Our "Prosperity" Is Now Dependent on Predatory Globalization

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

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

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

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

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

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

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

In the good old days, merchants paid for goods in gold or silver, as the value of the precious metals were known to all and relatively easy to transport and verify.

Nowadays, trade and "prosperity" are dependent on currencies that are created out of thin air via borrowing or printing. The problem with gold, in the view of predatory globalization, is that it can't be printed or conjured out of thin air. That won't do, because predatory globalization's primary export is newly printed currencies: dollars, euros, yen and yuan.

This puts every nation that can't print a global reserve currency at an extreme disadvantage. While the U.S. can conjure "money" out of thin air and trade it for goods, other nations must cough up resources and goods in exchange for the "money," and borrow it at hefty rates of interest if they want to use the global "money" for development or investment.

That leaves them highly vulnerable to foreign exchange fluctuations which can raise the cost of their interest due in dollars, etc. to punishing heights while devaluing whatever they built with the dollars, etc. they borrowed.

Then there's a financial crisis of loan defaults and those who created and loaned out their global reserve currency demand the debtor nation sell all its assets and resources at bargain prices. Being a member of the European Union didn't save Greece from this fate; no peripheral nation can protect itself from the predatory powers who can create currency at zero cost and send the value higher by restricting its issuance after other nations have loaded up on loans denominated in the reserve currency.

This is how "free" trade works in predatory globalization: The only thing that's free is the cost of issuing trillions in global reserve currency. Everything else will cost you dearly.


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Technocrats Rule: Democracy Is OK as Long as the People Rubberstamp Our Leadership

Technocrats rule the world, East and West alike.

We are in a very peculiar ideological and political place in which Democracy (oh sainted Democracy) is a very good thing, unless the voters reject the technocrat class's leadership. Then the velvet gloves come off. From the perspective of the elites and their technocrat apparatchiks, elections have only one purpose: to rubberstamp their leadership.

As a general rule, this is easily managed by spending hundreds of millions of dollars on advertising and bribes to the cartels and insider fiefdoms who pony up most of the cash.

This is why incumbents win the vast majority of elections. Once in power, they issue the bribes and payoffs needed to guarantee funding next election cycle.

The occasional incumbent who is voted out of office made one of two mistakes:

1. He/she showed a very troubling bit of independence from the technocrat status quo, so a more orthodox candidate is selected to eliminate him/her.

2. The incumbent forgot to put on a charade of "listening to my constituency" etc.

If restive voters can't be bamboozled into passively supporting the technocrat status quo with the usual propaganda, divide and conquer is the preferred strategy. Only voting for the technocrat class (of any party, it doesn't really matter) will save us from the evil Other: Deplorables, socialists, commies, fascists, etc.

In extreme cases where the masses confound the status quo by voting against the technocrat class (i.e. against globalization, financialization, Empire), then the elites/technocrats will punish them with austerity or a managed recession.The technocrat's core ideology boils down to this:

1. The masses are dangerously incapable of making wise decisions about anything, so we have to persuade them to do our bidding. Any dissent will be punished, marginalized, censored or shut down under some pretext of "protecting the public" or violation of some open-ended statute.

2. To insure this happy outcome, we must use all the powers of propaganda, up to and including rigged statistics, bogus "facts" (official fake news can't be fake news, etc.), divide and conquer, fear-mongering, misdirection and so on.

3. We must relentlessly centralize all power, wealth and authority so the masses have no escape or independence left to threaten us. We must control everything, for their own good of course.

4. Globalization must be presented not as a gargantuan fraud that has stripmined the planet and its inhabitants, but as the sole wellspring of endless, permanent prosperity.

5. If the masses refuse to rubberstamp our leadership, they will be punished and told the source of their punishment is their rejection of globalization, financialization and Empire.

Technocrats rule the world, East and West alike. My two favorite charts of the outcome of technocrats running things to suit their elite masters are:

The state-cartel-crony-capitalist version: the top .1% skim the vast majority of the gains in income and wealth. Globalization, financialization and Empire sure do rack up impressive gains. Too bad they're concentrated in the top 1.%.

The state-crony-socialist version: the currency is destroyed, impoverishing everyone but the top .1% who transferred their wealth to Miami, London and Zurich long ago. Hmm, do you discern a pattern here in the elite-technocrat regime?

Ideology is just a cover you slip over the machine to mask what's really going on.


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The Grand Irony of RussiaGate: The U.S. Becomes More Like the U.S.S.R. Every Day

When the Soviet regime exiled Sakharov in 1980, everybody assumed the USSR was permanent and impregnable to collapse.

There are many ironies in the RussiaGate drama, but none greater than this: The U.S. becomes more like the former U.S.S.R. every day. Longtime correspondent Bart D. sketches out the irony:

I look at the US economy and what I see in actual everyday life is that corrupted capitalism has resulted in the same problems for average citizens as what crony communism did for the citizens of the USSR.

Poor consumer choice. Poor resource allocation. Poor quality consumer products. Poor environmental management/outcomes. Hyper-vigilance and hyper-control of Government over its people. Dodgy Utilities. The difference is that the Soviet Union had a better healthcare system than USA currently has and better housing availability for common people.

How’s the irony! Capitalism and Communism ultimately end up with similar outcomes and for the same reason: Cartel behaviours and cronyism.

Exactly. When the system is rigged to benefit insiders, cartels, cronies and elites at the expense of the many "outsiders," the status quo must mask this reality with propaganda and Big Lies: that is, keep repeating the lie until people believe it due to its embrace by "experts" and authorities.

Case in point: inflation. The masses consuming the mainstream media apparently accept the Big Lie that inflation (i.e. loss of purchasing power of our money) is 2%, i.e. near zero.

But the reality is quite different: stagnant wages + soaring real-world inflation = lower standards of living, which is precisely what the bottom 80% of American households have been experiencing for the past decade of "growth" and "recovery."

The citizens of the old Soviet regime had a wry saying: they pretend to pay us and we pretend to work. I propose a variation for the hapless US citizenry:

They pretend inflation is low and we pretend to be prosperous.

The current clampdown on social media and alternative media in America is ripped right from the playbook of the Soviet regime. We must "protect" you from "fake news," lest you start questioning the official narratives of strong growth, prosperity, low inflation, etc.

Then there's the case of Julian Assange, in exile for releasing what everyone concedes is factual evidence on par with The Pentagon Papers in the 1970s which blew up the false (but convenient to the elites) narratives of the Vietnam War.

They can't paint Assange with the "fake news" brush, so they exile him just as the old Soviet regime exiled Andrei Sakharov in 1980, a hero of the Soviet Union and laureate of the Nobel Peace Prize in 1975.

Please note that the Soviet Union collapsed a decade after exiling Sakharov.Ramping up repression and official propaganda, strangling dissent and marginalizing independent skeptics are the desperate, last-ditch tactics of a doomed regime that only serves the interests of insiders and elites.

There are many pathways to collapse, with financial collapse being a favorite of regimes that print/borrow immense sums to buy off their populace and enrich the insiders/elites-- for example, Venezuela:

When the Soviet regime exiled Sakharov in 1980, everybody assumed the USSR was permanent and impregnable to collapse. In other words, "it can't happen here." But it did happen, and believing "it can't happen here" did nothing but hasten the collapse.


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The Fantasy of "Balanced Returns" Funding Retirement

Consider how a "balanced portfolio" yielding "balanced returns" worked out for middle class retirees in Venezuela.

The fantasy that a "balanced portfolio" yielding "balanced returns" will fund a stable retirement for decades to come is widely accepted as a sure thing:inflation will stay near-zero essentially forever, assets such as stocks and bonds will continue yielding hefty income and capital gains, and all the individual or fund needs to do is maintain a "balanced portfolio" of various asset classes that yield "balanced returns," i.e. some safe "value" lower-yield returns and some higher risk "growth" returns.

This fantasy is based on the belief that yields will exceed real inflation for decades to come. That is, if inflation is 2%, and the average yield of a "balanced portfolio" is 6%, then the inflation-adjusted return is 4% annually--not great, but enough to secure retirement income.

What few dare ask is: what happens if inflation is 7% and yields drop to 2%?Then the retirement fund loses 5% of its purchasing power every year. In a decade, the fund's value will decline by roughly half.

Oops. Analysts such as John Hussman have been pointing out that historically, eras of outsized returns such as the past decade are followed by eras of low or even negative returns. So assuming a "balanced portfolio" of corporate and sovereign bonds, growth stocks, index funds, etc. will yield 6% to 7% like clockwork is essentially betting that this time is different: high growth will never pause or reverse.

But let's say things really unravel, and inflation is 8% and yields are negative 2% for a few years. Retirement funds will lose 10% of their purchasing power every year. In a few years, the fund will lose half its value.

What happens if the current "everything" asset bubble pops, and inflation starts running away from policy makers? It's worth recalling that declines on the order of 75% to 80% are common when bubbles finally pop--for example, the NASDAQ stock index post-2000.

If inflation (i.e. the currency loses purchasing power) gets out of hand due to excessive money creation to fund interest on debt, entitlements and obligations, the only cure is to raise interest rates significantly. Higher rates destroy the value of existing bonds and they strangle speculation and debt-dependent projects and spending.

Higher rates means corporations, governments and households must pay more each month in interest, leaving less income for spending and investment.Unfortunately, the global economy is largely dependent on rapidly expanding debt for its survival. As this chart shows, the tiny reduction in debt expansion in 2008-09 very nearly collapsed the global financial system.

Only the conjuring of $20 trillion out of thin air by central banks saved the day and the decade.

Counting on endless real returns of 5% or more essentially forever is embracing a fantasy. Never mind what asset mix is considered "balanced"-- bubbles pop, and when the "everything" bubble pops, it means stocks, bonds and real estate will all experience significant declines, and if history is any guide catastrophic declines in some asset classes.

That central banks and governments can create endless mountains of new money to fund soaring obligations without triggering a decline in purchasing power is also a fantasy. As I've explained in the past, it seems like central banks have created a financial perpetual motion machine: the government borrows $1 trillion to fund obligations, and the central bank "prints" $1 trillion and buys the government debt.

It seems so painless and perfect--who cares if the central bank balance sheet balloons to $100 trillion? We owe it to ourselves, the government can't go broke since it can always print more money, etc.

The grim reality is printing trillions and pumping that newly issued currency into a stagnant, dysfunctional economy reduces the purchasing power of the currency, i.e. inflation. To use a health analogy, we've been gorging on doughnuts, pizza and beer for a decade, and since we're still apparently disease free, we assume we can keep enjoying this diet for decades to come.

The consequences of systemic sclerosis are non-linear, meaning they pile up unseen until the major organs give out and the apparently disease free individual collapses in a heap.

Consider how a "balanced portfolio" yielding "balanced returns" worked out for middle class retirees in Venezuela:

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We'll Pay All Those Future Obligations by Impoverishing Everyone (How to Destroy Our Currency In One Easy Lesson)

The only way to pay all these future obligations is by creating new money.

I've been focusing on inflation, which is more properly understood as the loss of purchasing power of a currency, which when taken to extremes destroys the currency and the wealth/income of everyone forced to use that currency.

The funny thing about the loss of a currency's purchasing power is that it wipes out every holder of that currency, rich and not-so-rich alike. There are a few basics we need to cover first to understand how soaring future obligations--pensions, healthcare, entitlements, interest on debt, etc.--lead to a feedback loop which will hasten the loss of purchasing power of our currency, the US dollar.

1. As I have explained many times, the only possible output of the way we create and distribute "money" (credit and currency) is soaring wealth/income inequality, as all the new money flows to the wealthy, who use the "cheap" money from central and private banks to lend at high rates of interest to debt-serfs, buy back corporate shares or buy up income-producing assets.

The net result is whatever actual "growth" has occurred (removing the illusory growth that accounts for much of the GDP "growth" this decade) has flowed almost exclusively to the top of the wealth-power pyramid (see chart below).

2. Much of the "growth" that's supposed to fund public and private obligations is fictitious. Please read Michael Hudson's brief comments for a taste of how this works: The "Next" Financial Crisis and Public Banking as the Response.

The mainstream financial media swallows the bogus "growth" story without question because that story is the linchpin of the entire status quo: if it's revealed as inaccurate, i.e. statistical sleight of hand, the whole idea that "growth" can effortlessly fund all future obligations goes up in flames.

Combine that "growth" has been grossly over-estimated with an increasing concentration of wealth and income in the top .1% of 1%, and the only possible conclusion is there's less available to pay fast-rising obligations out of what's left to the bottom 99.9%.

3. We've been paying our obligations with debt for the past decade. Look at the chart below of the debt to GDP ratio--it has skyrocketed as GDP has inched higher while debt has exploded. (Remove the fictitious "growth" in GDP and the picture worsens significantly.)

Look at the chart of federal debt and explain how the steepening trajectory of debt is sustainable in a stagnating real economy with stagnating wages for the bottom 95% of the populace.

4. Recall that the federal, state and local governments pay interest on all the money they borrow to fund deficit spending, i.e. every dollar spent above and beyond tax revenues. All that interest is an increasing obligation that must be paid in the future. Borrowing more to pay interest increases the interest payments due in the future--a classic self-reinforcing runaway feedback loop.

5. Politicians get re-elected by increasing entitlements and obligations without regard to how they will be funded. "Growth" will effortlessly take care of everything--that's the centerpiece assumption of all conventional economics, free-market, Keynesian and socialist alike.

6. The core constituencies of politicians are government employees and contractors, as these interest groups are funded by the government, which is nominally managed by elected officials and their appointees. Nobody's more generous (or demanding) than those feeding directly at the government trough. (By "contractors" I mean the vast array of Corporate America cartels that feed off government spending: defense, Big Pharma, Higher Education, etc.)

7. The obligations that have been promised are expanding at a nearly exponential rate, as healthcare costs continue to soar and the number of government pensioners is rising rapidly. This chart illustrates the basic dynamic: the tax revenues required to fund these obligations are far outstripping the income and wealth of the bottom 95% of the populace.

Consider this chart of real GDP per capita, i.e. per person. Real GDP is adjusted to remove inflation from the picture, so this is supposed to be "real growth." How many people are demonstrably 19% better off than they were in 2000?

Not many, judging by the decline in family financial wealth since 2001:

Income increases flow disproportionately to the top .1%. Adjusted for real-world inflation, the bottom 95% have actually lost ground:

Here's the uncomfortable reality: the means to pay all these future obligations-- the real-world economy, and the wealth and income of the vast majority of the populace-- are far too modest to fund the fast-expanding obligations,which include interest due on the ever-increasing mountain of public and private debt.

The current "everything" asset bubbles have temporarily boosted the wealth and income of corporations and the wealthy, but all bubbles eventually pop as the marginal elements that are propping up the expansion weaken and implode.

Once the asset bubbles pop, the illusion that "taxing the rich" will pay for all the obligations pops along with the bubble. And as I've noted many times, those at the top of the wealth-power pyramid wield political power, so they have the means and the motive to limit their tax burden to roughly 20% or less--(sometimes much less, as in zero.)

That 20% is an interesting threshold, as once federal tax burdens rise above 20%, the higher taxes trigger a recession which then crushes tax revenues.This makes sense-- if I pay an extra $2,000 annually in higher junk fees and taxes, that's $2,000 less I have to invest or spend.

Put these dynamics together and you get one outcome: the federal government cannot possibly pay all its obligations out of tax revenues nor can it raise taxes high enough to do so without gutting tax revenues via a recession.

The only way to pay all these future obligation is by creating new money, which in a stagnant, dysfunctional economy can only reduce the purchasing power of the currency, in effect robbing every holder of the currency of wealth and income.

Here's the end-game, folks: Venezuela. The nostrum has it that "the government can't go broke because it can always print more money." True, but as the wretched populace of Venezuela has discovered, there is a consequence of that money-creation to meet obligations: the destruction of the currency, and thus the wealth and income of everyone forced to use that currency.

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