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2016 started with a thud on Monday when news from China sent global stocks into freefall. The Shanghai index plunged 242 points before a system-wide circuit breaker kicked in and trading was halted. All three major US indices followed Asia’s downward slide with the Dow Jones leading the pack with a triple-digit loss on the day. The news that Chinese manufacturing continued to contract after ten straight months of erosion put the kibosh on any New Years rally as jittery traders dumped stocks at a pace not seen since 2011. The combination of dreary economic data, shrinking profits, dwindling capital investment, sub-par growth, and higher interest rates has put Wall Street in a foul mood foreshadowing a volatile and bumpy year ahead with little cause for celebration.

While the proximate cause of the current turbulence is China’s flagging manufacturing sector, the underlying reasons are even more important, like the dismal state of the US economy which continues to languish in a long-term coma. Here’s a brief recap from economist Jack Rasmus at CounterPunch:

“The real U.S. economy since 2008 has grown at only roughly half to two-thirds its normal rate. Decent paying jobs in manufacturing and construction today are still a million short of 2007 levels. Median wages for non-managers are still below what they were in 2007, and households are piling on new debt again to pay for rising medical costs, rents, autos, and education. Retail sales are slowing. Construction activity is only two-thirds what it was and U.S. manufacturing is contracting again. The gas-oil fracking industrial boom of 2012-2014 – a major source of growth – has ended this past year and mass layoffs in the hundreds of thousands are now occurring in mining, manufacturing and transport. Reflecting the true weakness of the U.S. economy, prices are slowing and are now at a historic low of 1.3 percent and heading lower, as the United States – like Japan and Europe – is drifting toward deflation.” (“Central Banks Out of Control“, Jack Rasmus, CounterPunch)

Rasmus sums it up perfectly. The Fed’s zero rate stimulus has been a bust for everyone except the investor class which has raked in trillions off monetary programs that were designed to inflate bubbles while the real economy remains stuck in neutral. It’s particularly interesting that he mentions the “gas-oil fracking industrial boom of 2012-2014”, since virtually all the so-called credit expansion took place in this capital-intensive industry that is presently in severe crisis due to tumbling oil prices and reemerging deflation. Take a look at this chart on Warren Mosler’s excellent website “The Center of the Universe” that follows credit growth since 2001:

whitgraf1

So if the Fed’s low rates didn’t touch off a credit expansion among US households and businesses, then what was gained?

Not much really. The high-paying jobs in the oil patch have already dried up leaving the owners with sizable debts on drilling operations that are no longer profitable. As oil prices continue to slump, the price of cash in the junk bond market continues to rise paving the way for a wave of defaults that could domino through the industry. This is a fairly typical scenario whenever the Fed lowers rates. Investors search frantically for higher yield oftentimes dumping their money into overpriced bonds that provide funding for risky operations that eventually go belly up. The fracking boom is just another example of how cheap money and falling prices can lead to disaster.

Naturally, if you drop the price of money to zero and keep it there for seven years, bad things are going to happen. Speculation is going to increase, investors are going to take on more risks, and the price of stocks and bonds are going to soar. But what doesn’t happen is that ordinary working people who are still trying to reduce their debtload after the last big bust, don’t start borrowing more money and spending like madmen. That hasn’t happened and that won’t happen. The only recovery has been in the stock portfolios of the bank moguls and other filthy-rich investors. Everyone else is still just treading water.

There have been numerous warnings that the Fed’s monetary policies are steering the system towards another financial crisis. Check out this blurb from the World Socialist Web Site:

“In a report on the state of financial markets issued this week, the Office of Financial Research (OFR), set up by the US Treasury after the 2008 crisis, painted a picture of, in the words of Financial Times economic commentator Gill Tett, a “distinctly distorted American financial system” resulting from seven years of ultra-low interest rates.

The OFR said that “credit risk in the US non-financial business sector is elevated and rising.” It went on to warn that “higher base rates may create refinancing risks… and potentially precipitate a broader default cycle.”

In other words, a situation has been created where a default or a series of defaults in high risk areas could set off a chain reaction in the system as a whole, recalling the effects of the sub-prime mortgage collapse.” (“After Fed rate hike, global economic fault lines deepen”, Nick Beams, World Socialist Web Site)

This is exactly what happened in 2008 when Lehman got into trouble and threatened to take down the entire US banking system along with it. Now–according to the Office of Financial Research–we’re in the same pickle due to the Fed’s zero rates which have “distinctly distorted” asset prices creating the prospect of another meltdown.

It’s clear the Fed is worried about how all this is going to shake out. Just last week, Fed Vice Chairman Stanley Fischer said that the Fed needed more tools to prevent the financial crash and to contain the fallout should one occur. This is from Bloomberg:

(Fisher) “told the American Economic Association on Sunday that the Fed is not as well-equipped with regulatory powers to rein in housing and other asset bubbles as some other central banks. And he questioned whether Congress had gone too far in limiting the Fed’s ability to intervene if a crisis erupted and threatened the financial system.

“We won’t know until it’s very late” whether the Fed has been constrained too much, Fischer said at the AEA’s annual meeting in San Francisco. That’s something “we have to worry about a great deal.”….

Fischer also contrasted the congressional curbs placed on the Fed’s ability to act as a lender of last resort in a financial emergency …In banking legislation passed in 2010, U.S. lawmakers prohibited the Fed from engaging in rescues of individual financial firms, such as it did with Bear Stearns Cos. and American International Group Inc. during the last meltdown.” (“Fischer Worries Fed Can’t Head Off or Contain Financial Crises“, Bloomberg)

Why would Fisher ask for additional powers if he didn’t see clouds gathering on the horizon?

The Fed is entirely responsible for the condition of the financial markets. They’re the primary regulator and the braintrust behind these experimental programs like QE and zirp (zero interest rate policy). Not surprisingly, they implemented both policies with no idea of an exit strategy. Now they are trying desperately to improvise a way out of the mess that they alone created. Just look at the way they’re trying to raise interest rates. It’s a completely new procedure that may or may not work, no one really knows. Before the financial crisis, the Fed used to raise the fed-funds rate by simply buying small amounts of securities. But now that the Fed has flooded the banks with reserves in excess of $2.6 trillion, that’s no longer possible. Instead, the Fed plans to experiment with reverse repos hoping that it will help them to regain control of the rate-setting mechanism. Here’s a brief rundown of how it’s supposed to work from the Wall Street Journal:

“The Fed has been testing a new tool: the overnight reverse repurchase agreement. These are effectively collateralized loans to the Federal Reserve that temporarily drain excess reserves from government entities or excess cash from money-market funds.This, however, has risks, too. If the Fed doesn’t limit the amount of repurchases, the opportunity of earning risk-free interest at the Fed’s new higher rate could trigger a potentially destabilizing flight from risk assets such as bond mutual funds. Should the Fed set too low a cap, it risks losing control of overnight borrowing rates.” (“The Fed’s Rate Increase: A New Test Looms“, Wall Street Journal)

So according to the author, the new process for raising rates is:

(a) Risky and

(b) No one knows if it will work because it’s never been tried before.

That’s not exactly a ringing endorsement of the Fed’s new policy, now is it?

Of course, no one’s going to admit that none of this would have been necessary if the Fed had nationalized the banks and written down their debts when they had the chance in 2008. Oh, no. Instead, they’re going to keep repeating the same nonsense they’ve been saying for the last eight years, that everything is getting better and that prosperity is just around the corner. What a laugh. Meanwhile, the financial system continues to edge closer to its inevitable day of reckoning thanks in large part to the efforts of the Fed.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].

(Republished from Counterpunch by permission of author or representative)
 
• Category: Economics • Tags: Federal Reserve, Wall Street 
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  1. So if the Fed’s low rates didn’t touch off a credit expansion among US households and businesses, then what was gained?

    Postponing the cascading bankruptcies a few years.

  2. Rehmat says:

    No person in his right mind would expect Wall Street or Federal Reserve to tell the truth, as it would amount to great sin of “antisemitism”.

    On December 23, 2013 marked the 100th anniversary of the creation of the Uncle Sam Federal Reserve System – the central banking institution in the United States. It’s created and has since been controlled by country’s top banking institutions and not the US government.

    Strangely, the event was almost ignored by the Jewish-controlled mainstream media. Instead the media has been quite excited with Barack Obama’s choice of Stanley Fischer, former Governor of the Central Bank of Israel, as vice-Chairman of the Federal Reserve. Fischer is US-Israel dual citizen and Jewish Lobby man. He has been an ardent campaigner for continued $blillions USAID to the Zionist entity.

    The Federal Reserve is a consortium of nine Jewish-owned and associated banking institutions with Rothschild family at the head. Even the name “Federal Reserve” was coined by German-born American Jewish banker Paul Warburg (died 1932), an employee of the Rothschild. In practice, it’s over 95 percent privately-owned, is not integrated into the US Government, nor accountable to any branch of government. There is nothing “Federal” about it as it lies fully outside the government system of checks-and-balances. It supports the financial needs of the US imperialism, covert operations, usury, drug dealers, and the global banksters.

    Since its establishment in 1913, there have been 14 Chairmen of the Federal Reserve Bank. Ten of them; Charles Sumner Hamlin (1914-16), William Proctor Gould Harding (1916-22), Daniel Richard Crissinger (1923-27), Roy Archibald Young (1927-30), Eugene Isaac Meyer (1930-33), Eugene Robert Black (1933-34), Arthur Frank Burns (1970-78), Paul Adolph Volcker (1979-87), Alan Greenspan (1987-2006) and Ben Bernanke, all Zionist Jews.

    On December 27, 2013, Andrian Salbuchi, an investigative journalist and author living in Argentina, posted an article, titled, ‘FED up? Hundred years of manipulating the US dollar‘.

    http://rehmat1.com/2013/12/31/federal-reserve-century-of-zionist-control-of-us-dollar/

    • Replies: @Daniel H
    , @Sherman
    , @Kiza
    , @bondo
  3. Daniel H says:
    @Rehmat

    None of Hamlin, Harding, Crissinger, Young, Black or Volcker were Jewish

    • Replies: @Rehmat
  4. Dave Pinsen says: • Website

    The prospect of the financial system edging “closer to its inevitable day of reckoning” a good reason to consider hedging, but here’s another: according to a recent JP Morgan study, during the time period from 1980 to 2014, 40% of US stocks have suffered declines of 70% or more, and never recovered. I linked to the JPM study in this article: http://seekingalpha.com/article/3771946-hedge-after-reading

  5. Rehmat says:
    @Daniel H

    I’ve heard that Israel’s hasbara response before just like John Kerry’s surprise that his grandparents were Jewish.

    In 2014, John’s younger brother Cameron Kerry, who is a practicing Jew, admitted that fact.

    John Kerry’s grandfather Frederick A. Kerry was born Fritz Kohn in the Czech Republic. John’s brother Cameron Kerry returned to Judaism when he married Jewish lawyer Kathy Weinman.

    Werner Sombart (died 1941), German sociologist and author in his 1911 book, ‘The Jews & Modern Capitalism’, claimed that Jewish elites were the dominant beneficiary of Capitalism….

    http://rehmat1.com/2015/01/22/capitalism-is-jewish/

    • Replies: @Oscar Peterson
    , @nickels
  6. @Rehmat

    So what is the evidence that Hamlin, Harding, Crissinger, Young, Black and Volcker were Jewish?

    • Replies: @Rehmat
  7. Sherman says:
    @Rehmat

    Hey Homer,

    You’re obviously an expert in economics.

    I think you should move back to Iran or perhaps some other Muslim country.

    As everyone knows most Muslim countries enjoy robust and modern economies that are the envy of the western world.

    Muslim countries are so prosperous and successful that Europeans are fleeing their homelands to become refugees in Muslim majority countries.

    Sherm

    • Replies: @Rehmat
  8. Kiza says:
    @Rehmat

    I do not always agree with the points in your writing, but I never agree with your Hasbara detractors. It is probably similar for many other fair commenters. The Hasbara are taking over Unz.com and polluting the discussion.

    Simply, FED is one of the most vile organisations in the whole human history, a contemporary esnaf/guild of the money changers/printers that Jesus Christ was most repulsed by. JC overturned their tables in front of temples, are any of his followers ready to do similar today? Or have they all replaced his image with that of Mamon, which they now worship instead?

    • Replies: @Drapetomaniac
  9. bondo says:
    @Rehmat

    left out yellen. her no 2 fischer jew from israel

  10. Rehmat says:
    @Oscar Peterson

    So what is the evidence that Holocaust was committed by Christian, because late president of Canadian Jewish Congress Rabbi Wolf Gunther Plaut in his 1990 book, “The Man Who Would Be Messiah” had accused Frankist Jews of killing 6 million Jews?

    http://rehmat1.com/2012/03/24/rabbi-frankist-jews-committed-holocaust/

  11. nickels says:

    Not to mention the exacerbation of inequality that results from low interest rates.

    Contrary to the mechanical notion of quantity theory, inflation diffuses from the point at which the new money enters the system. In particular, real estate and the stock market benefit, driving up prices of the services and commodities that these industries utilize. Slowly the inflation trickles throughout the whole system, but certainly not all at once.
    The last price to go up? That of labor, especially lowly labor.
    So labor pays the high prices for what it needs and essentially finances the zero interest rate policy.

    Adam Smith would puke, this is no longer Capitalism.

    • Replies: @dc.sunsets
  12. Rehmat says:
    @Sherman

    Hey Sarah Silverstein.

    I cannot even speak Persian, so I may move to Israel next door to you, because I cannot speak Yiddish either. No matter where I live, I agree with Israel-born Gilad Atzmon that Iranian leadership are more moral than Israeli, British, American, and French leaders put together.

    I think Atzmon could the promised Jewish Messiah.

    http://rehmat1.com/2011/09/26/gilad-atzmon-the-jewish-messiah/

  13. nickels says:
    @Rehmat

    “Modern Capitalism’, claimed that Jewish elites were the dominant beneficiary of Capitalism…”

    Von Mises cracks on this theory. The real problem is Mercantilism, which distorts Capitalism to benefit some at the expense of others.

    Capitalism is just free exchange. Each transaction in Capitalism benefits both parties else it would not happen. By mathematical induction it benefits all of society. Mercantilism and Interventionism corrupt this by conscripting the government to pass laws that tilt the playing field in benefit of one group at the expense of one or more others.

    Von Mises notes that the pain that comes from this corruption is oft unjustly blamed on the Jews, likely due to the history of the trader-ethic.
    But the notions of money and exchange are universal and timeless, certainly not tied to the Jewish tradition.

    No other system is free and therefore must rely on coercion.

    Now banking is a different story that I’m not so sure about….

    • Agree: Sam Shama
    • Replies: @Rehmat
  14. joe webb says:

    “The Fed is entirely responsible for the condition of the financial markets”

    This is untrue. The apparent obsession of the writer with The Fed, seems to reveal a revisionist marxism. He sounds like most of the bourgeois writers who also obsess about The Fed.

    Marx’s project was to understand the laws of motion of Capital and Capitalism. If he had been advised that along would come Keynes, he would probably have said, “good luck.”

    Markets run on lots of information, including psychology, meaning fear and greed as well as a more rational calculation of the various factors in any market.

    A competitive economy, and today’s economies are largely competitive except for government actions (The Fed, and fiscal policy), runs itself, per The Invisible Hand, and is only minimally on leash by Keynesian interventions. In other words, The Fed, does not control the economy. At best it can tweak it.

    I have previously remarked that the Keynesian bullets have pretty much all been shot. There is not much, if anything, that The Fed, and gov’t spending, can do.

    The recent small bump up of Fed interest rates, is an act of faith, rather than rationality.

    What then is the fundamental factor in our stagnant economy? It is the lack of consumer spending. All economies are driven by consumer spending. The reason for the lack of consumer spending is that the working and middle classes do not have money in their pockets. This is caused by various factors, globalism (race to the bottom in wages), the loss of industrial jobs, and the financialization of the economy, and the meritocracy that rewards only the best, not the average folks, and of course, immigration of cheap mexican labor.

    I speculate that the author of this article, in accord with the general Left abandonment of the working classes, mostly White, in favor of the Wretcheds of the Earth, has had the effect of , in short, To Hell with White workers.

    Joe Webb

    • Replies: @nickels
    , @Sam Shama
    , @David
  15. nickels says:
    @joe webb

    “”””
    “The Fed is entirely responsible for the condition of the financial markets”

    This is untrue. The apparent obsession of the writer with The Fed, seems to reveal a revisionist marxism. He sounds like most of the bourgeois writers who also obsess about The Fed. “”””

    The Austrian school would differ. The fed robs us all. Easy credit increases the money supply leading to diffusive inflation which crimps the little guy and helps those close to the injection point of the $.

    And, of course, the Fed prints money, which is just a way to impose a ‘hidden’ tax on all of us.

    And easy credit encourages useless investment like the dot com boom (remember all the inane web companies) and the housing bubble. These investments do not bring a return (because they are worthless). Even though they provide jobs, they do so at the cost of consuming capital.

    Consumers don’t spend because they don’t have money because the Fed eats it all with inflation. That’s how every war has been financed since the introduction of easy credit and fiat money.

    • Replies: @joe webb
  16. Sam Shama says:
    @joe webb

    Joe
    I agree with most of what you wrote here. Except [there is always an except] when an economy is at the zero lower bound in interest rates, fiscal policy becomes incredibly effective [ 3 to 4x as effective as when nominal short term rates are in the historical “normal” levels of 4-6%].

    [MORE]

    True: Lack of consumer demand stemming from a lack of secure well paying jobs causes the vicious cycle.

    True: Corporate sector spending is anaemic at best [they are also trying to estimate forward consumption demand], and by definition these days, corporations are schemes to maximise only the profits of shareholders and management and not all stakeholders, including labour, which gets the hardest squeeze.

    True: In this case, when the consumer is lying on the floor in a foetal position and corporates are as usual fence-sitting, public spending in infrastructure needs to fill the void. Right now it is easy for the U.S. to finance a $5 tr+, 5 to 10yr sustained infrastructure investment plan, which will immediately produce millions of permanent jobs to an existing pool of qualified people [ otherwise busy churning out lattes at Starbucks, or unemployed]. Including the Chinese economy [which is over invested], no one, absolutely no one wishes to invest in any other country as much as they do in the U.S. Which explains why the USG can raise 10-yr financing at 2.15%!!

    This is the job of Congress and the WH. Both are captured by cynical idiots who pretend to “fiscal discipline” excuse to the detriment of American citizens, while the tax benefits to the ultra rich continue to accumulate. In this context Paul Ryan is the worst offender, followed by Barack Obama.

    I have said this elsewhere, I do not consider the Fed to be an institution that exists to promote virtue and morality. It is entirely agnostic about distribution etc. Its job is to keep the balance between employment and inflation at levels that promote the ability of U.S. Treasury to defease at an orderly rate, the obligations of the UST. This might be considered “amoral” or even “immoral” by some, but trust me every country in the world is engaged in the very same, with varying degrees of success.

    • Agree: Wizard of Oz
    • Replies: @annamaria
  17. neutral says:

    When will people finally realize that Wall Street is just another jewish operation that benefits nobody but the jews and their cronies.

  18. anon • Disclaimer says:

    Yup.

    Nothing was fixed in 2008 and the Fed’s attempts to quietly fill the black hole of toxic debt inside the banks with public money has just lead to another massive bubble this time in stocks.

    The actual collapse will come when the stock bubble bursts and everyone will lose their pensions.

    The banking mafia are organised crime.

  19. David says:
    @joe webb

    Whitney said the Fed is responsible for the condition of the financial markets and you say, “wrong,” because, “The Fed does not control the economy.” Financial markets and the economy are not one and the same.

    I also disagree that what America needs to prosper is more consumer spending but I won’t argue against an article of faith. George Bush believed the same thing you do.

    • Replies: @joe webb
  20. Rehmat says:
    @nickels

    Nice try patting your butts dude – but the actions by the Organized Jewry doesn’t support your lies.

    1. When the kosher Pope Francis criticized Capitalism a few months ago, why only the Jewish lobby slammed him or tried to distort his fatwa?

    2. US vice-president Joe Biden is on record of claiming that “American Heritage is Jewish Heritage”. Are you suggesting that Capitalism is not part of American heritage?

    http://rehmat1.com/2013/12/18/joe-biden-american-heritage-is-jewish-heritage/

    Shalom!

    • Replies: @nickels
  21. nickels says:
    @Rehmat

    Well, certainly, I am not saying that the Jewish influence is not massive–almost to the point where our Western roots are being eroded and we are become a nation of the Jewish ideology…

    But I just don’t see that in capitalism.

    I see the Jewish influence much stronger on the other side, those who wish to go to Socialism…

    But I will keep an eye out in my reading for any Jewish/Capitalism connections at any rate….

  22. MarkinLA says:

    Don’t you just love the reason of the day. Every day at the end of trading some talking head comes on and tells us the exact reason why the market went up or down, especially when it had a big move. Anybody buying this crap deserves to lose all his money. Do you really think the people who own GE just all of a sudden dumped their stock because of some obscure report out of China.

    The market is a scam and it needs idiots to believe it isn’t. What do you think would happen if instead the reason of the day was this:

    Goldman Sachs has an unusually large short position on the market and they took the opportunity to try and stampede the herd into dumping their stocks so GS could make tons of money from morons who call themselves investors.

    If this was what the public heard every day there soon wouldn’t be as many suckers in the game now would there? So the reason of the day is invented to make it all seem that everything is so rational. Well it is, if you are one of the insiders.

  23. annamaria says:
    @Sam Shama

    ” …it is easy for the U.S. to finance a $5 tr+, 5 to 10yr sustained infrastructure investment plan, which will immediately produce millions of permanent jobs to an existing pool of qualified people…”
    True and a voice in a desert, unfortunately.

  24. @Kiza

    The FED is doing what its creator government does: transfer wealth. Government has been a wealth transferring machine from its very inception and an apple doesn’t fall far from the tree.

    The FED is working properly, the government is working properly, but unfortunately, every voter’s brain is malfunctioning badly.

  25. joe webb says:
    @David

    ok David, tell us more. you make an interesting point. I thought the economy was the Fed’s general responsibility, not just financial markets.Joe Webb

  26. joe webb says:
    @nickels

    nickels, I disagree..”
    “Consumers don’t spend because they don’t have money because the Fed eats it all with inflation,.”

    How do you figure?, wages have been stalling or falling for about 25 years . Inflation has been low and very low recently. We are in stagnation, with the GDP falling from 5% growth a few years to barely 2 % now.

    Everybody knows what the paycheck looks like for workers now as opposed to , say two decades back. Inflation does not eat it up, low wages are caused by cheap labor from abroad, mexicans, and the collapse of unions.

    The reason interest rates are very low is the condition of Surplus Capital, with trillions parked at the curb with nothing to invest in. Low wages, and low returns on Capital…we are in a crisis. If you got money, you got a problem of where to put it, and if you got no money you have an even bigger problem.

    Just as several financial analysis’s have said, and I have been saying it for months now, there is not way that interest rates can go up, Fed or no Fed. With all the surplus capital around, it is driving down the price of borrowing. A few bubbles here and there will keep it going a while longer. Stocks will fall back cuz of price/earnings ratios are way out of the range of Reason now.

    I sold all my stock a few months ago, paid off my house, got some old but good muni bonds paying 4 to 5% and am looking forward to a perfect storm of political and economic crisis.

    The point I was making with regard to the Fed, is that the economy and the financial markets are beyond its control. Fiscal policy ditto, not that both methods have been tried and done little to fix the economy.

    I request an argument demonstrating how, say, a ten to twenty per cent increase in real wages would not dramatically affect consumer spending, and thereby trigger an investment virtuous circle.

    I have also suggested a confiscation of a large chunk of the Capital doing nothing, and distributing it to people who work in working and middle class jobs. Another large chunk could be invested in infrastructure that everybody says we badly need…roads and bridges, and that sort of think. No welfare spending by the way, and no education spending…which is largely a crock.

    A nationalist economics puts the country first, not the economy. I would love to see some Fed analysts deal with a question about the above. Putting the country first, before Capital, is exactly what we need, and maybe Trump knows this. Btw, confiscated capital would be processed thru the Treasury and checks cut to people who pay taxes…IRS could do it easily .

    If the capitalism we got does not work, we need a capitalism with a nationalist spirit..no programs, except for figuring out an Industrial policy, what it used to be called, and getting consumer spending right with regard to investment. Right now we got too little of both. The state seems to be the only way forward, but the state working for Country, not Capital

    Joe Webb

    t

  27. Rehmat says:

    India’s famous human rights activist and author, Arundhati Roy, in her book, ‘Capitalism: The Ghost Story’, examines the dark side of democracy in contemporary India, and shows how the demands of the globalized western capitalist banking system has subjugated billions of peoples to the highest and most intense form of racism and exploitation. Watch two videos below to understand the evil world of capitalism and the evildoers who benefit from this system.

    Roy says that India’s 100 richest people controls 25% of the country’s GDP. A 2010 Oxford University study reported that 55% of India’s populations of 1.1 billion live below poverty line.

    Roy, though, talks mostly the capitalist culture in her native India – she would certainly get medal of ‘antisemitism’ from Abraham Foxman and other Jewish supremacists for attacking the Jewish-controlled Council on Foreign Relations (CFR), which is funded by Rockefeller, Carnegie and Ford Foundations, and CIA.

    “Over the years the CFR’s membership has included 22 US Secretaries of State. There were five CFR members in the 1943 steering committee that planned the UN, and an $8.5 million grant from J.D. Rockefeller bought the land on which the UN’s New York headquarters stands. All eleven of the World Bank’s Presidents since 1946 – men who have presented themselves as missionaries of the poor – have been members of the CFR,” says Roy.

    Werner Sombart (died 1941), German sociologist and author in his 1911 book, ‘The Jews & Modern Capitalism’, claimed that Jewish elites were the dominant beneficiary of Capitalism. No wonder, Jewish lobby group (ADL) has also equated criticism of The Wall Street and the Reserve Bank with antisemitism……

    http://rehmat1.com/2014/03/28/arundhati-roy-on-capitalism/

    • Replies: @Dave Pinsen
  28. annamaria says:
    @joe webb

    There have been so many various wars on something, and a war should mean a nation-wide sacrifice for the nation’s good. Here is a suggestion: establish a real progressive taxation. With the progressive taxation, up to 75% for those getting tens of millions and up to 90% for those getting hundreds of millions and up, the US could revive economy by investing in various and truly needed public necessities such as overhaul of infrastructure nationwide, creating universal health care to let business breath freely at last, drastically improving education for kids by making classes smaller and hiring teachers with PhDs (while squashing college&universities bureaucracy to a reasonable level), initiating new and ambitious research programs, investing heavily in the alternative sources of energy after conducting a world-wide competition for the best project (superbly enumerated), initiating American version of Venezuelan El Systema (music education for all kids) instead of creating new prisons, creating medical and technical colleges affiliated with and physically adjoined to high schools, and so forth… This is just a simple suggestion that addresses the most obvious problems.

    • Replies: @dc.sunsets
    , @nickels
  29. In 1964 the US removed silver from coins.
    In 1971 the US ceased clearing foreign currency imbalances with gold.

    These events cut “the dollar” loose from any fixed reference point. After a relatively brief (10 year) period of tumult, the mass mind fully embraced “debt = wealth” (no matter what) and it was off to the races.

    We had over 30 years of continuously declining interest rates (bond value increases.) On top of that, political governments, corporations and individuals went on a borrowing spree (and spending spree like 19-year-old sailors with no-limit charge cards set loose in a brothel) because, heck, every dollar they borrowed expanded the wealth of someone else as the seller of what was bought got the “money” and the lender banked the IOU as wealth.+

    Win-Win!

    The dollar cut loose from fixed reference alone didn’t do this. It just happened to coincide (or sprang from the same cause) with a vast, near worldwide entry into a once-in-300-years social mood mania. If you look at stock charts around 1995 it is as clear as day that something changed. Someone lit the Jet Assisted Take-off rockets.

    Central banks have simply been partying right along with everyone else. After all, it’s a SOCIAL mood mania, and there are no outside observers.

    For 30 years (20 of which exhibited massive amplification) debt has been issued, and previously issued debt surge in value, creating a vast ocean of “IOU-dollars” wealth. This vast ocean sloshed from market to market, causing bubbles in stocks, real estate, commodities, stocks (again), commodities (again), and stocks (so far.)

    The key is BONDS! It is in the BOND OCEAN where dollar-based wealth and liquidity contribute to orbital stock prices (among other things.)

    This is a wealth pyramid resting on nothing but historically unprecedented, optimistic mass psychology. Only what must be described as pathological trust underpins the trustworthiness of issuers of IOU’s at this level, because very few of those IOU’s are actually backed by assets that could be sold in the market to cover the debt. Most of the debts are backed by…nothing but more debt or the ability to roll every maturing debt into…new debt.

    When the pool of debt is small and well-collateralized by physical capital priced on the market, an IOU really does represent wealth. If interest rates rise a little, since only a small amount of debt is preexisting the effect on total wealth is small.

    When the pool of debt is an ocean larger than the planet, and backed by nothing more than pathological trust in the issuers, even tiny increases in interest rates (on newly issued debt) ripple through the entire ocean and astounding amounts of wealth evaporate off its surface.

    This is the catastrophe now baked into the cake.
    Pathologically manic levels of trust (indicated by essentially zero interest rates) have nowhere to go but down. The 30 year game of ever-lower interest rates was not a policy of the Federal Reserve Bank, it was a natural aspect of the ebb and flow of such markets.

    The Fed didn’t make masses of people embrace manic optimism. This was something that happens every few hundred years, last seen in John Law’s Mississippi Scheme and its twin, England’s South Sea Bubble. Those occurred under a hard money regime, however, so they lasted but a couple years.

    We are social animals. Our social behavior obeys rules. Our rulers, our institutions are simply symptoms of the shared state of mind we harbor, exactly the same brain structures that yield fashion trends and pop culture. Our herding reflexes inform our social actions, and our higher brain centers simply provide convenient rationalizations for them.

    There is no alternative: Sooner or later trust will begin to leak out, rates will begin to rise in earnest and the Debt=Wealth pyramid will suddenly stop looking like stone. It will begin to look like the World Trade Center as each upper level floor pancakes onto the floor below it, each layer of IOU’s of weaker, less-trustworthy issuers pancakes onto the next-weaker layer below it, all falling in a fraction of the time it took to build the pyramid.

    Has that time come? We are unlikely to know until after the fact. My view is that people had to be taught by recent history to be historically complacent during the collapse, otherwise capitulation would occur and a low form before all the gangrenous IOU’s are excised. Stocks have rallied twice off huge declines since 2000, so perhaps the mob is properly conditioned to never sell, never capitulate.

    If so, expect to see lots of assets eventually trade for nominal dollar prices last seen in the mid-1970’s, all the way back to before the Greatest Credit Mania Ever.

  30. @nickels

    The rich got richer via ownership of what amounts to debt, i.e., IOU-dollars.

    As and when the trust in the issuers of those IOU’s evaporates, so will the wealth. We’re in a credit bubble, that’s all.

    Anxiety over wealth inequality will soon go the way of anxiety over the trade gap.

    I suspect that relatively few of “the rich” own lots of productive capital and/or nice real estate free-and-clear. Anyone whose ownership rests on a mortgage of some sort is likely to see it walk away.

    • Replies: @nickels
  31. @joe webb

    perfect storm of political and economic crisis.

    You’d better hope it’s not, or your muni’s will be naught but frying pan to the fire.

    I never cease to be amazed how many people underestimate the interconnectedness of this vast pyramidal game of dominoes.

  32. @annamaria

    Do you really believe your prescription is not Utopian?

    • Replies: @annamaria
  33. dark side of democracy

    There is no light side.

    I thought Alexis de Tocqueville established that over 100 years ago, and Hans Hermann Hoppe embalmed democracy in his Democracy: The God that Failed.

    https://mises.org/library/democratic-leviathan

    Excerpt:

    Theory is no substitute for history, of course, yet without a firm grasp of theory, serious errors in the interpretation of historical data are unavoidable. For instance, the outstanding historian Carroll Quigley claims that the invention of fractional-reserve banking has been a major cause of the unprecedented expansion of wealth associated with the Industrial Revolution, while countless historians have associated the economic plight of Soviet-style socialism with the absence of democracy.

    From a theoretical viewpoint, such interpretations must be rejected. An increase in the paper money supply cannot lead to greater prosperity but only to wealth redistribution. The explosion of wealth during the Industrial Revolution took place despite fractional-reserve banking. Similarly, the economic plight of socialism cannot be due to the absence of democracy. Instead, it is caused by the absence of private property in factors of production.

    “Received history” is full of such misinterpretations. Theory allows us to rule out certain historical reports as impossible and incompatible with the nature of things. By the same token, it allows us to uphold certain other things as historical possibilities, even if they have not yet been tried.

    • Replies: @nickels
  34. nickels says:
    @joe webb

    Interesting, thanks for the reply and giving me a chance to think about your question. I am still working on my ‘economic legs’ so to speak.

    A few thoughts:

    “Inflation has been low and very low recently. ”

    The mechanical interpretation of the quantity theory expects a total increase in prices when money (or, equivalently, easy credit) is introduced. However, the Von Mises argues that inflation diffuses from the point the money is injected. So, for instance, when the government injecting into housing, suddenly any loser with a low income and bad credit could buy a house. We most certainly have seen housing prices go through the roof as a result. Now, suddenly, someone with a great job and great credit can barely afford a house. That is socialism in a nutshell. Everyone is screwed equally.
    Now housing turns over very slowly, so we would expect that the inflation resulting from the housing bubble would spread slowly. Builders prices would go up. Raw material would go up. But it might end there. So where we might not see general inflation, we certainly see it in the localized arena around housing.

    “Inflation does not eat it up, low wages are caused by cheap labor from abroad, mexicans, and the collapse of unions.”

    Absolutely, immigration kills wages. But also feminism. Suddenly it is no longer in vogue to have families with a single wage earner. We have essentially doubled the size of our work force as a result of feminism. The result is lower wages, and now it becomes impossible for one partner to stay home and raise the kids.

    “The reason interest rates are very low is the condition of Surplus Capital”

    If, indeed, capital is parked, that is because any attempt to spend it will eat it up rather than produce a return.

    So now lets discuss the idea of the government seizing capital (either through progressive taxes or other coercion). The government will inject the money into the economy necessarily through some malinvestment (by which I mean something that does not return the capital). This will end up in a wage increase and a temporary boom that trickles outward from the injection point. However, it is no different than trying to solve personal problems through alcohol or drugs. It is treating the symptom, not the cause. Everyone is happy for a while, but, eventually, all the capital is eaten away and the addict has to face their problem, most likely in a worse state than the original problem.

    In addition, government injection of cash destroys pricing signals. Therefore the market will adjust to the new drug and form networks based on the bubble rather than searching out new investments that would actually bring a return. I.e. the addict should have addressed the true problem instead of the symptom.

    That, I guess, is my answer to the question:

    “I request an argument demonstrating how, say, a ten to twenty per cent increase in real wages would not dramatically affect consumer spending, and thereby trigger an investment virtuous circle.”

    So what is the solution?

    Allow the market to hurt. Allow the patient to hurt, allow the addict to hit rock bottom. Allow them to search their soul and find new investments that will produce a return. Basically, let the market heal.

    This 1920 crash was short lived because the government did not go Keynesian.
    The 1929 crash drug on for years precisely because the government grabbed capital and started tossing the crack to the masses in the form of the ‘New Deal’.

    In the end, the people with capital are the best ones to decide how to use it. They have the responsibility that no one else does. They wish to preserve their capital and create a return, which, in the end, helps the entire economy. Its not trickle down, its simply a matter of the private entrepreneur being more naturally inclined to spend the money wisely, whereas the government has only the goal of propping the economy up so Mr. Pres. can win the next election.

    The bigger problem (to me) of government seizure of capital is the inevitable tyranny that results. Just look at college campuses and how the government has forced campuses to assault young men’s rights because of the federal funding. If the government says there is 1 in 4 rapes and that people need to use an app to have sex, so it must be.

    To end, the crux of this problem goes back to the old saying “He who does not work does not eat.” When all jobs are government jobs this becomes “He who does not obey does not eat.”

    -d

    • Replies: @joe webb
  35. nickels says:
    @annamaria

    Your intuition that government seizure of capital and redistribution would help the common man is correct.

    What you are missing is that this is no different than going through your savings.

    The Capitalist would spend their money in a way such that they get their money back, with a return as well. Jobs are created, industries grow, and it is all great.

    The cycle then repeats with the capital and the return. Hence the economy grows.

    What you are suggesting is that the government seize the capital and spend it.

    There is no second go around in this case. There is a boom and then a crash. Nothing is left. This is no different than someone who has spent all their savings.

    • Replies: @annamaria
  36. nickels says:
    @dc.sunsets

    Interesting, although surely the wealthy see this and are investing in durable goods, overseas or anywhere they can to store the money in something that won’t die?

    Or are you saying their money is captured in the debt and they cannot move it elsewhere?

    • Replies: @dc.sunsets
  37. Sam Shama says:
    @joe webb

    I request an argument demonstrating how, say, a ten to twenty per cent increase in real wages would not dramatically affect consumer spending, and thereby trigger an investment virtuous circle.

    There is no argument.

    Precisely on account of global excess capital [savings], over-investments in Asia, capital is desperately seeking its way towards this country. The solution could not possibly be any more obvious: the USA is severely under-invested: so invest in its infrastructure!

    The way to prevent further financialisation [i.e. returns to investments not exclusively accruing to capital, but also to the working and tax-paying citizens] are a combination of the following:

    (1) Eliminate the dividends and capital gains preferential treatment for Private Equity and Oil exploration

    (2) Institute a one time 30% tax on wealth above $10m per household and distribute via a National Fund to tax-paying households

    (3) Extinguish student loans in the STEM/Languages/Real Social Science disciplines

    (4) Corporate tax inversions forcefully reversed and resulting taxes repatriated to the U.S. and used to finance public infrastructure investments

    (5) Eliminate Public-Private “partnerships” such as privately owned incarceration facilities

    The above ought to light up inflation to around 2%-3%; with outlays of 1.3% of gdp towards interest expenses, should help the US Treasury to effectively defease about 0.7%-1% of existing debt on a yearly basis [now that is bad for global bondholders, however they ought to think of it as a cost of availing the security of the USD]

    The Fed cannot exert any influence on the above, much-needed actions: they are under the purview of the USC and the WH.

    Enough said.

    • Replies: @joe webb
  38. annamaria says:
    @dc.sunsets

    yes, in our current state of affairs the suggestion is Utopian

  39. nickels says:
    @dc.sunsets

    Von Mises points out that the main (really only) benefit of democracy is that is allows for non-violent change of leadership.
    Democracy can be as despotic as any other form of government if the people do not have the spirit of Liberalism (of the 19th century kind).

    • Replies: @dc.sunsets
  40. annamaria says:
    @nickels

    let me respectfully disagree… the universal healthcare, overhauled infrastructure, new energy supply that is more gentle to the environment, greater schools and better educated children – these changes would make a healthier society. When our children use good roads, eat nonpoisonous food, attend beautifully built schools with awesome teachers, and have open access to the best in medical care – these are tangible, long-term factors.
    The greatest problem of today is denigration of peoples dignity. I am not against Capitalists: their brains and drive for success could be the best thing for a society. The suggestion was about a divide between the mega-haves and all others. This divide cannot be explained by meritocracy but by a rigged system. For example, Messrs. Rubin and Summers are not superior human beings, they just happened to be too close to the regulating agencies and they could not help themselves but to “tune” the system for personal advantage. The same is true about Cheney. My suggestion is Utopian because it implies a democratic society, i.e. accountability to the top.

    • Replies: @nickels
  41. nickels says:
    @annamaria

    ” these are tangible, long-term factors.”

    I agree with you that these things sound desirable.

    But you still spent all the money and generated no return, so you have just screwed the future because there is no money left for your children, or yourself 5 years down the road to obtain even basic necessities.
    Therefore, even though you created a long term benefit in one area higher on the Maslow hierarchy, you have undermined your basic needs of the lower levels at some point in the near future. So I would argue that is not, in fact good, even though it appears to be.

    We agree about the rigged system bit. But it isn’t because of capitalism. It is because of Mercantilism, the conscription of the government to enforce regulations that hurt one economic sector at the expense of another.
    Granted those with money might be able to buy the legislation, and that COULD in fact be used as an argument about a certain pathology in Capitalism. But lacking any alternative system (socialism has been proved a non starter), it would be better to fight against this rather than toss the whole system.

    • Replies: @annamaria
  42. joe webb says:
    @nickels

    first, “the government will inject the money into the economy necessarily through some malinvestment” is not what I suggested. No gov’t Programs, except some for infrastructure which everybody agrees is within the proper orbit of government spending.

    The confiscated surplus capital would be sent out directly to wage/salary workers making less than, say $125 K, in graduated amounts per some measure of how impactful for Consumer Spending, such cash infusions would be. The agent would be IRS for distribution. Consumers would decide how to spend the money, but it would be stipulated for example that the money be spent only for US made products…that would be a nationalist tactic.

    I have never been persuaded by a libertarian point of view, not that aspects of it do not have merit.
    The internationalization of economics has queered the basic logic of capitalism (in one country) per I think some of the classical economists.

    If a capitalist produces from his own country, drawing on the talents of, in our case historically, white brain power, including a relatively bright working class of whites, then the Natural feedback thru selling in the same domestic market, should achieve some kind of Balance between Capital and Labor. In other words, Labor must be paid well enough to buy the stuff it produces, and the capitalist is compensated with “reasonable” profit. etc.

    When the international character enters…all bets are off. Globalism is Anything Goes.

    We could return to boom and bust times as you recommend. Let markets clear, etc. Nobody seems to be willing to do that…too much disruption.

    Joe Webb

    • Replies: @nickels
  43. joe webb says:
    @Sam Shama

    sounds good to me, maybe the sound of trump, trump, trump would actually consider such inasmuch as my recommendations for now, are utopian, thanks,

    Joe Webb

  44. @nickels

    Mises also noted that democracy should ideally work down to the level of the individual, i.e., that people should be able to withdraw from any polity that seeks to use them as hosts for its parasitic purposes.

    Of course, that too is Utopian. This is why I think quite a few people are moving beyond theoretical libertarianism toward (or all the way back to) aristocracy.

    At least a king/owner is probably slightly less likely to destroy the capital value of “his” property, unlike the caretaker/renter-managers of democracy who seek only to strip-mine the value of whatever it is they manage.

    • Replies: @nickels
  45. @nickels

    Perhaps I’m too much the idealist (or theoretician) but today’s wealth is all “could be dollars if I take it to market” or “dollars,” as in paper money that exists in the physical realm.

    For 83 years the dollar has experienced relentless, compound devaluation mostly by the increase in credit-dollars, not physical-dollars. I simply think this process is due for a reversal, albeit relatively brief (the last one was 1930-32.)

    I think that in the baked-in bear market in social mood, wealthy people will simply move from one sinking ship to another until the last man standing is physical cash (yes, I know it won’t get that far, but the amount of “could be dollars” vs the amount of physical cash is astronomical; if the ratio just fell from near-infinite to partially-infinite, most “could be dollars” wealth will simply evaporate.)

    Very few people ride a market to the ionosphere, obtain unimaginable wealth, then sell at the top and never get back in. If I’m right (and I’m not betting MY farm on it, I’m just suspicious), then every time markets look like they’re in another 2002-2007 or 2009-2015 phase the “rich” will be piling in, at full leverage.

    If it turns out to be a bull trap, however, they’ll just keep giving their “money” back to the casino, just like most Monday winners do by Friday.

    Very, very few people will try to turn their savings into paper money. The sentiment toward “cash” is more bearish than any “market” I’ve ever seen. This is usually an indication that you should look at such an “asset” and expect it to rally significantly. This is exactly what might occur in a crushing credit-collapse deflation. Other than a single firm that specializes in storing banknote cash for clients in a non-bank vault, there is little way for truly wealthy people to accumulate actual cash notes, and this is also an indication of how little demand there is for such services.

    Today a printed US dollar buys twice the gasoline it did a short time ago. So does a bank-account dollar. If those two diverge, however……… oh boy.

    • Replies: @nickels
  46. nickels says:
    @dc.sunsets

    Interesting. That makes sense to me.

    Sort of like the problem with communism: it works fine for a small tight knit group of Essenes but fails miserably when one tries to scale it to a whole country.

    The caretaker/renter angle is an interesting one. I’ve worked for corporations that were essentially gutted for a quick stock boost, then the locusts fly away….

    thanks.

  47. nickels says:
    @joe webb

    Thanks for the insights.
    -d

  48. annamaria says:
    @nickels

    “…but you still spent all the money and generated no return…”
    What is wrong with using taxpayers’ money for improving infrastructure, education, healthcare, and energy supply, while giving the same taxpayers badly needed jobs? And what is wrong with bringing some balance into the system of renumeration?
    One of the main points was accountability on the top, which the current system is sorely needed at all levels.

    • Replies: @nickels
  49. nickels says:
    @dc.sunsets

    If I understand:

    The wealthy are heavily invested in debt (mortgages, credit card debt, etc etc….), probably some sort of financial packaging, like the 2008 mortgage packages…

    Cash value is dropping (credit has the same inflationary effect as more cash).

    So, if cash rallies (for instance, if people start to doubt the debt packages worth) and people start moving their money out of ‘debt investment’ into cash (assuming they can find buyers and the price doesn’t collapse too quickly)

    cash values starts to go up…

    More people get into cash…

    banks all fail?

    I don’t know… I’m pushing the limits of my understanding here…

  50. nickels says:
    @annamaria

    “What is wrong with using taxpayers’ money for improving infrastructure, education, healthcare, and energy supply, while giving the same taxpayers badly needed jobs? ”

    So the issue I was trying to point out was not that such investment is en ipse bad, just that, had that money not been appropriated by the government, it would have been invested in a scheme that would provide jobs but would also replace the capital with a profit as well.
    And therefore the whole process could be repeated, creating more jobs perpetually.

    But when the money is invested in the items you specify, it is gone forever. No new jobs can be created unless the government now goes off and appropriates more money from someone else.

    So basically one is burning through capital. Eventually all the capital is gone and you have great schools, roads, etc… but complete economic stagnation or collapse.

  51. annamaria says:
    @nickels

    There was nothing about perpetuity in my post. The hard times are happening right now. The imbalanced taxation is happening right now. The poor infrastructure and poisoned environment are the problems of today.
    The world has been changing with greater and greater speed technologically – but not spiritually (this is not about religion but about human decency). The complete economic stagnation is what we are quite close today, minus the advanced and reliable infrastructure, great schools, universal healthcare, countrywide scientific and technological competitions that would propel the brightest youngsters toward great careers (in contrast to the decisions made by the high-placed and greedy ignoramuses of Theranos fame).
    This extreme measure – the immediate increase of a level taxation for super rich in order to establish the long overdue public works – could give this country time to sort out the mess and figure out a direction towards a more-or-less harmonious society, away from the international gangsterism and internal “everything for sale” (particularly the “peoples’ representatives”). At least, this utopian plan shows a peaceful solution to the current crisis.

  52. annamaria says:
    @nickels

    http://www.thedailybeast.com/articles/2015/09/24/did-flint-michigan-just-lead-poison-its-children-doctors-think-so.html
    This happens in the United States, the most powerful country on the earth. Where are the big-mouth “pro-lifers” – this pride of the pro-business GOP – when the lives of born children are at stake?

    • Replies: @nickels
  53. nickels says:
    @annamaria

    I think we all agree that our current direction is a mess, its just matter of different paths forward. I personally think the enviromental angle is overplayed by the collectivist to get what they want (socialism).
    It is a common misunderstanding that the freearket advocates are about greed, though. The belief is that the energy in the economic system is maximum in the free state and so everyone benefits. High taxes only change who spends the money, and the government is usually the most corrupt because all they care about is the election cycle.
    Usually world war, facism or communism solve this problem. The socialists are definitely always at an advantage because it SOUNDs warm and fuzzy. I hear talk of monarchy and and aristocracy, but, to me, that is just a cover for new aged facism since everyone knows facism will likely be rejected. But calling Moussilini a monarch doesnt mean he isnt still just a facist.
    Its a really fascinating time to observe the political scene. If I was younger I would be very anxious, though.
    I just hope old school liberalism survives. And Im not talking about the Democrats, they’re pushing straight for some bizarre multicultural communism. I mean the 19th century kind.

  54. Sam Shama says:
    @nickels

    If I may interject here, I cannot for the life of me make much sense of your position. Are you claiming somehow that a green dollar invested by the public purse [which is essentially a pooled investment] would somehow, through some immaculate reasoning be different from an individual or individuals investing in the very same project?

    Why is a bridge, a highway, an internet backbone any different if a pooled investment finances it rather than an individual? The basic asset is the SAME. If the green dollars produced by an individual is somehow different that a pool of individuals, you had better explain it. The U.S. Highways, the DoD technological know how, the Tennessee Valley Authority Power, and many many other have been productive and provided long term jobs much better than many private enterprises. One of the interesting things that most people are unaware of is that the failure rate of private enterprise is quite some degrees higher than those in public undertakings. Which is not to suggest that we go full Soviet or anything, but the notion that government spending is tautologically equivalent to waste, is not just wrong but eminently wrong-headed.

    You are most certainly NOT burning through capital by investing in publicly funded enterprises. Far from it. Much of private enterprise in this country has grown on the back of public efforts, notably the ones undertaken by FDR era spending.

    If you show me one example of public sector malinvestment, I can easily point to two private sector misallocations and failures.

    A transportation service, remains a positive investment independent of its source of funding; the only requirement is that, by itself, it has to be economically viable.

    • Replies: @annamaria
    , @nickels
    , @nickels
  55. Dave Pinsen says: • Website
    @Rehmat

    India leads the world in open defecation ( http://www.bbc.com/news/world-asia-india-27775327 ) and suffered famines when it was far less capitalist than today. I find it hard to blame India’s problems on capitalism.

  56. annamaria says:
    @Sam Shama

    “… the failure rate of private enterprise is quite some degrees higher than those in public undertakings. Which is not to suggest that we go full Soviet or anything, but the notion that government spending is tautologically equivalent to waste, is not just wrong but eminently wrong-headed. Much of private enterprise in this country has grown on the back of public efforts…”

    Thank you. Your great post is a worthy reminder for the libertarians that often seem as believers in a kind of immaculate conception re modern economy.

  57. nickels says:
    @Sam Shama

    My objection with public investment is when it is done in the name of’employment’ rather than becsuse the particular public work is ACTUALLY needed.

    Its the idea in Adam Smith where a man who invests in enterprise becomes wealthy but the man who spends all his money on servants and luxuries soon becomes poor.

    I took Smith’s chapter on productive vs unproductive investment as one of the most important in his book, though I know that is not shared by all (the reason I started eith Smith was to avoid modern prejudice’s).

    So if the government builds a tower of Babel the money is gone. But if it builds acqueducts and a sewer system, the money is gone but the works provide a return by their usage.

    So, does buying junk bonds satisfy need? Does stuffing 50 diversity officers into every university satisfy a need?

    If the project is for the point of employment you might as well just hand the cash straight over to a welfare program.

  58. nickels says:
    @Sam Shama

    I should point out that I consider most investments by our leftist as towers of Babel.
    Education: ‘somehow if we buy enough iPad’s and put internet in our schools, everyone will get an A.’ Our government obsessed with trying to turn dumb people into Einstein’s.

    $25 million to poor coloured neighborhoods to mitigate global warming: Babel and a LIE.

    Etc etc

    This issue become exactly the crux issue between collectivism and Liberalism.
    In my opinion government investment if taxpayer dollars should be considered a great evil, only pursued when the case has been made unequivocally fir the particulsr worth, nit just because Keynes says so.

    • Replies: @Sam Shama
    , @annamaria
  59. Sam Shama says:
    @nickels

    I don’t blame you for disliking some public works, which in your view, have wasted resources essentially collected via taxation or financed through the issuance of public debt.

    It isn’t particularly important whether Keynes, or other persons, proposed public spending during periods of economic slack. It is however, critical to understand, which policies are logical and have sound basis in history for implementation during these periods; and for what objective financial reasons.

    What I find unsettling, is when otherwise intelligent people assume a dogmatic posture regarding public spending, entirely impervious to logic and evidence. Most of this attitude breaks cleanly along party lines: republicans [and libertarians] rejecting the totality of public spending and democrats embracing every iota of it. Yet one might expect the average reader of the UR to decide for themselves, solely on the merits of the argument, which is why I hold hope.

    (1) The following is a sad, alarming, and well known fact by now : http://www.infrastructurereportcard.org/

    (2) The estimate to bring American infrastructure up to par with say Singapore, easily accommodates an investment of $5tr+ over the next decade, which on a linear $500b spent yearly, will add [ a back of the envelope calculation] about $2 tr to GDP each year, resulting in millions of new permanent jobs, for: initially, architects, engineers, technologists, craftsmen, trained labour; which will then unleash a virtuous cycle, as employees in these categories perceive their jobs to have a foreseeable and permanent future and increase consumption spending. [If you do not agree with this, show me objective counterarguments]

    (3) An example of an opportunity abandoned: The ARC Tunnel Project: By His Corpulence Chris Christie of NJ. The project was sized at $12.7b, with federal loan guarantees, making the financing comparable to U.S. treasury [say around 2.5%] with a projected return [after maintenance and depreciation expenses] of 9%! Can anyone dance around the obvious opportunity loss? Most importantly in the critical, permanent improvement in infrastructure? The jobs foregone? It was a travesty, a sacrifice entirely to the gods of partisanship and the desire to project a false image of ‘fiscal prudence’!

    (4) There are innumerable such needs and opportunities available in the U.S. today, and all we lack is leadership, one which would quash the cynical and false voices of ‘Serious’ men.

    (5) A last point: I am fundamentally opposed to public-private partnerships. These are the foulest of schemes conjured to enrich private pockets using the imprimatur of the public mandate [crony capitalism at its most toxic form]. Think private jails, traffic control devices to shakedown citizens etc.

    (tb contd.)

    • Replies: @nickels
  60. nickels says:
    @Sam Shama

    “It is however, critical to understand, which policies are logical and have sound basis in history for implementation during these periods; and for what objective financial reasons.”

    Yes, agreed. And the debate between the Austrian school and the Keynesian school is paramount here, although the Keynesian have obviously had the upper hand in the debate, as almost everyone is a Keynesian. I personally see it as complete pseudo-science, although I am certainly not an economic expert.

    From my vantage point I see Keynesian economics as simply an obfuscated version of Marxism.

    Agreed on 5) as well.

    2) Is extremely difficult. Who gets to decide the project is worth it or not? Especially since politics and private interests will corrupt the debate no matter what. I have no solution on this one, undoubtedly this debate is as old time.

    One thing I think we should guard against is sensitivity. The socialist says we should ALWAYS spend the money, but out of a mix of pure ignorance and Utopianism.

    Attempting to avoid pain causes other problems, as every addict on skid row can testify.

  61. annamaria says:
    @nickels

    Your righteous tone is recognized. The suggested public works, however, would not be an attempt to play communism by distributing money to the masses (this game has been recently played by socializing the Wall Street losses – that was some investment!), but a way to improve the failing infrastructure nationwide, as well as a way to the quality of water and air for all US citizens, to improve the quality of education for all children in the US (radical investment into educational system would also provide jobs for the jobless crowds of the bright and highly qualified PhD holders).
    What is your suggestion? To stay the course? To let the CEOs of large corporations to pollute and outsource in order to make a few scoundrels into superwealthy scoundrels, while using the resources that have been created through the efforts of the nation, whether the highways or information technology? What is wrong with taxes up to 90% on the Wall Street billionaires that have created nothing, but destroyed a lot? Strengthening the country through investment into infrastructure, new technologies, health, and education seems a lot more logical than investing into “too large to fail.” Stay the course would also mean more pilgrimages of “peoples representatives” to the Adelsons and Sabans of the system.

    • Replies: @nickels
  62. nickels says:
    @annamaria

    Some thing only work in Amaurot.
    Why invest in a country that steals your money? 90% tax rates will kill investment.
    America’s air and water is the best in the world.
    America’s schools suffer from socialist over centralized control.
    More crack wont help.

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