Tuesday, December 30, 2008

A New Year's Re(S)&(V)olution


David Seaton's News Links
We live now in a curious, "lull before the storm", interlude. What seemed normal only a few months ago, now seems strange, silly and sinister. Those who were thought to be wise have been shown to be fools and what seemed granite fortresses have turned out to be so many cobweb constructions.

More is on the way: new myths to be exploded and new fools to be exposed. We call this a crisis.


A crisis in our system -- more a momentary interruption of its smugness -- at least holds out the opportunity to question what we are doing and why we are doing it.

For reasons of financial esoterica, reasons that are very complex and difficult to follow even for those trained to understand them, millions of people are going to face real hardship and many others in the economic twilight of the third world will literally starve to death or die of untreated diseases. We seem to have woven ourselves into some kind of hell.

At the bottom of this appears to be greed and selfishness and a tangled skein of institutions grown up to express and protect them.
As the cartoon character, Pogo once said, "We have met the enemy and he is us". Obviously we have gotten entangled in a labyrinth of our own devising.

Many people repress their inner qualms about our system because they don't want to be seen to be unrealistic and impractical, but scientific research is showing that it is the system itself that does not conform to human nature. We are caught in something that, although created by humans, is manifestly inhuman and a violation of human nature.

What could be less realistic and practical than that?


Is this who we really are?


In a synthesis that I think we shall see becoming common in future years, fact based scientific research is coming to confirm the ancient intuitions of humanity's spiritual traditions. Both science and religion, unlike the financial and political sectors, put the highest value on truth and strive to find it. At some point they might bump heads in the dark.

Before examining the science let's look at the spiritual traditions that date back thousands of years.

Judaism's most revered sage, Rabbi Hillel once said,"What is hateful to you, do not do to your fellow: this is the whole Law; the rest is the explanation; go and learn". A few decades later, Jesus of Nazareth announced the Golden Rule, "Therefore all things whatsoever ye would that men should do to you, do ye even so to them: for this is the law and the prophets." and "Love thy neighbor as thyself."

Christianity's first chief executive officer, Saint Paul wrote,"owe no one anything except to love one another, for he who loves another has fulfilled the law. For the commandments, 'Thou shalt not commit adultery,' 'Thou shalt not murder,' 'Thou shalt not steal,' 'Thou shalt not bear false witness,' 'Thou shalt not covet,' and if there is any other commandment, are all summed up in this saying, namely, 'Thou shalt love thy neighbor as thyself.' Love does no harm to a neighbor; therefore love is the fulfillment of the law."


In sociology this is known as the "norm or ethic of reciprocity", it is ancient and universal. With abundant help from Wikipedia, let's look at some samples of the legacy:
The Greek stoic philosopher Epictetus who taught that human beings have a duty of care to all fellow humans, said, "What thou avoidest suffering thyself seek not to impose on others."

The Buddha said, "One who, while himself seeking happiness, oppresses with violence other beings who also desire happiness, will not attain happiness hereafter".

Confucius said, "Never impose on others what you would not choose for yourself."

In the Hindu tradition, the Mahabharata states, "One should never do that to another which one regards as injurious to one’s own self. This, in brief, is the rule of dharma. Other behavior is due to selfish desires."

The Prophet Muhammad said, "The most righteous of men is the one who is glad that men should have what is pleasing to himself, and who dislikes for them what is for him disagreeable."
Is this some sort of amazing coincidence? Probably not: science is discovering that it might be printed in our DNA. The question could be, does matter proceed from spirit or does spirit proceed from matter? And the answer might be Deng Hsiao Ping's, "black cat, white cat, as long as it catches mice it is a good cat".
Last year Marc Hauser, an evolutionary biologist at Harvard, proposed in his book “Moral Minds” that the brain has a genetically shaped mechanism for acquiring moral rules, a universal moral grammar similar to the neural machinery for learning language. In another recent book, “Primates and Philosophers,” the primatologist Frans de Waal defends against philosopher critics his view that the roots of morality can be seen in the social behavior of monkeys and apes. Dr. de Waal, who is director of the Living Links Center at Emory University, argues that all social animals have had to constrain or alter their behavior in various ways for group living to be worthwhile. These constraints, evident in monkeys and even more so in chimpanzees, are part of human inheritance, too, and in his view form the set of behaviors from which human morality has been shaped.(...) Though human morality may end in notions of rights and justice and fine ethical distinctions, it begins, Dr. de Waal says, in concern for others and the understanding of social rules as to how they should be treated. At this lower level, primatologists have shown, there is what they consider to be a sizable overlap between the behavior of people and other social primates.(...) Dr. de Waal believes that these actions are undertaken for the greater good of the community, as distinct from person-to-person relationships, and are a significant precursor of morality in human societies.(...) “Morality is as firmly grounded in neurobiology as anything else we do or are,” Dr. de Waal wrote in his 1996 book “Good Natured.” Biologists ignored this possibility for many years, believing that because natural selection was cruel and pitiless it could only produce people with the same qualities. But this is a fallacy, in Dr. de Waal’s view. Natural selection favors organisms that survive and reproduce, by whatever means. And it has provided people, he writes in “Primates and Philosophers,” with “a compass for life’s choices that takes the interests of the entire community into account, which is the essence of human morality.” New York Times
Apparently this moral "compass" is heavily reinforced. Read this from the Washington Post:
"You gotta see this!" Jorge Moll had written. Moll and Jordan Grafman, neuroscientists at the National Institutes of Health, had been scanning the brains of volunteers as they were asked to think about a scenario involving either donating a sum of money to charity or keeping it for themselves.(....) The results were showing that when the volunteers placed the interests of others before their own, the generosity activated a primitive part of the brain that usually lights up in response to food or sex. Altruism, the experiment suggested, was not a superior moral faculty that suppresses basic selfish urges but rather was basic to the brain, hard-wired and pleasurable.(...) The results -- many of them published just in recent months -- are showing, unexpectedly, that many aspects of morality appear to be hard-wired in the brain, most likely the result of evolutionary processes that began in other species.(...) What the new research is showing is that morality has biological roots -- such as the reward center in the brain that lit up in Grafman's experiment -- that have been around for a very long time. The more researchers learn, the more it appears that the foundation of morality is empathy. Being able to recognize -- even experience vicariously -- what another creature is going through was an important leap in the evolution of social behavior. And it is only a short step from this awareness to many human notions of right and wrong, says Jean Decety, a neuroscientist at the University of Chicago.
Let's underline one phrase from that article, "The more researchers learn, the more it appears that the foundation of morality is empathy": to "walk a mile in another man's shoes" to experience vicariously what another creature is feeling is probably the most human experience there is and one the most pleasurable or painful experiences that life has to offer.

Empathy is the basis of great dramatic art, especially the most popular of all dramatic arts, the art of cinematography. What is a movie star, but a person with a unique ability to inspire empathy?


Think of the world's, but especially America's, obsession with the movies and with movie stars. Americans literally worship movie stars: they spend an enormous part of their lives and billions of dollars seeking to empathize with them. They sit on their sofa's or in darkened movie theaters having stories told to them like sleepy children,
rooting for the good guy, during an amazing proportion of their waking lives.

So science and even Hollywood prove that we derive great pleasure from doing good and observing others doing good. This pleasure makes cooperation and solidarity attractive and these qualities have made our species the most successful of all the animal kingdom.


If this is who we really are, the most imperative fields of inquiry in the coming years have to be, how did we get into such an impossible situation and probably much more important, how do we get out of it?


The answers to the last question, whatever they finally may be, will surely entail empowering our
humanity and downgrading all the structures or value systems that make empathy a solitary vice. DS

Monday, December 29, 2008

Gaza: rummaging around for shoes

"Dime con quién andas y te diré quién eres" (tell me who hang out with and I'll tell you who you are) Old Spanish proverb

'Twas an evening in October, I'll confess I wasn't sober,
I was carting home a load with manly pride,
When my feet began to stutter and I fell into the gutter,
And a pig came up and lay down by my side.
Then I lay there in the gutter, thinking thoughts I cannot utter,
Till a lady, passing by, did chance to say:
"You can tell a man that boozes by the company he chooses,"
Then the pig got up and slowly walked away.
"The Pig Got Up and Slowly walked Away" (1933, Clarke Van Ness, music by F. Henri Klickmann)
David Seaton's News Links
Anyone eager for change they can believe in would do well to listen closely to the statements and perhaps more importantly to the silences of Barack Obama in the next few days.

As the Spanish proverb and the song quoted above suggest, the United States is defined by the company it keeps. America's conjoined twin alliance with Israel defines America for the world. No amount of chanting "yes we can", will change this. Only a genuine change in policy will change it.

Will there ever be any change?

If you believe that Barack Obama will face down the Israel lobby while trying to pull the USA out of a recession that is quickly turning into a depression, then your hope passes all audacity and enters into that part of the human psyche where suicide bombers expect 72 virgins on completing their assignment.

Richard Nixon once warned, in very different circumstance, that America was in danger of becoming "a pitiful and helpless giant". Nothing conveys this helplessness more graphically than America's supine support for Israel's treatment of the Palestinian people... but very few people pity the "helpless giant" today... if they ever did. DS

Friday, December 26, 2008

Tiptoe on the tightrope


David Seaton's News Links
A couple of days ago I uploaded a post about the idea that the "productivity revolution" was the starting point for today's economic fright. Among several interesting comments, I got these questions from News Links reader, Steve Crawley:
I would like to hear the rest of the story from you about the post-collapse era. Here are a few prompting questions to hopefully get you started. Assuming technology and advanced communications continue be with us, will they contribute to improving our national economic or is something else needed? Do you agree social instability has not yet arrived, but is just around the corner? Or is there another path that is necessary for some sort of economic and possibly social stability to return?
To begin to answer Steve's questions, I would have to start with Yogi Berra's famous caveat, that it is difficult to make predictions... especially about the future. Yuck, yuck.

Talking to people that are supposed to know about this stuff, they seem to agree that the most orthodox way out this mess is to devalue ones currency, up productivity and cut wages...


If my idea is correct that upping productivity has already cut jobs and stagnated or lowered the salaries of many if not most remaining jobs and made it necessary to lend money to people with little hope of paying it back just to keep the whole mishagoss in motion, then you can see that the last two items on the list -- upping productivity and lowering wages -- would eventually only lead to more unhappiness.

This assumes of course that I am right and that the absolutely amazing gains made in productivity since the personal computer and the Internet were wedded to industry are what is behind all of this mess.


As to what the contributions technology and advanced communications might make to improving our national economy. I've just read Fareed Zakaria's recent and quickly outdated book, "The Post American World", where Zakaria writes about advances in
nanotechnology:
At some point in the future, or so I'm told, households will construct products out of raw materials, and businesses will simply create the formulas that turn atoms into goods.
The idea is that you put some powder you order on the Internet into a washtub, add water and out walks a TV set, thus putting millions of Chinese people out of work.

Whether this ever happens or not, the fact that somebody might think it was a good idea and that a lot of money was being invested in making it happen would have to put you on your guard a bit: it's the thought that counts.

So as to "social instability" being just around the corner, that all depends where the corner is. Is this crisis the turning of that corner?

I think the real "corner turner" will be the crisis that comes from the remedies that are being applied in this present crisis.


This particular crisis is about a vacuum in credibility. It isn't exactly America's "fall of the wall" moment... yet, but it is moving in that direction. Think what it means when a whole ideology crashes.

When I was a young fellow many people truly believed, and had made huge personal sacrifices all their long lives in the belief that history's inevitable march was toward socialism and that the Soviet Union was the genuine vanguard in that march. Many were still believing it right up till the moment when Gorbachev pulled down the Red Flag on the Kremlin.

It is impossible to exaggerate what an intellectual and political hole that left... a hole big enough for people like Alan Greenspan and George W. Bush to walk through.


The Madoff scandal is the quintessential caricature of the whole moment. The idea that people had around the world had was that American Jewish people were the only people intelligent enough to really understand advanced financial products and it turns out that America's richest, therefore smartest, Jewish people were as stupid as it was possible to be, even Madoff himself to ever think he could get away with it, all this destroying centuries of malignant stereotypes of preternatural craftiness at the worst possible and inopportune moment.


The bottom line is: If America's richest Jews are just as stupid as the rest of the world's goyim, then...
who is minding the store?

Substitute "American" for "Jewish" and you've got the whole idea of this crisis's implications.


So, with the deflation of
Real-Existing Socialism and now Pensée Unique we are now going to have to fake it.

Digging through the ruins of Marxism, we can probably find some useful and recyclable refuse. One idea that people are going to be rolling around again is that capitalism is a historical "phase" like feudalism with a beginning, middle and end.

I don't think it is ending now or anything like it, but people are now going to take seriously the idea that it
will end at some point and if nothing else table talk is going to be more interesting. DS

Wednesday, December 24, 2008

Christmas Eve: peace on earth

rubens holy family
"The Holy Family with Saint Anne"
Peter Paul Rubens - Museo del Prado, Madrid
David Seaton's News Links
At Christmas time we commemorate the birth of a mysterious being: a miracle working Jewish carpenter, said to be the king of heaven. One who, even for those that do not believe in him, has been the central, self-defining, personality of Western civilization for over two thousand years.

At Christmas,
those who follow the teachings of that figure are urged to wish for 'peace on earth, good will to men' and to practice forgiveness and to love their enemies. Who are those enemies that Christians are supposed to forgive and to love?

Today it is a common belief that Islam is the sworn enemy of Christianity. Is that true? If so, was it always true? If it wasn't always true, then whose fault is it that the two religions are at sword point today? Are Muslims in need of our forgiveness? Are we of theirs?


In order for the followers of Christ to tell friend from foe, to truly forgive and to begin to love their enemies, it is obviously essential to begin by being able to know which is which.
This is not always as easy as it would appear at first glance.

Today the relations between Islam and Christianity need, more than ever, to be examined and revised. Westerners ignorance and lack of appreciation of Islam is doubly aggravated by their ignorance of Muslim's traditional knowledge and esteem of Christianity... An esteem born out by the great number of Muslims named, "Maryam," (Mary) and "Isa", (Jesus).

Tragically, little is known in the West of Islam's affection for the Virgin Mary
to whom an entire, tenderly poetic, chapter of the Koran about the birth of Jesus, the "Maryam Sura", is devoted. Christmas time is uniquely suited to listening to its spellbinding recitation.

Two years ago,
Karen Armstrong, a former Catholic nun and perhaps the English language's most interesting writer on comparative religions, published the article quoted below in The Guardian. It makes a perfect Christmas meditation in these times of hatred and intolerance. DS

The Muslim prophet born in Bethlehem - Karen Armstrong - Guardian
Abstract: In 632, after five years of fearful warfare, the city of Mecca in the Arabian Hijaz voluntarily opened its gates to the Muslim army. No blood was shed and nobody was forced to convert to Islam, but the Prophet Muhammad ordered the destruction of all idols and icons of the Divine. There were a number of frescoes painted on the inner walls of the Kabah, the ancient granite shrine in the centre of Mecca, and one of them, it is said, depicted Mary and the infant Jesus. Immediately Muhammad covered it reverently with his cloak, ordering all the other pictures to be destroyed except that one. This story may surprise people in the west, who have regarded Islam as the implacable enemy of Christianity ever since the crusades, but it is salutary to recall it during the Christmas season when we are surrounded by similar images of the Virgin and Child. It reminds us that the so-called clash of civilisations was by no means inevitable. For centuries Muslims cherished the figure of Jesus, who is honoured in the Qur'an as one of the greatest of the prophets and, in the formative years of Islam, became a constituent part of the emergent Muslim identity. There are important lessons here for both Christians and Muslims - especially, perhaps, at Christmas. The Qur'an does not believe that Jesus is divine but it devotes more space to the story of his virginal conception and birth than does the New Testament, presenting it as richly symbolic of the birth of the Spirit in all human beings (Qur'an 19:17-29; 21:91). Like the great prophets, Mary receives this Spirit and bears Jesus, who will, in his turn, become an ayah, a revelation of peace, gentleness and compassion to the world.(...) The Muslim devotion to Jesus is a remarkable example of the way in which one tradition can be enriched by another. It cannot be said that Christians returned the compliment. While the Muslims were amassing their Jesus-traditions, Christian scholars in Europe were denouncing Muhammad as a lecher and charlatan, viciously addicted to violence. But today both Muslims and Christians are guilty of this kind of bigotry and often seem eager to see only the worst in each other. The Muslim devotion to Jesus shows that this was not always the case. In the past, before the political dislocations of modernity, Muslims were always able to engage in fruitful and stringent self-criticism. This year, on the birthday of the Prophet Jesus, they might ask themselves how they can revive their long tradition of pluralism and appreciation of other religions. For their part, meditating on the affinity that Muslims once felt for their faith, Christians might look into their own past and consider what they might have done to forfeit this respect. READ IT ALL

Tuesday, December 23, 2008

A Christmas Card from Madrid in time of crisis

David Seaton's News Links
My wife and I took Photoshop and
Bruegel The Elder in hand just to wish you a
Merry Christmas and a Prosperous New Year

If you'd like to see the image full size (strongly recommended), CLICK HERE or click on second button and select "view image". DS

Monday, December 22, 2008

We all live in Ponzi land

David Seaton's News Links
I was talking to a very shrewd and well informed friend of mine, a now sedate notary who was once a sort of Spanish Gordon Gekko in the 1980s. He gave me a very intelligent analysis of the crisis.

At the bottom of it, he said, was the enormous increase in productivity brought on by information technologies. We simply produce much more than we can possibly consume: we need lots of consumers and much fewer workers.

How are underemployed people supposed to buy anything? On credit. Something has to give, has given. I think he's right.

A very good example might be how much supermarkets have changed in the last 20 years. Remember (if you can) the days before bar code cash registers existed. Totaling up the merchandise, taking payment and making change was much slower work than today. Check-out girls needed a much bigger skill set in that environment: to add and subtract accurately in their heads to begin with.

Now, passing the product over the laser reader, passing the banker or credit card through the card reader and getting the customer's signature is only the work of seconds and if the customer pays in cash, the cash register tells the check-out girl the exact change to give. A person of average or better than average intelligence, who has successfully completed high school is wasted in such a job.

At the same time that the products are being checked out, the system is seamlessly keeping track of the inventory and calculating the buying needed to keep the shelves full and may even send the orders directly to the head office, several states away, where the orders are also processed electronically and trucks are filled and dispatched with a fraction of the human input needed only a few years ago. Now, project this technological productivity explosion onto almost any human activity. More work done with a shrinking work force.

It is easy to see that with this system it is possible to have much bigger stores with a much wider variety of products, employing many fewer and much less skilled, therefore lower paid, workers than ever before.

With lower costs and more technology, profits rise and much of this gain is reinvested in more productivity-raising technology, which makes more skills and the people who have them redundant.
This means, perversely, that more profits usually lead to less jobs or much poorer jobs. This paradigm, which until recently only held true for the poorly educated, is now reaching the ranks of university graduates. Now, with digital technology, even high intellectual output tasks can be outsourced to where people with postgraduate degrees can be hired for the same cost per hour as high school graduates in a developed country.

Result: As more money is invested in raising productivity, fewer and fewer people can produce more and more for a market glutted with products that fewer and fewer people can afford to buy without going into debt.

Salaries don't rise because most workers are not really needed that badly and are easy to replace if they go on strike, complain or even report in sick.. and thus they have no bargaining power. Any shortages such as one resulting from low birthrate in developed countries can be solved by outsourcing the jobs to poorer countries with high birthrates.

All people are really required to do is to buy many things that they don't really need, which they can do, even with a McJob, by using a credit card... hereby kicking the can into the future: a future with poorer paying jobs, less horizon, more need of credit to participate, with less chance of ever paying back the debts incurred.

To make underpaid workers buy things that objectively they don't need, an entire industry (marketing) exists to make them dissatisfied with what they already have. Perversely, unhappiness becomes a social good in such an economic arrangement. A thrifty person, content with his lot, who for thousands of years was seen, in all traditions, as a wise and sensible man; in this contemporary situation is seen as a public enemy to be "stimulated".


In a sense our entire "civilization" is sort of a universal "Ponzi scheme". If the wheel stops even for a moment it all comes tumbling down.

It's amazing that a structure this artificial, that fills so few truly human needs, has taken so long to nearly collapse.
DS

Sunday, December 21, 2008

Holdren and Chu and the half empty glass



The decision by Barack Obama to appoint John Holdren as his chief scientific adviser deserves widespread welcome. The Harvard academic and former energy expert at the University of California, Berkeley, commands international respect among physicists, climate experts and other researchers.(...) Thus Obama, who takes up office on 20 January, has made it clear through Holdren's appointment that global warming is going to be dealt with robustly by his administration. Editorial - Observer

Now that President-elect Barack Obama's energy and environment team is complete, the message he's sending is loud and clear: The vacuum of U.S. leadership on climate change will be filled. His nominees share his goal of reducing carbon emissions and developing the next generation of energy production that will reduce this nation's dependence on fossil fuels. More important, they generally reflect the pragmatic approach to governing that Mr. Obama appears to be crafting with his Cabinet picks overall. Editorial - Washington Post
David Seaton's News Links
When I first read the comments above, I suddenly shared the same sort of elation-rush that so many Obama supporters experience.

Wow, I thought, that is really naming the best and the brightest, he must really care about energy and global warming, those heretofore starveling stepchildren of American politics. Change I can believe in.

Gee, I said to myself, it's as if he had named Nobel Prize winning economists, Joseph Stiglitz or Paul Krugman secretary of the treasury or even John Mearsheimer as secretary of state instead of Timothy Geithner and Hillary Clinton.

Of course that train of thought quickly drained my enthusiasm considerably.
Because if, as the Washington Post says,
"the message he's sending is loud and clear: The vacuum of U.S. leadership on climate change will be filled. "
then what is the message that he sending with such key appointments as those of Treasury and State? What is the message he is sending loud and clear about the vacuum of US leadership in economic policy and foreign affairs?

Certainly neither Geithner's nor Clinton's reputations in the fields they have been chosen to lead can compare with the reputations of John Holdren's and Nobel winning, Steven Chu's and certainly as important as energy and science are, at this moment of crisis, they are not more important than Treasury and State, which are both
disaster areas.

I would say that naming these highly qualified men of wide and sterling reputations in their fields contrasts with the mediocrity of those chosen for posts that are objectively of greater immediate importance.

People of this high level
do exist in both fields, not naming them to key posts shows that these vital cabinet positions are being used merely to pay political debts and that the Nobel Prize winners in other areas are being used as window dressing.

If their roles were going to be as important as the innocent editorial writers seem to believe, then in all logic their jobs would also be filled with political IOU holders. DS

Friday, December 19, 2008

Notes of the roundtable

Former Costa Rican president, José María Figueres Olsen, with Bubba and a redhead, August 2000
David Seaton's News Links
Yesterday I attended a round table discussion about the world "crisis" which was held in one of Spain's largest banks. There were economic and political analysts from the Spanish government, banks, foundations, embassies, etc. The round table was chaired by the former president of Costa Rica, José María Figueres-Olsen, educated at West Point and Harvard, who, in my opinion, said some of the most interesting things of the whole afternoon.

Some of the themes of concern mentioned were the possibilities of:
  • Return of protectionism
  • End of globalization
  • Less funds for aid to developing countries
  • Change in the balance of world power
  • Lack of leadership in the European Union
  • Destabilization of China and Russia
One of the most interesting speakers was a Chinese analyst that spoke of the enormous significance of the China-Japan-Korea summit held last week. These are key countries whose relations have historically been very bad and full cooperation between them in facing the present crisis might mean a true shift in the world balance of power. The summit certainly hasn't received the attention it deserves

Many of the analysts seemed to hope and believe that under the new Obama administration America would take take the lead in strong measures to snap the world out of its slump.

President Figueres, who is center-left, pointed out to the assembled analysts that the people who had voted for Obama were expecting him to get them out of the crisis, not the world, and that he would be judged accordingly and that those outside the USA should not get their hopes too far up, especially in regards to the further liberalization of world trade.

Figueres also had an observation about the new Obama team, which was the fruit of his own extensive administrative experience. He said that Obama's new cabinet, made up of "luminarios", was an "all-star" team, and he had serious doubts that a group containing such a group of gigantic egos (and he knows many of them personally) in most of the sensitive areas, could work together smoothly.

As to the role that the USA might play in fixing things, one bright, young Spanish analyst from the BBVA brought up the London Economic Conference of 1933, where Franklyn D. Roosevelt scuppered any chance of an international economic agreement, one which might have ended the depression and avoided World War Two, as an indication of America's probable reaction in times of a general world economic crisis.

If I had been on the dias, I would have opened with a quote from Marx (Groucho) "The secret of life is honesty and fair dealing: if you can fake that, you've got it made". At the heart of the crisis is the failure of American credibility.

If the USA is not able to take the medicine of fiscal orthodoxy it has forced painfully down everybody's throats in the past, nobody is ever going to take them or their prescriptions seriously again. This is something that has to be faced.

I am not at all sure that Bernake and his printing press are going to do anything finally but destroy the dollar and create Argentinian type hyper-inflation... once people get deleveraged who is going to want to hold depreciating US dollars?

Some analysts felt that the European Central Bank should follow the fed in flooding the system with newly printed cash. It would seem to me that one of the clearest and unfifying achievments of the EU has been the Euro's creation and its value. From a view to European unity it doesn't make much sense to lower its value in any way, even if maintaining it is painful.

Others feared that the crisis might make the EU more inward looking.

As I understand it the EU is a market of 450M people and that most of what we consume here is produced within the Union itself... I would think that a strategic understanding with neighboring Russia, in order to take mutual advantage of the fabulous synergies, would make the EU as nearly self-sufficient as it would be possible for anyone, anywhere to be.

In my opinion one of the most important reasons that European unity is not getting people excited is that it is being presented as a partnership with the USA to run around the world jousting with windmills, which the people in Europe don't want to do. The EU and the US have vastly different geopolitical realities and objectives... another fact that finally must be faced.

Really, as soon as the USA has nationalized Freddy and Fannie and Citi Bank and now Detroit... what is the meaningful economic difference between the USA, Russia and China? At this point both the capitalism and the social democracy of the EU is clearer than Russia's, China's and the USA's. Only the European Union has both a meaningful social net and correct financial fundamentals.

As to spreading democracy, I think that in these troubled times if we can maintain democracy in the countries where there is a tradition and a culture of democracy we will be doing very well, indeed. I don't think the Chinese people will want to risk destabilizing their country in the midst of a crisis and I don't imagine the Russians will either... The temptation in troubled times will be toward authoritarian regimes and the Russians and the Chinese already have them.

Although things are bad and getting worse, I think this period may finally be vindicated by people getting truly serious about who we are and what we really want and need and what we are prepared to pay for it. DS

Wednesday, December 17, 2008

Bush to Blago to Madoff: a triple play from hell


We can't tax or spend our way out of this mess. The bad debt must be defaulted, and this will mean bankruptcies among both people and companies (including banks) - lots of them. This is inevitable. Market-Ticker

“I have abandoned free-market principles to save the free- market system” George W. Bush

It is hard to avoid the conclusion that the U.S. and China are becoming two countries, one system. How so? Easy, in the wake of our massive bank bailout, one can now look at China and America and say: “Well, China has a big-state-owned banking sector, next to a private one, and America now has a big state-owned banking sector next to a private one. China has big state-owned industries, alongside private ones, and once Washington bails out Detroit, America will have a big state-owned industry next to private ones.” Thomas Friedman
David Seaton's News Links
Masters of the craft often insist that it is essential to write every day if you are going to build any writing muscles, there seem to be neural paths that need to be blazed between brain and hand in order to write and the only way to blaze and nurture them is by steadily putting words onto a white space. My brief experience tells me that this is true.


I came to writing late: analyzing world affairs meant having to write on a daily basis and having to write turned into loving to write and that helps me to write every day: a beneficent circle.

The problem in facing the white space is usually where to begin, but world news has always provided me with a wide variety of themes: every morning there was some new event to start the flow of words and ideas moving.

The last few weeks have been heavy going though.

Bush to Blago to Madoff is not the kind of triple play to have the fans on their feet, hoarse from cheering. A steady diet of writing about nothing but criminal stupidity and decadence on a massive scale is finally as appetizing as chugging a barium shake.

However the quotes from Bush and Friedman that top this post give me a glimmer of hope that certain veins of mineable mineral may lie hidden gleaming within our depression-bound dung heap.

It seems sure now that the fall of the Soviet Union and the end of the ideological struggle against its real-existing socialism, rather than leading to the kingdom of heaven of market capitalism has, in fact, led to some sort of surprising synthesis, which we might tentatively call "don't-look-now-socialism".

The bottom line is that the political system of the United States will not tolerate those classic economic forces, the very rock upon which they have built their church; it will not permit the forces that Reagan called "the magic of markets", to wreak their "creative destruction" on the lives and futures of America's children, aged pensioners, middle class home owners, students, farmers, autoworkers and the assorted consumers of junk food and Chinese Gewgaws.

The system won't tolerate the market cleaning up its own mess because the system is afraid that the aforementioned victims might just turn around and burn the mother down.


Off the top of my head I would say that the consumer society, whose cornucopia of abundance buried real-existing socialism, succeeded in becoming the absolute motor of the US economy by drumming into people's consciousness that they are unique and special individuals whose wants and desires must be discovered, cultivated and satisfied.

Try telling a spoiled child that he or she has just been drafted into the world's "
reserve army of labor", then stand back and watch them trash the nursery.

For the American economy to look them in the eye and tell them they are just so much dirt is not a message that a consumer with a "unique life style" can easily digest.

So here we are in the closing days of 2008, watching Adam Smith, Joseph Schumpeter, Karl Popper and Milton Friedman lie moldering on the ash heap of history, while Karl Marx daintily brushes the ashes off his old suit and goes over his notes. DS

Tuesday, December 16, 2008

Throwing shoes at politicians? Soon a barefoot world.

Muntazer al-Zaidi threw the shoe heard round the world
Zaidi's action won him widespread plaudits in the Arab world where Bush's policies have drawn broad hostility. The Lebanese television channel NTV, known for its opposition to Washington, went as far as offering a job to the journalist. In its evening news bulletin on Monday, it said that if he takes the job, he will be paid "from the moment the first shoe was thrown". Zaidi A manager at the channel told AFP that it had made its offer known to Zaidi and was ready to post bail on his behalf.(...) In Gaza, around 20 Palestinian gunmen from the Popular Resistance Committees, a hardline militant group that has been behind a spate of rocket attacks on Israel in recent weeks, staged a demonstration in support of Zaidi. Wearing fatigues and brandishing Kalashnikov assault rifles, they stamped on photographs of the US president and held banners in support of the journalist. Egyptian independent daily Al-Badeel carried a frontpage caricature of the US flag with the sole of a shoe replacing the stars in the top corner. Even government-owned newspapers in Cairo praised Zaidi's actions. "Pelting the American president with shoes was the best way for expressing what Iraqis and Arabs feel toward Bush," wrote Al-Gomhuria editor Mohammad Ali Ibrahim. AFP
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Bush is lucky they don't play baseball in Iraq. If Americans start throwing shoes at politicians this could get serious
.

It was a beautiful moment though and I wish I knew the Arabic for "it's about bloody time"; however, with the way things are going, if this catches on, we could soon have a barefoot world. DS

Saturday, December 13, 2008

A world gone Madoff

Now thousands, possibly tens of thousands, of investors confront losses that range from serious to devastating. Some families said on Friday that they believed they had lost all their savings. A charity in Massachusetts said it had lost essentially its entire endowment and would have to close. According to an affidavit sworn out by federal agents, Mr. Madoff himself said the fraud had totaled approximately $50 billion, a figure that would dwarf any previous financial fraud. At first, the figure seemed impossibly large. But as the reports of losses mounted on Friday, the $50 billion figure looked increasingly plausible. One hedge fund advisory firm alone, Fairfield Greenwich Group, said on Friday that its clients had invested $7.5 billion with Mr. Madoff. The collapse of Mr. Madoff’s firm is yet another blow in a devastating year for Wall Street and investors.(...) Investigators have not explained when they believe the fraud began, how much money was ultimately lost and whether Mr. Madoff lost investors’ money in the markets, spent it, or both. It is not even clear whether Mr. Madoff actually made any of the trades he reported to investors. New York Times

On Friday, rumours were rife that well-known European families had put large amounts of money with Madoff, and could be facing huge losses – although those contacted all declined to comment. Financial Times
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It is all getting so wearily familiar: Iraq, Enron, the bubble, Blago... What they add up to is an ocean of fraud where some fish swim and all others have drowned, are drowning, will drown.

History is full of swindlers and swindles, but they seem to be coming thicker and faster now and they all seem to center around things that are supposed to exist but don't, be they financial assets, weapons of mass destruction or the honor of high office.

Most of us like to make fun of the "End of Days" and "Rapture" crowd, but I think that there is something healthy in their rebelliousness, in their desire to infuse meaning and transcendence into something we all know stinks. At least they give the garbage we are forced to feed on its proper importance.

The apocalyptics at least have the need to wrap this Stygian mess in the breathtakingly noble language of King James' Hebrew poetry or the lurid magnificence of John of Patmos, because neither the newspapers and certainly not today's Hollywood have the chops to do justice, much less deal with, what we are experiencing.

Lacking any contemporary scientific mind with the powers of Marx, who would be able to dissect our fetid reality with a view to changing it, at least we could find some poetic way of speaking about it or some ritual way of dealing with it.

Looking outside our immediate traditions: a Hindu would long for a new incarnation of Rama, the god of righteousness, to restore Dharma and slay the demon rakshasas that infest us. Here is Wikipedia's description of rakshasas which will ring a bell with many readers:
Rakshasas are notorious for disturbing sacrifices, desecrating graves, harassing priests, possessing human beings, and so on. Their fingernails are venomous, and they feed on human flesh and spoiled food. They are shapechangers, illusionists, and magicians.
According to the Hindu traditions we are living now in an epoch called the Kali Yuga, which the Vishnu Purana describes thus:
"In the Kali Yuga, there will be numerous rulers vying with each other. They will have no character. Violence, falsehood and wickedness will be the order of the day. Piety and good nature will dwindle slowly... Passion and lust will be the only attraction between the sexes. Women will be the objects of sensual pleasure. Dishonest will be the bottom line of subsistence. Learned people will be ridiculed and put to shame; the word of the wealthy person will be the only law."
That sounds like a perfect fit, but I'm afraid that Sri Rama's dealing with the rakshasas' collective ass looks like it might have to wait till another yuga.

Switching traditions for a moment, many today might seriously contemplate outsourcing American justice to Iran's Ayatollahs and then spending many a pleasant family evening around the TV watching deserving heads and hands being lopped off and even a few selected stonings: the bit where they hang miscreants from towering construction cranes looks especially satisfying in present circumstances.

What is indisputable is that we live in a period where it distinctly feels like something very dark and nasty is coming to a head. So, I would say that we should try to listen to our Bible thumping brethren with the sympathy of Carl Jung. These people are at least attempting to find fitting language to describe what is literally destroying society and perhaps the planet, while the rest of us just stand around and quibble.

Beside the Bible and Shakespeare we also have Judge Roy Bean, in our traditions, perhaps the answer to all this lies with him. DS

Wednesday, December 10, 2008

Lie down with dogs, get up with fleas

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"Lie down with dogs, get up with fleas", is a self-explanatory, Spanish proverb, which teaches that, although we may not even belong to the same species, too much intimate contact with lesser beings can have disagreeable consequences for us.

That saying is, in essence, the national and international significance of the Blagojevich scandal: Chicago politics are as corrupt as it gets and no matter how clean you are -- and I don't think Obama has ever even fixed a friend's traffic ticket -- there is no way you can lie down with those dogs without developing at least a mild rash.


I grew up about five blocks from Lake Michigan on Chicago's North Shore; and as someone who as a small child used to stand on a windy street corner in below zero snow storms, with frozen, chocolate colored, sooty, slush, up to my galoshes tops... waiting for a bus to school to appear out of the dark... As someone who lived through that, I have trouble understanding why anyone from a sunny paradise like Hawaii would ever want to live in such a horrible place as the urbs in hortis.

In my opinion the answer to that question is the key to both the strengths and weaknesses of our president-elect.


The motto of Chicago is "The City that Works", with its obvious play on the meaning of the word "work", which contains both labor and function: as in "my watch works, but my brother in law doesn't".

Chicago works in both senses: there are usually lots of jobs and people work hard and the city clears the snow and picks up the garbage in exemplary fashion. Labor and function. Chicago "works" in every sense.

This laborious functionality touches all elements of the city culture down to the most humble individual and even its corruption.

It was one of Chicago's most glamorous exports, Ada Beatrice Queen Victoria Louise Virginia Smith, better known as "Bricktop" a redbone saloon keeper, owner of Paris's legendary Chez Bricktop, mentor of Duke Ellington and Mabel Mercer, close friend of Cole Porter and Ernest Hemingway, who expertly described Chicago's peculiar ethic. "In Chicago" she said, "if you pay your two dollars to get laid, you get laid, but in New York you may just end up with a sore head and your wallet stolen": "Chicago the City that Works".

This obsession with laborious functionality at the expense of almost any other value even gives Chicago's legendary corruption it's special flavor:
“Government in Illinois isn’t about political ideology or helping people,” said Christopher Mooney, who teaches political science at the University of Illinois-Springfield. “It’s about which idiot brother-in-law are you going to get a job on a road crew because he helped you get into office.” Bloomberg
Now it is obvious that Barack Obama didn't go to live in Chicago because he liked the weather, or because, as a Harvard graduate, he had trouble getting a job anywhere in the world. I can only imagine it was the functionality part of the word "work" that, as an aspiring politician, took him there. And I am sure that his aspirations were always political, because he could just as easily have made piles of money as a lawyer in Manhattan.

To see what he needed to work for him in Chicago it would be useful to review his obvious weaknesses: a funny name that sounds Muslim, no local, clan, family or ethnic identity anywhere in the world to give him any political context. Half white, raised by whites in a place like Hawaii, where there are practically no African-Americans, educated in white private schools and elite universities. He was an aspiring politician with no identifiable constituency.

Aside from his name, Chicago solved all of those things for him and very quickly.

Of his own free will he moved to the north's most segregated city, where skin color is a political badge. Chicago is a city of strong ethnic identities and clearly defined neighborhoods. It was the smartest move he ever made in his whole life... like when Elvis left Tupelo Mississippi and moved to Memphis.

The segregation of Chicago makes its organization by a political machine much easier. Each area is a well "fortified" barony and the barons are responsible for delivering the peasants vote on election day: a vote from whom all blessings flow.

In exchange for their fealty the loyal peasants are rewarded with city jobs for their dimmer relatives, thus all have a stake in the machine's success. This has gone for many decades and power is as entrenched as in any feudal aristocracy.

Among the most useful, important and essential "knights" that the barons and their king have to fight their election battles are the "Precinct Captains", here is how Wikipedia describes their role:
A precinct captain is the individual who acts as the direct link between a political party's machine and the voters in an election precinct. A precinct captain helps with voter registration, and helps voters get absentee ballots or get to the voting booths on election day.
Here we should note that when Barack Obama married Michelle Robinson, he not only married a beautiful, intelligent and highly educated woman, he also married the daughter of a precinct captain, Fraser Robinson III who, naturally, was a municipal employee. Although, Michelle's father died before they got married, with their marriage Obama became "family" of the legendary Daley machine, where membership is often passed charismatically from father to son. Richard M. Daley is the son of Richard J. Daley, who was first elected mayor when I was ten years old. It makes me feel young merely to write the words, "Mayor Daley is".

Here might be a good place to underline that no Democrat in Chicago can have a successful career without the blessings of Richard M. Daley. Since no politician in America's history has had such a successful and meteoric career as Barack Obama has with Chicago as its base, it might be safe to surmise that in Obama's case, the fickle finger of fate has taken the small but feisty form of Richard M. Daley.

This is not to in any way slight the intelligence, good luck, talent, charisma and temperament of Barack Obama, but for anyone, even as brilliant as Obama is, to rise so fast as he has, influential patrons are essential. As another Spanish proverb has it, "without a godfather you can't get baptized".

Bing Crosby once said that, "there is probably a guy singing in saloons in New Orleans that can sing 'Stardust' better than I can, I have been very lucky". America's then most famous bandleader, Paul Whiteman, discovered the young Crosby and made him a star and it is safe to say that Chicago's Mayor Daley is Obama's Whiteman.

Here it is important for me to interject that I don't think that Barack Obama has ever taken a bribe or sold influence or ever done anything in the least shady... I don't think Daley would let his prize pupil get spoiled like that. Chicago and its political organization have nurtured and groomed Obama with great care and now have placed two of Mayor Daley's favorite proteges, David Axelrod and Rahm Emanuel at his elbow to see that he comes to no harm.

The real question has to be.... what will Daley want in exchange for handing Barack Obama a political career? Maybe he'll be satisfied with just a summer Olympics for Chicago or maybe he'll want more and when he asks for it he will ask in a soft voice and if the president of the United States says no, then the mayor of Chicago will hand him his head on a plate, because you can be sure that he has built into all of this the mechanisms to control his creature.

I'm still a Chicagoan enough to think that this isn't necessarily all that terrible. Over the last years the rest of America seems to have become hopelessly corrupt too, maybe now it will "work". DS

Tuesday, December 09, 2008

Notes on "one world"


A “world government” would involve much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force. So could the European model go global? There are three reasons for thinking that it might. First, it is increasingly clear that the most difficult issues facing national governments are international in nature: there is global warming, a global financial crisis and a “global war on terror”. Gideon Rachman - Financial Times

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One of my favorite commentators, Gideon Rachman, the Financial Times's chief foreign affairs columnist, just wrote a column advocating a world government, Matthew Drudge of Matthew Drudge fame caught wind of it and prominently featured a link to it. As they say, (hollow, baritone voice) "the rest is history".

Soon it seemed as if every hoogedy boogedy wingnut in the USA had started to write in comments and after about 150 the FT shut the comments section down.

Here are a few samples:
If you don’t find the possibility of a one-world government alarming and frightening, you are a kool-aid drinker of the highest order.
____________

Uh, pal… have you heard of The Constitution? I’ll distill my feelings for you: fck World Gov’t, and the international bankers disguised as the Fed plans to drive an nail in the coffin of the USD.
_____________

The planet is not in peril. Our freedoms are. Gullible warming is a ruse designed to bring about global collectivism and the world government you speak of.
______________

I just can’t wait to start paying “entitlements” to the impoverished in Africa.
Hit the road lefty.
____________

It will simply not happen. You’re dreaming. We Americans would never allow it. “Live free or die” and all that!
____________
And so on and so on. I dropped Gideon a line telling him he was lucky that there is no Chinese or Muslim Drudge because I'm sure many of their readers would say much the same things as the American neanderthals do, but in Chinese and Arabic.

Ironically, the only country that wants to "rule the world" is the USA.
"World Government" would be seen by most Chinese and Muslims as a last attempt by the USA to prolong its hegemony, which it probably would be, and I'm sure they would express themselves colorfully too.

What might finally happen, if we are lucky, is sort of a universal "Yalta" with recognized areas of influence: Asia with the Chinese, Japanese and the Indians calling the tunes.

There would be a dividing line that would leave Pakistan, Afghanistan and all the other stans in some Muslim grouping connected to Iran and the Arab countries of the Middle East, with Turkey as a bridge to the European Union.

By then the EU will have discovered, with the Russians, how to get the best use out of their marvelous, made in heaven, synergies.


The NAFTA group will have done the same thing.


Central and South America will chafe under the direction of Brazil and Africa will probably continue to be an endless source of pain, trouble and wealth as it always has been.

The major problem that I see here, are the relics of western imperialism like Australia and Israel, that will tend to fall between the stools.

Aside from that, I imagine that it might not be too difficult to keep any conflicts that might arise in these spheres of influence contained within them and not have them spread any farther.

Instead of "one world", a world of peacefully coexisting compartments.
Will this happen? Probably not for a long, long time, unless the USA really does fold up. DS

Monday, December 08, 2008

Get set

The panic in global financial markets has sparked an unprecedented rush into safe US Treasury securities, driving yields on short-term government notes down to almost zero.(...) The low yields reflect a surge in demand for these instruments, seen as the safest in the world during times of turmoil.(...) Analysts say the fear factor has pushed up demand for Treasuries, since investors are virtually certain the US government will not default.(...) Bob Eisenbeis, analyst at Cumberland Advisors, said the unprecedented low yields are a sign of "dysfunction" in markets. Eisenbeis said US municipal bonds are paying upwards of 6.0 percent tax-free and corporate bonds even more, but that fears of default and a lack of knowledge about underlying bond quality have led investors to shun these alternatives. One reason for the surge in demand for Treasuries, said Eisenbeis, is the Federal Reserve's decision to flood financial markets with liquidity including through other central banks. Many central banks and commercial banks are reluctant to use this cash for traditional lending, and are buying Treasuries to ride out the storm, Eisenbeis added. A big question for the market is whether the Treasury market has become a bubble that will burst. Although the low rates allow Washington to borrow money cheaply, Eisenbeis said such a scenario could be perilous for the economy and the dollar.(...) "There are lots of reasons to believe this Treasury rally is unsustainable, and that a day of reckoning is fast approaching," he said. "When you have this huge flood of liquidity into the marketplace, that can't last forever," he said. A bursting of this bubble could mean a rush out of Treasuries, forcing the government to pay higher rates on an unprecedented amount of debt. (...) Mike Larson, an analyst at Weiss Research, says the long-term bond market could be "the biggest bubble of all," worse than the dot-com and real estate bubbles.(...)"Treasury bonds almost never move this far, this fast. And interest rates, which move in the opposite direction of bond prices, almost never fall this far, this fast," Larson said. (emphasis mine) AFP
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One of the most interesting things about the decline of the American empire is that not only are the broad outlines familiar to most of the world's educated inhabitants, but even many of the details are too: details that in any other culture would be private "family" stories. That way we can use the English language and the American situation as a universal parable or mythology when broadly discussing the human condition.

Some readers of mine ask me for Spanish stories and, when I can, I am happy to oblige. The problem with doing this in an English language blog is having to provide masses of context about situations that most readers are not too familiar with.

However today there is a Spanish story that most Americans can appreciate.

As some of you may already know Spain's real estate bubble is one of the few that can rival America's and it is also deflating spectacularly.

Here is an item from an English language review of the Spanish press about Spain's second largest real estate developer, Martinsa-Fadesa:
El País notes today that the Martinsa real estate company overvalued the worth of its land by up to 19,000%. The paper claims that the company ended 2007 with profits because of these accounting irregularities, and gives as an example some land in Las Palmas worth a million € in their accounts, but valued at 179 million. A plot in A Coruña sold for 1.5 million appeared in the accounts with a value of 84 million.
That, in a nutshell is what this universal crisis in all about: cooked books, hidden debt, assets whose true value is unknown and perhaps unknowable. This has been going on at every level until value itself has become impossible to determine and wealth is frantically looking for someplace safe to hide.

We are now living through a gigantic spasm, perhaps another birth pang, perhaps the final death throes, of what Naomi Klein calls "Disaster Capitalism": the legacy of Milton Friedman.

What was once the proud ship of Marget Thatcher and Ronald Reagan, the SS Milton Friedman, for decades a powerful intellectual movement, is now sinking in a tragic farce of unregulated larceny. Viewed from outer space it must be a barrel of laughs.

When we look at economic news though, it is important to put them immediately into a human perspective. Here is some interesting context:
As jobless numbers reach levels not seen in 25 years, another crisis is unfolding for millions of people who lost their health insurance along with their jobs, joining the ranks of the uninsured. (...) Starla D. Darling, 27, was pregnant when she learned that her insurance coverage was about to end. She rushed to the hospital, took a medication to induce labor and then had an emergency Caesarean section, in the hope that her Blue Cross and Blue Shield plan would pay for the delivery. Wendy R. Carter, 41, who recently lost her job and her health benefits, is struggling to pay $12,942 in bills for a partial hysterectomy at a local hospital. Her daughter, Betsy A. Carter, 19, has pain in her lower right jaw, where a wisdom tooth is growing in. But she has not seen a dentist because she has no health insurance.(...) About 10.3 million Americans were unemployed in November, according to the Bureau of Labor Statistics. The number of unemployed has increased by 2.8 million, or 36 percent, since January of this year, and by 4.3 million, or 71 percent, since January 2001. Most people are covered through the workplace, so when they lose their jobs, they lose their health benefits. On average, for each jobless worker who has lost insurance, at least one child or spouse covered under the same policy has also lost protection, public health experts said.(...) Nearly 4.4 million people are receiving unemployment insurance benefits, an increase of 60 percent in the past year. But more than half of unemployed workers are not receiving help because they do not qualify or have exhausted their benefits. About 1.7 million families receive cash under the main federal-state welfare program, little changed from a year earlier. Welfare serves about 4 of 10 eligible families and fewer than one in four poor children. New York Times
___________

An increasing number of people who retired in recent years, confident they had set aside enough to live on comfortably, are finding themselves strapped. The stock market plunge and the housing downturn have affected many Americans, of course. But retirees have been particularly pinched because their homes and investments are the primary assets they depend on for income. As a result, many of the country's elderly are finding themselves in Nelson's situation, low on money and looking for work. "Suddenly the rug has been pulled out from under them," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Business Week
_______________

Workers who got three days' notice their factory was shutting its doors voted to occupy the building and said Saturday they won't go home without assurances they'll get severance and vacation pay they say they are owed. (...)In the second day of a sit-in on the factory floor that began Friday, about 200 union workers occupied the building in shifts while union leaders outside criticized a Wall Street bailout they say is leaving laborers behind.(...) Organizers of the action said the company can't pay employees because its creditor, Charlotte, N.C.-based Bank of America, won't let them.(...) Bank of America received $25 billion from the government's financial bailout package. "Across cultures, religions, union and nonunion, we all say this bailout was a shame," said Richard Berg, president of Teamsters Local 743. "If this bailout should go to anything, it should go to the workers of this country." Outside the plant, protesters wore stickers and carried signs that said, "You got bailed out, we got sold out." CBS2-Chicago
So, in the snippet from AFP that opens this post we see that US treasury bonds may constitute a bubble greater than the real estate or the Internet bubbles. We may surmise that a collapse of their value would have consequences far greater than those bubbles bursting have. Among those consequences might be hyperinflation and the subsequent pauperization of all Americans except the very, very rich.

The hardships portrayed in the snippets from the Times and from Business Week would multiply exponentially and the frequency of the actions that CBS2 Chicago writes about would multiply with them in lockstep. What are now isolated incidents could become an ungovernable cauldron in a very short time if the great mass of Americans were instantly pauperized as happened recently in Argentina.

Larissa MacFarquhar has written a "must read" profile of Naomi Klein in the current New Yorker. The following snippet may give an idea where the USA is headed right now:
The only time (Naomi Klein) has ever felt a whiff of utopia was in Buenos Aires, in 2002, when the political system had virtually disintegrated—during the time that she and Lewis were filming “The Take.” “That moment in Argentina was an incredible time because a vacuum opened up,” she says. “They had thrown out four Presidents in two weeks, and they had no idea what to do. Every institution was in crisis. The politicians were hiding in their homes. When they came out, housewives attacked them with brooms. And, walking around Buenos Aires at night, there were meetings on every other street corner. Every plaza where there was a streetlight, people were meeting under it and talking about what to do about the external debt, I swear to God. Groups of one hundred or five hundred people. And organizing buying groceries together because they could get cheaper prices, setting up barters because the currency was worthless. It was the most inspiring thing I’ve ever seen.”
If the 20th century has any lessons to teach us, it is that sort of scenario we see laid out clearly before us leads to massive social unrest and upheaval: if not properly managed it can be the classic yeast culture that every apprentice fascist dreams of.

Probably the left's greatest task in the coming months and years is steering this convulsion toward peace and solidarity and away from the temptations of war and mob violence. DS

Thursday, December 04, 2008

Toiling at the Pyramid


I was no more perceptive than anyone else; during the bull market years [of the late 1990s] some people did send me letters claiming that major corporations were cooking their books, but - to my great regret - I ignored them. However, when Enron - the most celebrated company of its time, lauded as the very model of a modern business enterprise - blew up, I immediately saw the implications: if such a famous and celebrated company could have been a Ponzi scheme, it was very unlikely that the rest of U.S. business was squeaky clean. In fact, it quickly became clear, the bubble years were both the cause and effect of an epidemic of corporate malfeasance. Paul Krugman, The Great Unraveling (p. 26) - Quoted in Wikipedia

"That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash." Thomas Friedman - NYT
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The US driven, world economy appears to many to be a pyramid scheme. There is nothing new about financial pyramids, what is new is the sheer size of this one. There are things whose very magnitude make them difficult to process. Things like the size of the bailout, the size of the US current account debt, or the size of Angelina Jolie's lips immediately spring to mind. This universal pyramid, the one that is collapsing around our ears at this moment, is bigger than all of that.

One of the largest pyramids up till this great American cum-universal one was the scam perpetrated on the Albanian people not long after the collapse of Communism. The poor Albanians at least had the excuse of knowing absolutely nothing about money, investment, capitalism or much else besides raising goats and the "thought" of Enver Hoxha. (post-pyramid Albanians have learned a lot about trafficking prostitutes and stolen cars. Will we be so lucky?)

While researching the idea of comparing the Albanian pyramid of 1996-97 and ours of today, I came upon a wonderful old report from the International Monetary Fund. It was written in 1999 by Christopher Jarvis, at that time the Senior Economist in the IMF's Policy Development and Review Department. I recommend reading the whole thing, but there are some parts that I would like to quote extensively because they give a quite succinct and effective description of what a pyramid is, what effects its collapse can produce and some curiously sensible advice on what do about the situation. I say curious, because you will see that the advice given by the IMF to the Albanians is quite different from what advice they give when a pyramid explodes close to home.

First, let's see Jarvis's description what effects the bursting of a nationwide pyramid can have:
The pyramid scheme phenomenon in Albania is important because its scale relative to the size of the economy was unprecedented, and because the political and social consequences of the collapse of the pyramid schemes were profound. At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albanians—about two-thirds of the population—invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed.
Then he goes on to explain in detail how it all came about... here is a choice and strangely familiar bit which I've taken the liberty of underlining:
The regulatory framework was inadequate, and it was not clear who had responsibility for supervising the informal market. Even after the approval of a banking act in February 1996 that appeared to give the Bank of Albania the power to close illegal deposit-taking institutions, the central bank could not obtain the government's support. Indeed, the government was supportive of the companies: senior government officials frequently appeared at company functions, and, in November 1996, even as the pyramid schemes began to crumble, the prime minister and the speaker of the parliament accepted medals in honor of the anniversary of one of the companies. During the 1996 elections, several of the companies made campaign contributions to the ruling Democratic Party. There were allegations that many government officials benefited personally from the companies.
When it all collapsed the poop really hit the fan:
By March 1997, Albania was in chaos. The government had lost control of the south. Many in the army and police force had deserted, and 1 million weapons had been looted from the armories.(...) The interim government inherited a desperate situation. Some 2,000 people had been killed in the violence that followed the pyramid schemes' collapse. Large parts of the country were no longer within the government's control. Government revenues collapsed as customs posts and tax offices were burned. By the end of June, the lek had depreciated against the dollar by 40 percent; prices increased by 28 percent in the first half of 1997. Many industries temporarily ceased production, and trade was interrupted. Meanwhile, the major pyramid schemes continued to hang on to their assets, proclaim their solvency, and resist closure.
Of course in the United State looting armories wouldn't be necessary as much of the population is already armed to the teeth.

Finally in Albania all was well: the IMF and the World Bank saved the day. Here's how:
(T)he newly elected parliament passed a law, drafted with assistance from the IMF and the World Bank, mandating the appointment of foreign administrators from international accounting firms to liquidate the schemes.

The administrators appointed under the new law were required to report regularly to the government but otherwise had complete independence. They were given broad powers to carry on the companies' businesses, pay their debts, sell their assets, fire staff and managers, seize the assets of individuals connected with the schemes, and hire experts to trace assets abroad. (...) It took several months to dislodge the owners, partly because the administrators needed their cooperation in finding the companies' assets. The administrators did not gain full control of all of the companies until March 1998. Owners who had not fled were jailed, and whatever assets remained were prepared for sale. But much had been lost already.
This next part may sound strangely prescient and familiar to our ears:
Few studies have been done on the macroeconomic effect of pyramid schemes on the scale of those in Albania, which, fortunately, are extremely rare. The closest analogy to such schemes is the asset bubble, whose economic impact is due to changes in perceived wealth. As a bubble expands, people believe themselves to be better off than they actually are, and their demand for goods and money increases, leading to a deterioration in a country's external current account as well as increased output or accelerated inflation or both. If the bubble attracts foreign investors, capital inflows might be sufficient to fund the current account deficit. After the bubble bursts, perceived wealth falls dramatically. Demand for goods and money, as well as output and inflation rates, can be expected to decrease, while the current account balance is likely to improve.
Again, thanks to the Albanians docilely downing the wise medicine the IMF prescribed, everything turned out more or less ok, but check the parts I've underlined:
The long-term effects of the pyramid scheme phenomenon are likely to be limited, reflecting not only the resilience of the Albanian economy but also—and, perhaps, most important—the government's adjustment efforts and its refusal to bail out depositors. Prices and wages are extremely flexible in Albania; as a result, the government was able to cut real public sector wages substantially in 1997 (by leaving nominal wages unchanged), and the economy suffered no loss of competitiveness when the lek appreciated. The new government's willingness to tackle the budget deficit and undertake long-overdue structural reforms was also crucial. However, the social effects were profound.
Next comes a long section detailing the prevention and cure of these situations, which if read in the light of the American government's, recent bi-partisan behavior, is a real gorge raiser (I just can't resist underlining some of it):
Albania's experience contains some important lessons for other countries. There are steps governments can take to make the growth of pyramid schemes less likely. These include establishing a well-functioning formal financial system, setting up a regulatory framework that covers informal as well as formal markets and has clear lines of responsibility for supervision and action, and tackling general governance problems. Although preventing pyramid schemes is not the most important reason for establishing good governance, the Albanian experience is a powerful reminder of the social costs of unchecked criminality. (...) The government should make it clear from the outset that it will not compensate depositors for their losses. If this is not done, the fiscal costs are likely to be ruinous, and the moral hazard considerable.
As Alice in Wonderland said, "I give myself such very good advice".

After the bailout and the huge stimulus in the planning it certainly will never be possible for any US government... or the IMF... or the World Bank, to ever advocate fiscal orthodoxy again with a straight face.

Obviously if the American establishment is not willing to ask of its citizens the austerity it has always demanded of the citizens of other countries, then all its moral authority and prestige has vanished. "Do as I say, not as I do" has never been a formula for successful leadership.

This recession, how it came about and how it is being handled is America's Berlin Wall.

But, be of good cheer!

Nothing goes on forever, no hay mal que cien años dure, ni cuerpo que lo resista, the USA is going to spend quite some time in purgatory to atone for its sins, that is all and that is a lot.

I am not as pessimistic as James Kunstler or even Peter Schiff, but when a Ponzi scheme collapses there is pain and when, (here the USA is Albania on steroids) an entire country is a Ponzi scheme the pain is very great.

When that country prints the world's currency of reference, the quantity and duration of that pain is difficult to calculate, but America has fertile soil, natural resources and a large, young, highly educated, population that is not afraid of hard work, so sooner or later things will work out. DS