Raoul Paul-The End

[c1ue]

Re: Raoul Paul-The End

The question is, What part of the crisis is real and what part is a scam. I'm convinced that the banking crisis and sovereign debt crisis is contrived--an instrument of policy.

The crisis is real. The ways by which the crisis is being addressed - that is the scam.

But there are other aspects of the situation that I don't know what to think about. The $700 trillion (?) in derivatives. Is that real? Is that something that has grown beyond all control and that the ruling elite are scared as hell about? Or is it another matter of policymaking?

The $700 trillion in derivatives is a symptom of a broken system. The example I would use is margin debt in the 1920s. Margin debt in and of itself, in any reasonable (low) quantity, is perfectly fine. However, margin debt which had grown to such an extent that something like 25% of all the money in the world was flowing into New York to be lent out at margin - coupled with a gigantic stock bubble - that is another story.

The derivatives we're seeing are the corporate, more specifically the FIRE equivalent of margin debt. Instead of being used to try and lend some stability to more obscure segments of finance, derivatives are being used to pump up all sorts of ridiculous trades in order to propagate the most basic of scams: borrow short/lend long.

This common thread extends from the 'rogue' traders' all the way up to AIG style institutional fraud, and it extends because there is a likely deliberate institutional blind spot - I say deliberate because the results are Worldcom-esque financial performance at the corporate level coupled with Ponzi-like performance at the individual level.

I really don't know how to think about these things. And what about the question of debt in general, private and public? There are people who say that capitalism, or any system based on interest-bearing debt, is bound to implode eventually, since the rate of interest owed in society eventually exceeds any possibility of repayment. Have we reached that point? Is this what's really going on--that the system has reached its limits, and the ruling class is desperately searching for a solution?--at our expense, to be sure, but in a real crisis?

Debt itself isn't an issue. The real purpose of economic policy is quite simple: to keep people working. Fiat is useful because in times of financial distress, you can 'create' money which is deployed to keep people working. This work in turn eventually ends the period of financial stress.

The problem right now is that for the past 3+ decades, debt has been accumulated in order to enrich the few. If anything, work has gone down.

And rather than seek modes by which people can return to work and make a living, and thus eventually end the crisis, the political response has been to push for austerity which in turn pushes even more people out of work.

Thus the crisis is real, and was created by abuse of fiat and corruption of economic policy as well as FIRE abuses period.

Equally so the 'solutions' being bandied about are false, and represent the effort by those who have benefited most from the ramp up into the crisis to keep as much of their ill gotten gains as is possible.

[DRumsfeld2000]

Re: Raoul Paul-The End

''.................were last time to have FDR and Winston Churchill. In that case all bets are off. Anything could happen.''

In my opinion this is a major problem. The guys above would never get elected under the huge media spotlight which potential Western leaders now get. Great people often have great ''personal flaws'', it does not stop them from having great ability or having the power to do and have significant achievements, but it does mean that they are ''vulnerable'' to insidious personal attacks which may undermine them. Can this be overcome in the modern media driven world so that new leaders with real ability can come forward and lead is an open question. Currently I am not positive on this question so I go for the ''Anything can happen''!

[LazyBoy]

Re: Raoul Paul-The End

Great summary, c1ue. Thanks.

[Dave Stratman]

Re: Raoul Paul-The End

C1ue wrote: The crisis is real. The ways by which the crisis is being addressed - that is the scam.

When you say that the crisis is real, do you mean that the assumption of massive bank debt by sovereign states--i.e., by taxpayers--was necessary and appropriate? According to Raoul Pal, sovereign debt lies at the root of the crisis. I am arguing that sovereign entities--the taxpaying public--should never have been made to assume these private banking debts, which could have been cleared in the traditional and well-established way: at the expense of bank shareholders and bondholders. So in this way, at least, the "crisis" was quite avoidable. It is not a function of impersonal and inevitable economic forces but a matter of choice. As Hussman put it, Congress simply chose to defend bond holders rather than the public. Do you disagree with this?

I certainly agree that the means by which the crisis is being addressed--austerity, more bailouts, etc.--are a scam. But it sems to me that the fake crisis and fake solutions form an organic whole. Create a crisis that scares the hell out of people and seems to demand extraordinary measures to solve, then roll out the policy options you had long wanted to impose but needed the right moment: wage and pension cuts, demolition of social programs, privatization of more public wealth. Of course, each of these steps only worsens the crisis, thus permitting more transfer of wealth to the wealthiest, more degradation of ordinary people's lives, tighter social control.

The real purpose of economic policy is quite simple: to keep people working.

This is a remarkable statement. It's true, of course, that every politician justifies his or her every deed this way: "It will make more jobs." But this is (almost always) a lie. If you look at the true course of government/corporate policy, you will see that it is intended to weaken the bargaining power of workers and reduce the number of worker on which companies must rely.

How is this done? By legislation like NAFTA, which did indeed cause a "giant, sucking sound" as manufacturing jobs disappeared to the maquiladores in Mexico and impoverished Mexican farmers, unable to compete with NAFTA-imported corn, fled North searching for work. By offering tax incentives to corporations to outsource jobs to low-wage countries like China or India or Vietnam. By offering tax incentives to corporations to replace workers with machines. ("Compared with 1990, the total value of U.S. manufacturing output, adjusted for inflation, was up by 75 percent in 2010 — despite a drop caused by the Great Recession." This gain came with a much smaller workforce. http://articles.chicagotribune.com/2...torum-products)

None of these and many other policies proposed in the name of "producing jobs, good jobs, for American workers" actually has that effect.

Could you explain whose economic policy you see to be to produce jobs rather than simply to get votes?

[c1ue]

Re: Raoul Paul-The End

When you say that the crisis is real, do you mean that the assumption of massive bank debt by sovereign states--i.e., by taxpayers--was necessary and appropriate?

The debt crisis we are facing is not merely a sovereign one - private debt and corporate debt are also at extremely high levels. The assumption of massive bank debt by sovereign states is merely one an end game mode: sovereign entities are the only ones left large enough to kick the can down the road.

Thus to answer your question: the assumption of bank debts in Europe is real because no single government can control euro policy. As Dr. Michael Hudson notes - rather than a central bank, the structure of the euro is such that the large European banks effectively set banking policy and are the entities which lend to EU governments.

This is unique to Europe. If the euro had a Federal Reserve equivalent institution, then no problem, at least at this time. There is no physical reason such an institution doesn't exist, but there are many political reasons - and the struggle to get a European Federal Reserve (EDIT: and who controls it, and how it acts) is what is causing the crisis.

The US, however, has massive debt at every conceivable level. Private, corporate, local/municipal, state, and federal.

The federal debt for example is very little to do with assumption of bank debt (point of order: bank debt itself is meaningless, uncollectable or bad bank debt would be more correct). Even if the entire Federal Reserve balance sheet expansion were added to the national debt, the proportion that is bad bank debt/crap mortgages is relatively small.

The point which Dr. Michael Hudson bangs on over and over is that interest on debt, if the ability to pay (i.e. economic growth) doesn't outpace it, will result in debt growing faster than the economy. And this is ignoring ongoing deficit spending - which is the operational mode in the US federal government as far as the eye can see.

Or put another way: the US federal deficit is getting on towards $15 trillion.

The liquid assets of the entire world is around $60 trillion - if I recall bart's numbers, as is the entire world's GDP.

I certainly agree that the means by which the crisis is being addressed--austerity, more bailouts, etc.--are a scam. But it sems to me that the fake crisis and fake solutions form an organic whole. Create a crisis that scares the hell out of people and seems to demand extraordinary measures to solve, then roll out the policy options you had long wanted to impose but needed the right moment: wage and pension cuts, demolition of social programs, privatization of more public wealth. Of course, each of these steps only worsens the crisis, thus permitting more transfer of wealth to the wealthiest, more degradation of ordinary people's lives, tighter social control.

Given that I don't think the crisis is fake, I disagree with the above characterization.

Austerity isn't a 'fake' solution - it is simply one which is bad for almost everyone except the 1%.

High inflation accompanied by high wage inflation, on the other hand, is great at knocking down debt and is good for almost everyone except the 1%, and even for them they generally benefit because they (EDIT: most of the big fortunes are still real estate based) own much of the real estate and so get the property value increases.

Most importantly though, high wage/high inflation is very bad for banks.

This is a remarkable statement. It's true, of course, that every politician justifies his or her every deed this way: "It will make more jobs." But this is (almost always) a lie. If you look at the true course of government/corporate policy, you will see that it is intended to weaken the bargaining power of workers and reduce the number of worker on which companies must rely.

You'll note that I didn't say the word jobs.

Economic policy is what I said it is: get people working and keep them working.

Jobs programs, at least in the US these days, is much more about politics and image-ineering than economic policy.

There are no credible politicians anywhere in the political spectrum in the US who are addressing the fundamental problems that I see as being the barrier to successful economic policy. And to be fair, I doubt any (EDIT: single) politician (EDIT: or group of politicians) anywhere in any position has the wherewithall to fix all that needs to be fixed.

Then again, I don't see any politicians anywhere in any position even trying to fix individual aspects to the problem. FDR was a federal reserve governor. Neither Geithner nor any other Federal Reserve regional chair is even close to FDR, for example. Senators, Representatives - no way. State governors - one or two possibly, but they are chained by the 2 party system.

The basic problem as I see it is financialization of the US economy.

Financialization has pushed up property prices. Higher property prices mean higher wages needed to pay off mortgages.

Financialization has also pushed up education. Higher education costs mean a lot of debt assumed even before starting work, and once working this education debt means wages siphoned off to pay student loans.

Financialization also has an impact on what we pay for goods. While corporations have as much liquidity as ever, they also have as much debt as ever. This debt also yields interest to be siphoned off.

Right after financialization, health care and retirement are the next big problems.

Health care because so much of the US economy is devoted to paying for health care - it is abundantly clear that the decent overall public health does not require the massive spending the US undertakes per capita.

Retirement is a problem - the reality is that it is extremely difficult for the average person to save. Even if they save, it is then difficult to wisely invest. And even if they save and invest, then there is the challenge of managing the spending during the retirement period. How can any average person realistically plan retirement with this trap infested path?

Only people who are at least moderately wealthy can realistically 'retire' under all the possible scenarios that might occur - i.e. life span 65 up to 100. Up to 35 years of changing economic conditions like investment income return and inflation. Up to 35 senior citizen years of potential health care related economic hits. Up to 35 years of progress - think Detroit in the 1970s vs. today for someone who planned to retire there. etc etc.

So to circle back: the only way I see for economic policy to produce jobs is to de-financialize and also cut down the debt. A Ka-Poom will perform the debt cutdown and is going to happen no matter what, but the de-financialization part is (I believe) what EJ refers to when he talks about 3-5 years of recovery under good leadership.

In contrast, a Ka-Poom without leadership results in serial Ka-Pooms, or in other words Latin American boom/bust cycles resulting in massive inequality.

[raja]

Re: Raoul Paul-The End

The $700 trillion in derivatives is a symptom of a broken system. The example I would use is margin debt in the 1920s. Margin debt in and of itself, in any reasonable (low) quantity, is perfectly fine. However, margin debt which had grown to such an extent that something like 25% of all the money in the world was flowing into New York to be lent out at margin - coupled with a gigantic stock bubble - that is another story.

The problem right now is that for the past 3+ decades, debt has been accumulated in order to enrich the few. If anything, work has gone down.

And rather than seek modes by which people can return to work and make a living, and thus eventually end the crisis, the political response has been to push for austerity which in turn pushes even more people out of work.

A good article on this by Michael Hudson: http://michael-hudson.com/2012/05/pa...omic-blinders/

[don]

Re: Raoul Paul-The End

''.................were last time to have FDR and Winston Churchill. In that case all bets are off. Anything could happen.''

In my opinion this is a major problem. The guys above would never get elected under the huge media spotlight which potential Western leaders now get. Great people often have great ''personal flaws'', it does not stop them from having great ability or having the power to do and have significant achievements, but it does mean that they are ''vulnerable'' to insidious personal attacks which may undermine them. Can this be overcome in the modern media driven world so that new leaders with real ability can come forward and lead is an open question. Currently I am not positive on this question so I go for the ''Anything can happen''!

This may have had credence 50 or 60 years ago. Today the "2-party" system is too tightly controlled. A Great Leader is the least wanted major candidate by either party. As far as having "personal flaws" some see that as a mandatory requirement for even our political stooges, serving if need be as a career ending kill-switch. And the so-called modern media exposes the truth about politicians? That doesn't need comment.

[Raz]

Re: Raoul Paul-The End

Thanks, c1ue. I agree completely with your assessment.

[don]

Re: Raoul Paul-The End

The debt crisis we are facing is not merely a sovereign one - private debt and corporate debt are also at extremely high levels. The assumption of massive bank debt by sovereign states is merely one an end game mode: sovereign entities are the only ones left large enough to kick the can down the road.

Thus to answer your question: the assumption of bank debts in Europe is real because no single government can control euro policy. As Dr. Michael Hudson notes - rather than a central bank, the structure of the euro is such that the large European banks effectively set banking policy and are the entities which lend to EU governments.

This is unique to Europe. If the euro had a Federal Reserve equivalent institution, then no problem, at least at this time. There is no physical reason such an institution doesn't exist, but there are many political reasons - and the struggle to get a European Federal Reserve (EDIT: and who controls it, and how it acts) is what is causing the crisis.

The US, however, has massive debt at every conceivable level. Private, corporate, local/municipal, state, and federal.

The federal debt for example is very little to do with assumption of bank debt (point of order: bank debt itself is meaningless, uncollectable or bad bank debt would be more correct). Even if the entire Federal Reserve balance sheet expansion were added to the national debt, the proportion that is bad bank debt/crap mortgages is relatively small.

The point which Dr. Michael Hudson bangs on over and over is that interest on debt, if the ability to pay (i.e. economic growth) doesn't outpace it, will result in debt growing faster than the economy. And this is ignoring ongoing deficit spending - which is the operational mode in the US federal government as far as the eye can see.

Or put another way: the US federal deficit is getting on towards $15 trillion.

The liquid assets of the entire world is around $60 trillion - if I recall bart's numbers, as is the entire world's GDP.



Given that I don't think the crisis is fake, I disagree with the above characterization.

Austerity isn't a 'fake' solution - it is simply one which is bad for almost everyone except the 1%.

High inflation accompanied by high wage inflation, on the other hand, is great at knocking down debt and is good for almost everyone except the 1%, and even for them they generally benefit because they (EDIT: most of the big fortunes are still real estate based) own much of the real estate and so get the property value increases.

Most importantly though, high wage/high inflation is very bad for banks.



You'll note that I didn't say the word jobs.

Economic policy is what I said it is: get people working and keep them working.

Jobs programs, at least in the US these days, is much more about politics and image-ineering than economic policy.

There are no credible politicians anywhere in the political spectrum in the US who are addressing the fundamental problems that I see as being the barrier to successful economic policy. And to be fair, I doubt any (EDIT: single) politician (EDIT: or group of politicians) anywhere in any position has the wherewithall to fix all that needs to be fixed.

Then again, I don't see any politicians anywhere in any position even trying to fix individual aspects to the problem. FDR was a federal reserve governor. Neither Geithner nor any other Federal Reserve regional chair is even close to FDR, for example. Senators, Representatives - no way. State governors - one or two possibly, but they are chained by the 2 party system.

The basic problem as I see it is financialization of the US economy.

Financialization has pushed up property prices. Higher property prices mean higher wages needed to pay off mortgages.

Financialization has also pushed up education. Higher education costs mean a lot of debt assumed even before starting work, and once working this education debt means wages siphoned off to pay student loans.

Financialization also has an impact on what we pay for goods. While corporations have as much liquidity as ever, they also have as much debt as ever. This debt also yields interest to be siphoned off.

Right after financialization, health care and retirement are the next big problems.

Health care because so much of the US economy is devoted to paying for health care - it is abundantly clear that the decent overall public health does not require the massive spending the US undertakes per capita.

Retirement is a problem - the reality is that it is extremely difficult for the average person to save. Even if they save, it is then difficult to wisely invest. And even if they save and invest, then there is the challenge of managing the spending during the retirement period. How can any average person realistically plan retirement with this trap infested path?

Only people who are at least moderately wealthy can realistically 'retire' under all the possible scenarios that might occur - i.e. life span 65 up to 100. Up to 35 years of changing economic conditions like investment income return and inflation. Up to 35 senior citizen years of potential health care related economic hits. Up to 35 years of progress - think Detroit in the 1970s vs. today for someone who planned to retire there. etc etc.

So to circle back: the only way I see for economic policy to produce jobs is to de-financialize and also cut down the debt. A Ka-Poom will perform the debt cutdown and is going to happen no matter what, but the de-financialization part is (I believe) what EJ refers to when he talks about 3-5 years of recovery under good leadership.

In contrast, a Ka-Poom without leadership results in serial Ka-Pooms, or in other words Latin American boom/bust cycles resulting in massive inequality.

Well done, c1ue. And what is the mainspring behind Financialization? The Mother of all Crisis of Over Production.

[llanlad2]

Re: Raoul Paul-The End

This may have had credence 50 or 60 years ago. Today the "2-party" system is too tightly controlled. A Great Leader is the least wanted major candidate by either party. As far as having "personal flaws" some see that as a mandatory requirement for even our political stooges, serving if need be as a career ending kill-switch. And the so-called modern media exposes the truth about politicians? That doesn't need comment.

But how can they predict who will turn out great? Remember Shakespeare?

"Be not afraid of greatness; some are born great, some achieve greatness, and others have greatness thrust upon them. "

Any number of people fall into the latter two categories, let's hope there is an average nobody waiting around the corner!

[c1ue]

Re: Raoul Paul-The End

Well done, c1ue. And what is the mainspring behind Financialization? The Mother of all Crisis of Over Production.

I don't actually agree with this statement.

Yes, production is increasing as is productivity. But if history demonstrates anything, it is that any increase in productivity/production can be consumed to produce higher standards of living. And even for the US which already has a higher standard of living, greater production can still be used to improve aspects of this standard.

1000 years ago, a clean house meant sweeping out the rushes strewn on the floor every spring and putting new ones in.

200 years ago, the same clean house might mean a hardwood floor swept regularly.

70 years ago, the clean house would be carpeted, and the rugs/carpets would be regularly shaken out.

50 years ago, the entire house would be carpeted and cleaned with vacuum cleaners.

Today there are electrostatic filters, dust zappers, etc etc.

At each stage above the amount of consumption increased. Hardwood flooring was a result of mechanization of wood cutting/processing - waterwheel based lumber mills.

Carpeting was a direct outgrowth of the Jacquard loom and its revolutionary effects on clothmaking.

Vacuum cleaners become everyday from a combination of increasing wealth and electrification and decreasing cost of hardware.

[jk]

Re: Raoul Paul-The End

c1ue, just wanted to add my praise to your post#35 in this thread. excellent.

[subtly]

Re: Raoul Paul-The End

c1ue, just wanted to add my praise to your post#35 in this thread. excellent.

+1. Very nice summary.

[reggie]

Re: Raoul Paul-The End

Given that the systems and science are in place to manage social "chaos", what is the incentive for politicians, or any other leader, to implement a "recovery from a convulsive crash that wipes out the debt that is the source of the problem"? I believe this basic assumption deserves to be challenged.

[dcarrigg]

Re: Raoul Paul-The End

The crisis is real. The ways by which the crisis is being addressed - that is the scam.



The $700 trillion in derivatives is a symptom of a broken system. The example I would use is margin debt in the 1920s. Margin debt in and of itself, in any reasonable (low) quantity, is perfectly fine. However, margin debt which had grown to such an extent that something like 25% of all the money in the world was flowing into New York to be lent out at margin - coupled with a gigantic stock bubble - that is another story.

The derivatives we're seeing are the corporate, more specifically the FIRE equivalent of margin debt. Instead of being used to try and lend some stability to more obscure segments of finance, derivatives are being used to pump up all sorts of ridiculous trades in order to propagate the most basic of scams: borrow short/lend long.

This common thread extends from the 'rogue' traders' all the way up to AIG style institutional fraud, and it extends because there is a likely deliberate institutional blind spot - I say deliberate because the results are Worldcom-esque financial performance at the corporate level coupled with Ponzi-like performance at the individual level.



Debt itself isn't an issue. The real purpose of economic policy is quite simple: to keep people working. Fiat is useful because in times of financial distress, you can 'create' money which is deployed to keep people working. This work in turn eventually ends the period of financial stress.

The problem right now is that for the past 3+ decades, debt has been accumulated in order to enrich the few. If anything, work has gone down.

And rather than seek modes by which people can return to work and make a living, and thus eventually end the crisis, the political response has been to push for austerity which in turn pushes even more people out of work.

Thus the crisis is real, and was created by abuse of fiat and corruption of economic policy as well as FIRE abuses period.

Equally so the 'solutions' being bandied about are false, and represent the effort by those who have benefited most from the ramp up into the crisis to keep as much of their ill gotten gains as is possible.

http://gifs.gifbin.com/1233928590_ci...e clapping.gif