling overarching theory. In his new book, Down to Earth: Politics in the New Climatic Regime (Polity), Latour argues that climate change, by calling into question the once-universal dream of “development” and globalization, is leaving a huge void in our consciousness.

This has resulted in an “epistemological delirium.” As the ordering principle of “the modern” dissolves into thin air, we don’t know which way is up or how to proceed. Hence the title of the original French version of the book, Où atterir? Comment s’orienter en politique – “Where to land? How to orient yourself in politics?”

Humanity no longer has a shared framework of “becoming modern,” says Latour. It is hard for everyone to believe that globalized markets, “development,” and consumerism will yield a steady march toward civilization and progress. Corporations have proven themselves to be consummate externalizers of cost and risk. And climate change among other eco-crises suggests that relentless economic growth is simply preposterous — and grossly mal-distributed in any case.

Hence our profound disorientation. It’s hard to deal with the slow-motion collapse of a once-universal story of human aspiration.

The rich nations, or at least the US, remain mostly in denial about climate change, if only because acknowledging the truth would upend so much. The remaining nation-states of the world, meanwhile, have no clear path in a fractured, divided world for constructing a shared vision.

Without the unifying normative framework of “development” and its claims of infinite growth and progress, how can we figure out a new consensus narrative for humanity, one that acknowledges the existential reality that we live on the same, finite planet? How can we find a way to share and co-manage our only habitable space?

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

The founder of the World Economic Forum shares what he sees as the biggest threat to the global economy

January 15, 2019

The founder of the World Economic Forum shares what he sees as the biggest threat to the global economy

Economist Klaus Schwab is the founder and executive chairman of the World Economic Forum which will be holding it’s Annual Meeting in Davos, Switzerland January 22-25, 2019.
Schwab explains the theme of this year’s meeting, “Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution.”
When asked if we were currently in a trend of deglobalization he said no, “we have to make a differentiation between globalization, which is a fact, and globalism.”
He says the biggest threat to economic stability is the imbalances in the world.
Schwab says he believes trade imbalances are a problem. He is not an unconditional advocate for free trade, which he says is great but only if there is equality.

Sara Silverstein: This year’s theme for 2019 for the meeting is Globalization 4.0 and shaping the architecture of the Next Wave of Globalization which is the industrial revolution, the fourth industrial revolution, which you’ve literally wrote a book on. Can you tell me what makes up the fourth industrial revolution?

Klaus Schwab: We are living in a time of multiple technological innovations. I just mentioned artificial intelligence, blockchain, you could add and add, and all those technologies together will fundamentally transform the world, not just business models but economies, society, politics and so on. So when we speak about globalization 4.0, we want to address the global architecture which is needed in this new context of the fourth industrial revolution.

Silverstein: And what was the issue with the last wave of globalization?

Schwab: We see it already now so so many issues like inequality, trade wars, and I could go on and on. The danger is that we deal with those issues, we address those issues with patchwork policies.

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

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

November 14, 2018

Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

Even the US is now ‘swimming naked’

Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.

Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.

Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:

I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.

So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.

Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.

As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.

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

Three Reasons to Fear Another ‘Great War’ Today

November 12, 2018

Three Reasons to Fear Another ‘Great War’ Today

Still think globalization will bring peace? They thought that in 1914, too.

Things exploded quickly. Photographer: J. J. Marshall/Hulton Archive via Getty Images

Last month, I traveled to Vienna, the former seat of the Austro-Hungarian Empire and a fitting place to contemplate the approaching 100th anniversary of the conclusion of World War I.

That conflict began with Austria-Hungary’s declaration of war against Serbia in July 1914, following the assassination of Austro-Hungarian archduke Franz Ferdinand. It ultimately led to more than 15 million deaths, the collapse of four empires, the rise of communism and fascism in some of Europe’s leading states, the emergence and subsequent retreat of America as a global power, and other developments that profoundly altered the course of the 20th century.

World War I was “the deluge … a convulsion of nature,” remarked Britain’s Minister of Munitions David Lloyd George, “an earthquake which is upheaving the very rocks of European life.” Although that conflict ended a century ago, it still offers three crucial lessons that are relevant to our increasingly disordered world today.

First, peace is always more fragile than it seems. In 1914, Europe had not experienced an all-out, continental conflict since the end of the Napoleonic wars a century earlier. Some observers believed that a return to such catastrophic bloodletting had become almost impossible. The British author Norman Angell would immortalize himself by suggesting, just a few years before World War I, that what we would now call globalization had rendered great-power conflict obsolete. War, he argued, had become futile because peace and the growing economic and financial linkages between the major European states were producing so much prosperity.

Angell had good company in the multitude of thinkers who believed that improved communications were knitting humanity ever more tightly together, that international arbitration was making war unnecessary, and that nationalism was being suppressed by newer, more enlightened ideologies and improved forms of international cooperation.

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

Catabolism: Capitalism’s Frightening Future

November 1, 2018

Catabolism: Capitalism’s Frightening Future

Photo Source SPACES Gallery | CC BY 2.0

“Out of the frying pan, into the fire” is an apt description of our current place in history. No matter what you think of globalization, I believe we’ll soon discover that capitalism without it is much, much worse.

No one needs to convince establishment economists, politicians and pundits that the absence of globalization and growth spells trouble. They’ve pushed globalization as the Viagra of economic growth for years. But globalization has never been popular with everyone. Capitalism’s critics recognize that it generates tremendous wealth and power for a tiny fraction of the Earth’s seven billion people, makes room for some in the middle class, but keeps most of humanity destitute and desperate, while trashing the planet and jeopardizing human survival for generations to come.

Around the world, social movements believe “Another World Is Possible!” when neoliberal globalization is replaced by a more democratic, equitable, Earth-friendly society. They assume that any future without globalization is bound to be an improvement. But now it appears that this assumption may be wrong. In fact, future generations may someday look back on capitalism’s growth phase as the dynamic days of industrial civilization, a naïve time before anyone realized that the worst was yet to come.

The Return of Scarce Oil and Peak Debt

Today, rising energy prices and ballooning debt are poised to strangle the global economy once again. These suffocating conditions brought the economy to its knees in 2008. Afterward, fracking helped increase the supply and lower the price of oil and gas temporarily. Meanwhile, debt-dependent cash infusions in the form of bailouts, low interest rates, corporate tax cuts and leveraged stock buy-backs were injected into the economy to prop up stock prices and profit margins. [1]

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Globalization Has Hollowed Out Rural America

October 27, 2018

Globalization Has Hollowed Out Rural America

The value of local control and local capital far exceed the pathetic “savings” reaped from shoddy commoditized goods.

What do we make of an economy in which a handful of bubblicious urban areas are magnets for jobs and capital while rural communities have been hollowed out? The short answer is that this progression of urbanization has been one of the core dynamics of civilization for thousands of years: opportunities are greater in cities, and so people move from rural areas with few opportunities to cities with greater opportunities.

But that’s not the only dynamic hollowing out America’s rural communities: globalization plays a key role, too. Rural economies can rarely muster economies of scale that enable globally competitive enterprises. Rural communities generally lack the capital, expertise, global supply chains and cheap transportation costs that are the building blocks of successful global production and distribution.

In a global economy characterized by over-capacity, over-production and mobile capital, localized rural economies can’t compete with the low cost of commoditized products distributed by finely tuned global supply chains and cheap transportation.

Pre-globalization and cheap transport, local bakeries imported bulk flour and baked bread that was lower in cost than loaves shipped in from afar. The local bakeries held the competitive price advantage, and so local bakeries could pay local labor and local taxes that then supported the rest of the local economy.

But in today’s economy, commoditized bread can be delivered rural communities at prices local bakeries cannot match.

The same holds true for virtually all globally tradable goods– foods, clothing, etc. The only economic sectors with a toehold in rural communities are corporate farms, the occasional small specialty corporate factory making non-commoditized components and non-tradable services such as hair salons, motels, thrift shops, cafes, etc.

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

The Global 1% Is Destroying Democracy

September 14, 2018

The Global 1% Is Destroying Democracy

Unraveling a web of dark money

“Wherever you live in the world, you’ve been robbed. Not by a hidden bandit, but a global kleptocracy: the super-rich who’ve managed to rob the poor blind in every corner of the globe for the past seven decades.” — Michelle Chen

We’re living in a time of global income inequality on a scale never before seen in history. Money is concentrated in the hands of fewer and fewer people around the world, and every year they have more of it than ever before. According to the 2018 World Inequality Report, those belonging to the wealthiest 0.1 percent of the global population have, since 1980, increased their combined wealth by as much as the poorest 50 percent. The combined net worth of all 2,208 of the world’s known billionaires is twice that of the poorest 2.5 billion people. By 2030, members of the wealthiest one percent of the global population are projected to hold 64 percent — a full two-thirds — of the world’s wealth.

It wasn’t supposed to turn out this way. The world’s top economists sat down in Bretton Woods, New Hampshire, in 1944, to figure out how to prevent the world economy from ever again becoming as destabilized as it was in the years leading up to World War I. They envisioned a global financial system that would stop countries from manipulating their exchange rates, curtail unrestricted international cash flows, and lock speculative capital behind national borders.

At first, financial globalization — which generated international institutions like the World Bank and the International Monetary Fund, and tied currencies to the U.S. dollar, which was tied to gold — worked exactly as intended. It laid the economic foundation for a period of unprecedented prosperity and stability in the second half of the 20th century.

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

Our “Prosperity” Is Now Dependent on Predatory Globalization

August 16, 2018

Our “Prosperity” Is Now Dependent on Predatory Globalization

Nowadays, trade and “prosperity” are dependent on currencies that are created out of thin air via borrowing or printing.

So here’s the story explaining why “free” trade and globalization create so much wonderful prosperity for all of us: I find a nation with cheap labor and no environmental laws anxious to give me cheap land and tax credits, so I move my factory from my high-cost, highly regulated nation to the low-cost nation, and keep all the profits I reap from the move for myself. Yea for free trade, I’m now far wealthier than I was before.

That’s the story. Feel better about “free” trade and globalization now? Oh wait a minute, there’s something missing–the part about “prosperity for all of us.” Here’s labor’s share of U.S. GDP, which includes imports and exports, i.e. trade:

Notice how labor’s share of the economy tanked once globalization / offshoring kicked into high gear? Now let’s see what happened to corporate profits at that same point in time:

Imagine that–corporate profits skyrocketed once globalization / offshoring kicked into high gear. Explain that part about “makes us all prosperous” again, because there’s no data to support that narrative.

What’s interesting about all this is the way that politicians are openly threatening voters with recession if they vote against globalization. In other words, whatever “prosperity” is still being distributed to the bottom 80% is now dependent on a predatory version of globalization.

Let’s rewind to the era of truly free trade, from the late Bronze Age up to the Roman Era. In the late Bronze Age (circa 1800 to 1200 B.C.), vigorous trade tied together the ancient empires and states of the Mideast and the Mediterranean. In the Roman Era, trade in silk and other luxuries tied China, India, Africa, the Mideast and the Roman Mediterranean together in a vast trading network.

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

We Are All Hostages of Corporate Profits

July 7, 2018

We Are All Hostages of Corporate Profits

We’re in the endgame of financialization and globalization, and it won’t be pretty for all the hostages of corporate profits.

Though you won’t read about it in the mainstream corporate media, the nation is now hostage to outsized corporate profits.

The economy and society at large are now totally dependent on soaring corporate profits and the speculative bubbles they fuel, and this renders us all hostages: “Make a move to limit corporate profits or speculative bubbles, and your pension fund gets a bullet in the head.”

Not just pension funds, of course; tax revenues will also be taken out and shotas most of the state and federal income taxes are paid by high-earners and those skimming capital gains from stock options and stock-based compensation packages.

Political and financial authorities have caved in to the implicit threat, lest their share of the corporate swag be tossed in the ditch. To appease public anger, various bureaucratic thickets have been created, but as you can easily see, corporate profits have not been affected.

The global downturn resulting from China’s tightening of credit in 2016 caused a remarkably under-reported panic in central banks, which pulled out all the stops to keep corporate profits high.

Subsidies, tax breaks and exclusions keep the profits flowing not just to corporate managers and owners but politicos, lobbyists and the entire food chain that serves the top of the wealth-power pyramid in America.

Notice the difference between normal and abnormal profits? The enormous speculative boom of the dot-com era doubled corporate profits in a mere decade, but those gains pale compared to the tripling in profits since the 2002 downturn:

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

Make Capital Cheap and Labor Costly, and Guess What Happens?

June 28, 2018

Make Capital Cheap and Labor Costly, and Guess What Happens?

Employment expands in the Protected cartel-dominated sectors, and declines in every sector exposed to globalization, domestic competition and cheap capital.

If you want to understand why the global economy is failing the many while enriching the few, start with the basics: capital, labor and resources. What happens when central banks drop interest rates to near-zero? Capital becomes dirt-cheap. It becomes ludicrously easy to borrow money to buy whatever cheap capital can buy: stock buybacks, robots, automation tools, interest-sensitive assets such as housing, competitors or potential competitors, high-yield emerging-market bonds, and so on.

What happens when cartels take control of core domestic industries such as banking, defense, higher education and healthcare? Costs soar because competition has been throttled via regulatory capture, and these domestic sectors are largely non-tradable, meaning they can’t be offshored and have little meaningful exposure to globalization.

Labor-intensive cartels such as these can pass on their rising costs for labor, resources and profiteering. Do you really think assistant deans could be pulling down $250,000 annual salaries in higher education if there was any global or domestic competition?

As for healthcare, I’ve often noted that healthcare/sickcare will bankrupt the nation all by itself. When a cartel such as healthcare / sickcare can force higher prices on employers and employees, the cost of labor throughout the economy rises.

Sickcare Will Bankrupt the Nation–And Soon (March 21, 2011)

Can Chronic Ill-Health Bring Down Great Nations? Yes It Can, Yes It Will (November 23, 2011)

You Want to Fix the Economy? Then First Fix Healthcare (September 29, 2016)

As I’ve indicated on the chart, labor-intensive cartels in non-tradable sectors–higher education, defense/national security, healthcare and banking– can pass on their rising labor costs to their captive customers.

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

Localization: a strategic alternative to globalized authoritarianism

June 21, 2018

Localization: a strategic alternative to globalized authoritarianism

For those who care about peace, equality and the future of the planet, the global political swing to the right over the past few years is deeply worrying. It has us asking ourselves, how did this happen? How did populism turn into such a divisive and destructive force? How did authoritarianism take over the political scene once again?

From my 40 years of experience working in both industrialized and land-based cultures, I believe the primary reason is globalization. When I say globalization, I mean the global economic system in which most of us now live – a system driven by continual corporate deregulation and shaped by neoliberal, capitalist ideologies. But globalization goes deeper than politics and the economy. It has profoundly personal impacts.

Under globalization, competition has increased dramatically, job security has become a thing of the past, and most people find it increasingly difficult to earn a livable wage. At the same time, identity is under threat as cultural diversity is replaced by a consumer monoculture worldwide. Under these conditions it’s not surprising that people become increasingly insecure. As advertisers know from nearly a century of experience, insecurity leaves people easier to exploit. But people today are targeted by more than just marketing campaigns for deodorants and tooth polish: insecurity leaves them highly vulnerable to propaganda that encourages them to blame the cultural “other” for their plight.

Let me illustrate how this happened in Ladakh, or Little Tibet, where I first visited as a young woman and where I have worked for over four decades. Situated in the Indian Himalayas, Ladakh was relatively isolated – culturally and economically – until the late 1960s. When I arrived in the early 70s, a campaign of Western-style development had just been launched by the Indian government – giving me the opportunity to experience what still remained of the ancient culture, and to observe the changes that came with modernization.

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

Our Economy Is Failing Our Society

May 21, 2018

Our Economy Is Failing Our Society

If we want to extend the opportunities for positive social roles to everyone, we have to change the way money is created and distributed in our economy.

One of the most unrecognized dynamics of our era is the structural dependence of our society on our economy. One set of pundits, politicos and academics wring their hands over the fragmenting of civil society (the rise of disintegrative, divisive forces and the decay of integrative forces) and decry the rising inequality that is our economy’s dominant feature, while another set of pundits and academics celebrate the economy’s remarkable adaptability or focus solely on reading financial tea leaves (interest rates, Fed policy tweaks, unemployment rates, etc.)

Those few analysts who escape their respective silos/academic ghettos rarely get past generalities such as the erosion of social mobility, a dynamic that is clearly economic and social. But the precise mechanisms behind the secular erosion of social mobility are lost in platitudes about how A.I. and robots will free us all to be poets or consumers of a vast and endlessly enjoyable leisure.

The key understanding that’s lacking is that economic structures organize and limit the social structures underpinning civil society. To understand why civil society is disintegrating on so many fronts (public health, civil discourse, etc.), we must understand how our economy has failed to support the social structures required for an integrative, inclusive civil society.

Our economy is transforming/adapting as a result of powerful secular trends:the 4th Industrial Revolution (a.k.a. the digital-networked-AI-Big-Data revolution), globalization, the commoditization of ordinary capital and labor, the financial and political dominance of quasi-monopolies and cartels, and perhaps the most unrecognized dynamic, the devaluation of ordinary capital and labor in favor of scarce and often rarified forms of capital and labor in the fields of technology, entrepreneurship and finance.

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

Macquarie: “This Is The End Of The Liberal Order… But At Least No Wars Yet”

March 28, 2018

Macquarie: “This Is The End Of The Liberal Order… But At Least No Wars Yet”

One week after Council on Foreign Relations president Richard Haass wrote an op-ed in which he waved farewell to the world he helped create, saying “Goodbye, Liberal World Order.” Then overnight, one of Wall Street’s most original, if underappreciated analysts, Macquarie’s Victor Shvets, gave his own unique take on this increasingly sensitive topic, injecting a dose of his unique pragmatism, in a note that one could say has a silver lining based on the title: “The end of liberal order: De-globalization drift; but no wars, yet.” Unfortunately, in a world in which almost every analyst sounds increasingly as skeptical as this website has been for the past 9 years, that’s as far as the optimism goes, as the following note reveals.

* * *

The end of liberal order: De-globalization drift; but no wars, yet

Investors continue to search for order; there is none

Investors seem to be striving to find order and pattern in a world that has neither. It is only human to search for patterns as without some order, there are no investment strategies. Instead, it becomes a world dominated by noise. Whether it is Trump tariffs, CBs (incessant debate – ‘too dovish or too hawkish?’) or Facebook and the role of social media, investors embark on a fairly meaningless task of calculating likely damages while trying to rationalize these actions within confines of conventional economic theory (trade is good; lack of it is bad). As a result, there is a growing chorus of shrill voices about onset of trade wars and/or need for deep regulatory changes. Similarly, any widening of spreads (however small) is almost immediately interpreted as the onset of major liquidity contraction. In a modern world of signals, noise & AIdriven re-pricing, reality is just ‘fake news’ (or basically facts you don’t like).

De-globalization is a fact of life; both trade & capital

Amongst all the noise, it is still useful to examine the latest trade news with some degree of realism. First, de-globalization has been a fact of life for more than a decade. There are already ~50,000 cases outstanding with WTO, with members introducing various anti-dumping duties & non-tariff measures. This is more than double the case load of ’08, and it is bound to grow exponentially; the US is not even the greatest offender. The liberal trade order had died at least a decade ago. Second, global economy is no longer driven by conventional trade, with elasticity close to one (trade to incremental GDP) vs. ~2x in ‘80s-90s.

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

Central Banks Have Killed Free Trade

March 24, 2018

Central Banks Have Killed Free Trade

Defenders and critics of “free trade” and globalization tend to present the issue as either/or:

It’s inherently good or bad. In the real world, it’s not that simple. The confusion starts with defining free trade (and by extension, globalization).

In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage:

Nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently.

While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of the mobility of capital.

Capital — cash, credit, tools and the intangible capital of expertise — moves freely around the globe seeking the highest possible return, pursuing the prime directive of capital: expand or die.

Capital that fails to expand will stagnate or shrink. If the contraction continues unchecked, the capital eventually vanishes.

The mobility of capital radically alters the simplistic 18th century view of free trade.

In today’s world, trade can not be coherently measured as goods moving between nations, because capital from the importing nation owns the productive assets in the exporting nation. If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.

In today’s globalized version of “free trade,” mobile capital can skim labor, currencies, interest rates, regulatory burdens and political favors by shifting between nations and assets.

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

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