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The Last Gasps of “Late Degeneracy Capitalism”
The Last Gasps of “Late Degeneracy Capitalism”
It was a mid-afternoon in 2006 in Cannes, where I joined Dr. Kurt Richebächer at his apartment to collaborate on a book project that, unfortunately, failed to come together before his death a year later.
The old man grabbed his cane and moved to a comfy chair and clicked on a widescreen TV.
Bloomberg. In German.
It was bad news from what I remember. But as far as the economic commentariat was concerned, it was good news. It meant the Fed would simply pump more money into the market.
Traders loved the report; stock futures back in New York had already begun to rally.
Kurt, on the other hand, was flabbergasted. He started talking to me and to the television in German. Neither I nor the TV understood German…
Dr. Richebächer was kind of a crank. He was a special kind of crank, though.
He used to say something like: “the sins of the boom, will be laid bare in the bust.”
A Market Prophet
Kurt wrote a newsletter for more than 40 years. And back in the late 90s and early 2000s we published The Richebächer Letter.
Kurt accurately forecast the tech wreck. And for having done so, he became a semi-celebrity among the geeks — present company included — who like to read and think about an obscure outpost in the field of economics — the Austrian school.
Kurt never claimed to adhere to the Austrian school, but that hardly seemed to matter. His insights apply just as much today as they did 14 years ago — probably more.
It all started after World War II when Kurt had made a name for himself as the best-known financial journalist in Germany — a razor-sharp critic of what he saw as the stupid economic and fiscal policies of the post-war German government.
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Our Wile E. Coyote Economy: Nothing But Financial Engineering
Our Wile E. Coyote Economy: Nothing But Financial Engineering
Ours is a Wile E. Coyote economy, and now we’re hanging in mid-air, realizing there is nothing solid beneath our feet.
The story we’re told about how our “capitalist” economy works is outdated. The story goes like this: companies produce goods and services for a competitive marketplace and earn a profit from this production. These profits are income streams for investors, who buy companies’ stocks based on these profits. As profits rise, so do stock valuations.
It’s all win-win: consumers get competitively priced goods and services, workers have jobs producing goods and services and investors earn a return on their capital.
Sadly, this is a fairy tale that no longer aligns with the reality that the U.S. economy is now a decaying billboard of “producing goods and services” behind which the real money is made in financial engineering, a.k.a. legalized fraud. Take everyone’s favorite stock, Apple. The fairy tale is that Apple is in the business of making mobile phones and providing services to this customer base.
According to the fairy tale, Apple’s rise in value from $400 billion to $1.4 trillion is based on higher operating earnings, i.e. profits. But if we look at Apple’s operating earnings (see chart below), we see that they’ve been flat for years. So why is Apple worth $1 trillion more than it was a few years ago if profits haven’t risen, much less tripled?
The answer is financial engineering: Apple sells bonds that pay a paltry rate of return and then uses the proceeds from this debt (and most of its actual profits) to buy back its own shares–an astounding $338 billion over the past 7 years.
But look at the return on this legalized fraud: $338 billion added $1 trillion in “value” which can be sold by insiders to greater fools who believe the fairy tale.
…click on the above link to read the rest of the article…
There’s a Crisis in US Capitalism
There’s a Crisis in US Capitalism
Capitalism has always had business cycles. The capitalist enterprises that produce goods and services are distinctively organized around the conflicted relationship of employer and employees and the competitive relationship of markets. These central relationships of capitalism together generate cyclical instability. Wherever capitalism became a society’s economic system over the last three centuries, business cycles recurred every four to seven years. Capitalism has mechanisms to survive its cycles, but they are painful, especially when employers fire employees. Widespread pain (unemployment, bankruptcies, disrupted public finances, etc.) brought the label “crisis” to capitalism’s cyclical downturns. Only on special occasions, and rarely, did the cyclical crises in capitalism become crises of capitalism as a system. That has usually required other non-economic problems (political, cultural, and/or natural) to reach crescendo peaks around the same time as a cyclical economic downturn. Today is a time of crisis both in and of U.S. capitalism.
U.S. economic policy now focuses on what is already the worst business cycle downturn since the 1929 crash. As data accumulate, it may well prove to be the worst in global capitalism’s entire history. Forty million jobless U.S. workers find incomes lost, savings disappearing and over-indebted family finances worsening.
Today’s mass unemployment also threatens those still employed, the remaining 120 million members of the U.S. labor force. Mass unemployment always invites employers to cut wages, benefits and working conditions. If any of their employees quit, many among the millions of unemployed will accept those abandoned jobs. Knowing that, most employees accept their employers’ cuts. Employers will justify them as required by “the pandemic” or by what they say are its effects on their profits.
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The Black Death Killed Feudalism. What Does COVID-19 Mean for Capitalism?
The Black Death Killed Feudalism. What Does COVID-19 Mean for Capitalism?
How will the coronavirus transform the relationship between state and market? A look at oil, food, and finance.
Shutterstock
You pay little attention to the systems of your body — circulatory, digestive, pulmonary — unless something goes wrong.
These automatic systems ordinarily go about their business, like unseen clockwork, while you think about a vexing problem at work, drink your morning cup of coffee, walk up and down stairs, and head out to your car to begin your morning commute. If you had to focus your attention on breathing, pushing blood through your veins, and metabolizing food, you’d have no time or energy to do anything else. The body abhors the micromanaging of the mind.
The same applies to the world’s markets. They whir away in the background of your life, providing loans to your business, coffee beans to your nearby supermarket, labor to build your house, gas to fill your car. You take all of these markets for granted. All you have to concern yourself with is earning enough money to gain access to these goods and services. That’s what it means to live in a modern economy. The days of hunting and gathering, of complete self-sufficiency, are long past.
And then, in a series of sickening shifts, the markets go haywire. As with a heart attack, you no longer can take the optimal performance of these systems for granted.
The coronavirus crisis has thrown the global economy into cardiac arrest, and now you are acutely aware of the very markets that you had previously just assumed would function as normal. The first indication was the precipitous drop in the stock market that took place in late February. Then, as the United States began to enter quarantine, the labor market collapsed and hundreds of millions of people were suddenly out of work. Shortages in a few key commodities — masks, ventilators, toilet paper — began to appear.
…click on the above link to read the rest of the article…
Weekly Commentary: Schumpeter’s Business Cycle Analysis
Weekly Commentary: Schumpeter’s Business Cycle Analysis
The work of the great economist Joseph Schumpeter (1883-1950) has always resonated. When I ponder analytical frameworks pertinent to these extraordinary times, none are more germane than Schumpeter’s Business Cycle Analysis. Best known for “creative destruction,” Schumpeter’s seminal work materialized after experiencing the spectacular “Roaring Twenties” boom collapse into the Great Depression.
Contrary to Milton Friedman and Ben Bernanke, Schumpeter didn’t view the twenties as the “golden age of Capitalism.” Depression was a consequence of egregious boom-time excess rather than the result of the Fed’s post-crash failure to print sufficient money. Schumpeter possessed a deep understanding of Credit; he keenly appreciated the roles entrepreneurship and risk-taking played during booms. Schumpeter also understood Capitalism’s vulnerabilities.
“Whenever a new production function has been set up successfully and the trade beholds the new thing done and its major problems solved, it becomes much easier for other people to do the same thing and even to improve upon it. In fact, they are driven to copying it if they can, and some people will do so forthwith. It should be observed that it becomes easier not only to do the same thing, but also to do similar things in similar lines… This seems to offer perfectly simple and realistic interpretations of two outstanding facts of observation: First, that innovations do not remain isolated events, and are not evenly distributed in time, but that on the contrary they tend to cluster, to come about in bunches, simply because first some, and then most, firms follow in the wake of successful innovation; second, that innovations are not at any time distributed over the whole economic system at random, but tend to concentrate in certain sectors and their surroundings.” Joseph A. Schumpeter, Business Cycles, 1939
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Capitalism on Life Support… Time for a Cure
Capitalism on Life Support… Time for a Cure
The Covid-19 pandemic is unleashing obscene bailouts of Western industries and companies, as well as lifelines for billionaire business magnates.
It is grotesque that millions of workers are being laid off by corporations which are in turn receiving taxpayer funds. Many of these corporations have stashed trillions of dollars away in tax havens and have contributed zero to the public treasury. Yet they are being bailed out due to shutdowns in the economy over the Covid-19 crisis.
Why aren’t the banks and corporations being forced by governments to pay for their workers on sick leave or in lockdown? It’s because the governments are bought and paid-for servants of the top one per cent. Some political leaders are the embodiment of the one per cent, like Donald Trump and senior members of the U.S. Congress.
The biggest orgy of funny money is seen in the U.S. where the Trump administration and Congress have approved the printing of trillions of dollars to prop up corporations and banks. Meanwhile crumbs are being thrown at millions of workers and their families.
In just five weeks, unemployment has hit a staggering 26.4 million people in the U.S. – and that’s the official figure. The real level is doubtless much higher. It is reported that the job losses have wiped out all the employment gains made over the past decade since the last financial crisis in 2008. As with the present crisis, the U.S. government arranged trillion-dollar bailouts for banks and industries back in 2008-2009. It didn’t last long until the next binge.
In truth is this is a familiar pattern over the past century where the economy is continually salvaged from ruin by the government at the expense of ordinary workers, small businesses and taxpayers. The recurring rescue is proof that the system of private capital and supposed free markets is a myth.
…click on the above link to read the rest of the article…
The holiday of exchange value
The holiday of exchange value
Many markets are on hold, as societies such as ours fight the pandemic. But how else might things be valued, and how much of that alternative could survive when economic normality returns?
The primary economic fact about the coronavirus crisis is how it has brought existing class divisions into much sharper light. The New York Times expressed things most succinctly:
A kind of pandemic caste system is rapidly developing: the rich holed up in vacation properties; the middle class marooned at home with restless children; the working class on the front lines of the economy, stretched to the limit by the demands of work and parenting, if there is even work to be had.
For those of us who find themselves in the middle of these three categories, there is a mixture of deep frustration with the monotony of the situation, with relief and gratitude that we do not find ourselves confronting the hazards of those in the third of them. None of what I write here discounts how many people remain locked into capitalist markets (especially in the United States), only now with their health on the line. But it remains worth reflecting on how the world looks once market-based exchange is no longer the primary yardstick of value, as many people have been doing from across the political spectrum.
The starting point of the ‘new’ economic sociology that developed out of social network analysis in the United States during the 1980s, around the example of Harrison White and the landmark papers of Mark Granovetter, was that markets aren’t ’embedded’ in society (as Polanyians like to argue), but that markets are social institutions. Granovetter showed this most famously with labour markets, but any market is amenable to this approach, and the emergence of ‘social studies of finance’ in the late 1990s was also indebted to the ‘new’ economic sociology, via Michel Callon.
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Weekly Commentary: The Solvency Problem
Weekly Commentary: The Solvency Problem
Being an analyst of Credit and Bubbles over the past few decades has come with its share of challenges. Greater challenges await. I expect to dedicate the rest of my life to defending Capitalism. One of the great tragedies from the failure of this multi-decade monetary experiment will be the loss of faith in free market Capitalism – along with our institutions more generally.
Somehow, we must convince younger generations that the culprit was unsound finance. And it’s absolutely fixable. Deeply flawed, experimental central banking was fundamental to dysfunctional markets and resulting deep financial and economic structural impairment. The Scourge of Inflationism. If we just start learning from mistakes, we can get this ship headed in the right direction.
Over the years, I’ve argued for “rules-based” central banking that would sharply limit the Federal Reserve’s role both in the markets and real economy. The flaw in “discretionary” central banking was identified generations ago: One mistake leads invariably to only bigger blunders.
What commenced with Alan Greenspan’s market-supporting assurances of liquidity and asymmetric rate policy this week took a dreadful turn for the worse: Open-end QE, PMCCF, SMCCF, MMLF, CPFF, MSBLP, TALF… They’re going to run short of acronyms. Our central bank has taken the plunge into buying corporate bond ETFs, with equities ETFs surely not far behind. The Fed’s balance sheet expanded $586 billion – in a single week ($1.1 TN in four weeks!) – to a record $5.25 TN. Talk has the Fed’s new “Main Street Business Lending Program” leveraging $400 billion of (this week’s $2.2 TN) fiscal stimulus into a $4.0 TN lending operation. Having years back unwaveringly set forth, the ride down the slippery slope of inflationism has reached warp speed careening blindly toward a brick wall.
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All The Craziest Things About America Are Being Highlighted By This Virus
All The Craziest Things About America Are Being Highlighted By This Virus
“Corona is a black light and America is a cum-stained hotel room,” comedian Megan Amram colorfully tweeted a couple of weeks ago. Her observation has only grown more accurate since.
The corporate cronyism of America’s political system has been highlighted with a massive kleptocratic multitrillion-dollar corporate bailout of which actual Americans are only receiving a tiny fraction. Instead of putting that money toward paying people a living wage to stay home during a global pandemic, the overwhelming majority of the money is going to corporations while actual human beings receive a paltry $1,200 (which they won’t even be getting until May at the earliest) at a time of record-smashing unemployment.
America’s capitalism worship has been highlighted with Wall Street Journal headline “Dow Soars More Than 11% In Biggest One-Day Jump Since 1933” running at the exact same time as “Record Rise in Unemployment Claims Halts Historic Run of Job Growth — More than 3 million workers file for jobless benefits as coronavirus hits the economy“. Stocks are booming, Amazon is surging, and mountains of wealth are being transferred to sprawling megacorporations, while actual human beings are terrified of what the future holds.
America’s joke of a healthcare system is being highlighted as uninsured COVID-19 patients are racking up $35,000 medical bills and even insured COVID-19 patients are looking at out-of-pocket expenses in excess of $1,300. Combine this with the millions of Americans getting thrown off of employer-provided health insurance and you’re looking at a huge number of people who will avoid getting tested and avoid treatment as much as possible. Both heads of America’s two-headed one-party system have spent decades forcefully creating this dynamic.
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I’ve seriously tried to believe capitalism and the planet can coexist, but I’ve lost faith
I’ve seriously tried to believe capitalism and the planet can coexist, but I’ve lost faith
As the Productivity Commission confirmed this week, Australia’s economy has enjoyed uninterrupted growth for 28 years straight. Specifically, our output of goods and services last financial year grew by 2%. Economists obviously see the growth of a national economy as good news – but what is it doing to the Earth?
Capitalism demands limitless economic growth, yet research shows that trajectory is incompatible with a finite planet.
If capitalism is still the dominant economic system in 2050, current trendssuggest our planetary ecosystems will be, at best, on the brink of collapse. Bushfires will become more monstrous and wildlife will continue to be annihilated.
As my research has sought to demonstrate, an adequate response to climate change, and the broader environmental crisis, will require creating a post-capitalist society which operates within Earth’s ecological limits.
This won’t will be easy – it will be the hardest thing our species has tried to do. I’m not saying capitalism hasn’t produced benefits for society (although those benefits are distributed very unequally within and between nations).
And of course, some people will think even talking about the prospect is naive, or ludicrous. But it’s time to have the conversation.
What is growth?
Economic growth generally refers to gross domestic product (GDP) – the monetary value of goods and services produced in an economy. Historically, and across the globe, GDP and environmental impact has been closely linked.
Capitalism needs growth. Businesses must pursue profits to stay viable and governments want growth because a larger tax base means more capacity for funding public services.
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Poetic Justice Coming For The 1%
Poetic Justice Coming For The 1%
To understand just how grim the coming decade is likely to be for the world’s super-rich, let’s start with three premises:
1) Capitalist democracy — defined as free individuals managing their own property and periodically electing new leaders — is the only system of social organization that’s consistent with human nature and is, therefore, sustainable.
2) Capitalism inevitably produces inequality as a few participants — through energy, creativity, and (frequently) luck — do extremely well while the vast majority do okay and a few do very badly.
3) Since the big winners — now commonly known as the 1% — are vastly outnumbered by the rest of society, they can only keep their exulted position if they convince the 99% to let them be. If the rich fail to make their case, everyone else will simply vote to expropriate the most visible fortunes.
If you accept these assertions, it follows that enlightened elites would be all about fostering upward mobility, because when people on the lower rungs of the economic ladder know that by working hard and following the rules they can move their families to the next higher rung in a reasonable amount of time, they focus on their on improving prospects and don’t much care if a few billionaires live like princes and kings.
But that’s emphatically not the case these days. The current generation of corporate and political winners have blatantly and systematically exploited nearly everyone else. Amazon, for instance, staffs its hellscape warehouses with RV caravans of migrant senior citizens working long, hard days for subsistence wages. Apple makes its high-margin phones in Chinese sweatshop factories where suicide is the biggest occupational health hazard.
…click on the above link to read the rest of the article…
China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!
China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!
In emulating the American economic raison d’etre, China has attempted to develop its unique capitalist model while ignoring that it too will soon suffer the same fate for the same reason: Unsustainable debt. When examining the recent realities of Chinese banking and finance over the past year it seems the steam that president Xi Jinping touts as powering the engine of his purported economic miracle of a master-planned economy is only a mirage, now almost completely evaporated before his eyes.
Like the many other similarly foolish western nations, China seeks only one path out of this fiscal death spiral, one that will likely spell doom and/or revolution in many countries soon: More debt.
China is becoming increasingly unable to continue to pay into the base of the world’s largest pyramid scheme of an economy and the cracks in the bubble are showing. This past year, saw three of the 4,279 Chinese lenders almost fail, if not for the massive intervention by the People’s Bank of China (PBoC) of immediate liquidity via more debt. The Chinese economic miracle is built on unsustainable debt-based infrastructure projects over the past two decades that have provided China with a face of prosperity to show the world, but this is only a mask to hide the limited countrywide success of the Chinese miracle into the rural areas. The injection of $Trillions in capital has seen China distribute these sums across the base of its economy creating a GDP that hit a high of 14.2 % in 2007 then averaged nearly 9% for the next decade before dropping yearly to 6.1% in 2018. All this growth had produced a personal affluence to a sub-set of Chinese society that has stoked this appearance of a flourishing economy.
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The Fed Detests Free Markets
The Fed Detests Free Markets
To be completely honest, I wrote -most of- the second part of this a while ago, and then I was thinking this first part should be part of the second, if you can still follow me. But it doesn’t really, it’s fine. I wanted to write something to address how little people know and acknowledge about how disastrous central bank policies have been for our societies and economies.
Because they don’t, and they have no clue, largely and simply because of the way central banks are presented both by themselves and by the financial press that covers them. Make that “covers”. Still, going forward, we will have no way to ignore the damage done. All the QE and ZIRP and NIRP will turn out to be so destructive for us all they will rival climate change or actual warfare. That’s what I wanted to talk about.
You see, free markets are a great idea in theory. Or you can call it “capitalism”, or combine the two and say “free market capitalism”. There’s very little wrong with it in theory. You have an enormous multitude of participants in an utterly complex web of transitions, too complex for the human mind to comprehend, and in the end that web figures out what values all sorts of things, and actions etc., have.
I don’t think capitalism in itself is a bad thing; what people don’t like is when it veers into neo-liberalism, when everything is for sale, when communities or their governments no longer own anything, when roads and hospitals and public services and everything that holds people together in a given setting is being sold off to the highest bidder. There are many things that have values other than monetary ones, and neo-liberalism denies that. Capitalism in itself, not so much.
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We Can Only Choose One: Our National Economy or Globalization
We Can Only Choose One: Our National Economy or Globalization
The servitude of society to a globalized economy is generating extremes of insecurity, powerlessness and inequality.
Does our economy serve our society, or does our society serve our economy, and by extension, those few who extract most of the economic benefits? It’s a question worth asking, as beneath the political churn around the globe, the issues raised by this question are driving the frustration and anger that’s manifesting in social and political disorder.
A recent essay examines these issues in light of Brexit, which the author sees as a manifestation of dramatic but poorly understood changes in Britain’s economy over the past 60 years:
How Britain was sold: Why we need to rethink the case for a national capitalism in the age of uncertainty.
“One of the reasons Brexit has become unstuck is that the changing nature of the British economy since the 1970s and 1980s has made it hard to identify what the economic interests of the nation really are.
If nothing else, Brexit has been a long overdue education in the realities of Britain’s economy.
While both liberals and Marxists argue that the nationality of capitalism does not matter, there is a need to rethink the case for a national capitalism in this age of economic inequality, political fracture and geopolitical uncertainty. If nothing else, by embedding the economy more deeply into the nation and the daily lives of its citizens, and by directing itself towards national purposes and having a greater stake in developing national skills and innovations, a national capitalism would underline and reinforce that lost idea of the common good.”
It’s shocking to recall that Britain had a large and vibrant domestically owned auto industry in the 1960s, and remained a major industrial power / exporter.
…click on the above link to read the rest of the article…
The Green New Deal and Accursed Wealth
The Green New Deal and Accursed Wealth
Pulp mills, Longview, Washington. Photo: Jeffrey St. Clair.
Accursed Wealth! O’er bounding human laws,
Of every evil thou remains’t the cause:
Victims of want, those wretches such as me,
Too truly lay their wretchedness to thee:
Thou art the bar that keeps from being fed,
And thine our loss of labour and of bread.
Al Gore missed this memo, written at some time between 1809 and 1813, by the poet John Clare in Norhamptonshire, England. However, in his latest op-ed, It’s Not too Late – The climate crisis is the battle of our time and we can win, in the New York Times, September 22, 2019, the former Vice President helpfully notes that the fastest-growing occupation in the United States is solar installer and the second fastest- growing is wind turbine service technician. The loss of Clare’s world is un-remediated. The loss of our world, apparently, is salved by the growth of mostly low-wage ‘green-tech’ jobs. Clare, at least, identifies the cause of his loss – Accursed Wealth, or, as we might call it today, capitalism.
Gore, in his best, ever youthful, Gee-Wiz journalese proclaims that, “…we are in the early stages of a sustainable revolution that will achieve the magnitude of the Industrial Revolution and the speed of the digital revolution, made possible by new digital tools”. John Clare’s erstwhile bucolic freedom had been proscribed by the British parliament’s Enclosure Acts early in the nineteenth century, under which he lost his rights to the common lands that were seized for the benefit of proto-capitalist land-owners newly cognizant of the wealth generated by grazing sheep. Wool, like cotton, was a fiber fundamental to the modern capitalist ethos whereby the acquisition of wealth transcended the interests of both humanity and the natural world.
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