Tuesday, 15 November 2016

Varoufakis's latest bromide

It's good to know in these uncertain times that we can always rely on Varoufakis to say the most fatuous thing possible under the circumstances. This is his latest bromide- my comments are in bold-

The election of Donald Trump symbolises the demise of a remarkable era. No demise is expected by the money markets. There was a brief period of jitters. Things have settled down now. It was a time when we saw the curious spectacle of a superpower, the US, growing stronger because of – rather than despite – its burgeoning deficits. A super-power can borrow. A weak and shitty country can't. Super-powers run deficits if markets believe they will remain super. Shitty little countries can't do the same thing no matter how much they beg and plead. It was also remarkable because of the sudden influx of two billion workers – from China and Eastern Europe – into capitalism’s international supply chain. Sudden influx? Nonsense! Marxism turned out to be a pile of shite. The 'Socialist division of labor' didn't work.  China and Eastern Europe don't have two billion people put together, let alone workers involved in 'international supply chains. Oh! I forgot! Varoufakis can't do Arithmetic. This combination gave global capitalism a historic boost, while at the same time suppressing Western labour’s share of income and prospects. So, the demise of Marxist stupidity left Capitalism king of the castle both at home and abroad. People teaching Marxist Economics are just wasting everybody's time.

Trump’s success comes as that dynamic fails. What dynamic failed? America's unchallenged hegemony means it can grab more of the gains of trade and decide how to distribute it so as to serve a dominant political coalition. His presidency represents a defeat for liberal democrats everywhere, but it holds important lessons – as well as hope – for progressives. Which liberal democrat was defeated? Hillary? She couldn't push anything through the two houses. She had no political capital at all. Still, her rich friends scared up plenty of votes for her. But, it turned out, they were doing it in a stupid way. The Democratic party machine ended up paying to turn out GOP voters.

From the mid-1970s to 2008, the US economy had kept global capitalism in an unstable, though finely balanced, equilibrium. An unstable but finely balanced equilibrium is a saddle point just as a coin landing neither heads nor tails but on its edge is a saddle point. It could happen but it doesn't. It sucked into its territory the net exports of economies such as those of Germany, Japan and later China, providing the world’s most efficient factories with the requisite demand. Okay Varoufakis, we all know you are very good at sucking at Economics but the American Economy was not your student. It doesn't do sucking or blowing. It's a fucking Economy not an organism with orifices. There is no mechanism known to Economic Science whereby an Economy starts acting like a vacuum cleaner. How was this growing trade deficit paid for? The Balance of Payments balances because a trade deficit or surplus must equal a Capital account surplus or deficit. It's a fucking accounting identity dude. By the return of around 70% of the profits made by foreign corporates to Wall Street, to be invested in America’s financial markets. Coz that's how the Capital account works if there is a Trade deficit. Foreigners either by stocks or bonds- including Gilts.

To keep this recycling mechanism going, Wall Street had to be unshackled from all constraints; leftovers from President Roosevelt’s New Deal and the post-war Bretton Woods agreement which sought to regulate financial markets. Rubbish! Any institution facing an irrational constraint would be, in fact was, disintermediated. Bretton-Woods didn't regulate financial markets. It was about currency convertibility in a situation where the US held all the cards. This is why Washington officials were so keen to deregulate finance: Wall Street provided the conduit through which increasing capital inflows from the rest of the world equilibrated the US deficits which were, in turn, providing the rest of the world with the aggregate demand stabilising the globalisation process. And so on. Did any fucking 'Washington official' or other such parasite in the history of the Universe ever go 'I must do x coz that's what's good for my country?' No. They did what it paid them best to do. Suppose there had been no 'Washington officials' at all. Foreigners would still have sold stuff to the US so as to build up assets in that country. Why? Because it is the only fucking global superpower left as well as a swell place to live if you're rich.

Tragically, but also very predictably, Wall Street proceeded to build unfathomable pyramids of private money (also known as structured derivatives) on top of the incoming capital flows
. America has a lot of capital. Wall street has gained scale and scope economies on the basis of American capital. That's one reason why foreign money likes to find a home there. I might think China or India is a great place to invest because those countries are growing rapidly but the Capital markets just aren't very well developed there.
Any country, no matter how small or underdeveloped can fall victim to what is essentially a crazy Ponzi scheme. Post Communist Albania did. 
What happened in 2008 is something small children who have tried to build an infinitely tall sand tower know well: Wall Street’s pyramids collapsed under their own weight. Some did, some didn't. There were sound sectors and there were toxic assets. A big shake-out took place- from the Economic point of view, it should have been bigger but politicians panicked.

It was our generation’s 1929 moment. Not really. How many people do you know who used to drive around in limousines in 2008 who are now dependent on soup kitchens? Central banks, led by US Fed chief Ben Bernanke, a student of the 1930s Great Depression, rushed in to prevent a repetition of the 1930s by replacing the vanished private money with easy public credit. There was no such thing as 'private money'- we're not talking about bitcoin or stuff with Beyonce's face on it. What happened was that private credit, and hence liquidity dried up because of contagion fears till Quantitative Easing stepped in to ensure that the real economy had a soft landing.Their move did avoid a second Great Depression (except for weaker links such as Greece and Portugal) but had no capacity to resolve the crisis. Greece had the misfortune to elect Varoufakis just as it came into primary surplus- so it is still in the shitter. Portugal is on the mend. Ireland is fine. Italy somehow seems to be able to defy gravity. Banks were refloated and the US trade deficit returned to its pre-2008 level. Why? Because the World believes that America is still a pretty safe place to invest in. Nobody thinks Greece is a safe place because Varoufakis's brief reign is still remembered.  But, the capacity of America’s economy to equilibrate world capitalism had vanished. This idiot doesn't get that the Balance of Payments is self equilibrating coz it's a fucking accounting identity. Foreigners earning dollars by exporting goods and services want to invest a portion of their earnings for prudential reasons. America has a well developed capital market compared with the new kids on the block like China and India (forget Brazil and Russia) so it has a Capital inflow which must match its Balance of Trade otherwise either the dollar rises or its interest rate falls. 

The result is the Great Western Deflation, marked by ultra low or negative interest rates, falling prices and devalued labour everywhere. As a percentage of global income, the planet’s total savings are at a world record level while aggregate investment is at its lowest. Why? Because Capital Markets and the necessary Institutional framework to give them credibility take time to build.  Ten years ago I thought China and India would be a lot further along now in this respect. I also thought the internet would make me smart enough to tell a bogus hi-tech startup, like Theranos, from the real cheez. I was wrong. So were a lot of my friends who are way smarter than me. 
The fact is there just is a lot more Knightian Uncertainty around than there was even ten years ago coz older people like me just don't understand, forget about the underlying Technology, we don't even get what the Technology is gonna be used for.
When so many idle savings accumulate, the price of money (ie. the interest rate), indeed of everything, tends to fall. This suppresses investment  WHAT! Varoufakis thinks Investment falls when the interest rate falls! Why is this guy teaching Econ? How fucked is the University of Athens?  and the world ends up in a low-investment, low-demand, low-return equilibrium. This is the Keynesian liquidity trap in a closed economy. But, since we in the West don't live in a closed economy, it is Knightian uncertainty which has caused an inward shift of the marginal efficiency of Capital schedule. 
Just like in the early 1930s, this environment results in xenophobia, racist populism and centrifugal forces that are tearing apart institutions that were the Global Establishment’s pride and joy. So nothing to do with migrants then. Take a look at the European Union, or the Transatlantic Trade and Investment Partnership (TTIP).

Before 2008, workers in the US, in Britain and in the periphery of Europe were placated with the promise of “capital gains” and easy credit. They were not placated, they were fucking fraudulently seduced by greedy little bastards in shiny suits. Their houses, they were told, could only increase in value, replacing wage income growth. Actually, we were told our incomes were bound to rise which is why we could afford the McMansion. We walked into high street Banks and the greedy little bastards in shiny suits let us put down any number we liked in the 'net income' box. Then they took their fat commissions and fucked us over. In the meantime their consumerism could be funded through second mortgages, credit cards and the rest. The price was their consent to the gradual retreat of democratic process and its replacement by a “technocracy” intent on serving faithfully, and without compunction, the interests of the 1%. Nope, that didn't happen. Nobody said 'oh, btw, you get this loan for a loft conversion for your motor-home on condition that you permit a gradual retreat of democratic processes and its replacement by a 'technocracy' intent on sodomizing your grandmother without compunction in the interests of the 1%.  Shit like that don't god down in the real world. Now, eight years after 2008, these people are angry and are getting even. Why did they wait 8 years? Who are they getting even with? Is the neighbor's cat talking to you. Are you worried strange orange people are putting something in your coffee? 

Trump’s triumph completes the mortal wounding this era had suffered in 2008. Right! A mortal wounding occurred under a Republican President. The people waited 8 years and then got so angry they went and put another Republican in the White House! A mortal wound is one which results in death. Is Varoufakis saying that everybody died in 2008 but now have risen up as the undead and they have elected Trump coz he's probably undead too? Wow, that University in Athens where this guy teaches sure has good pot! But the new era that Trump’s presidency is inaugurating, foreshadowed by Brexit, is not at all new. It is, indeed, a post-modern variant of the 1930s, complete with deflation, xenophobia, and divide-and-rule politics. Trump’s victory is not isolated. It will no doubt reinforce the toxic politics unleashed by Brexit, the undisguised bigotry of Nicolas Sarkozy and Marine Le Pen in France, the rise of the Alternative für Deutschland, the “illiberal democracies” emerging in Eastern Europe, Golden Dawn in Greece.
Yup, it's the Zombie Apocalypse right enough featuring Nazi Vampires from the Planet X.

Thankfully Trump is not Hitler and history never repeats itself faithfully- unlike Varoufakis who repeats his idiocy very faithfully indeed. Mercifully, big business is not funding Trump and his European mates like it was funding Hitler and Mussolini. But Trump and his European counterparts are reflections of an emergent Nationalist International that the world has not seen since the 1930s. Nationalist International? Oxymoron much?

Just as in the 1930s, so too now a period of debt-fuelled Ponzi growth, faulty monetary design and financialisation led to a banking crisis that begat deflationary forces which bred a mix of racist nationalism and populism. Just like in the early 1930s, so too now a clueless establishment aims its guns at progressives, such as Bernie Sanders and our first Syriza government in 2015, but ends up being upended by belligerent racist nationalists.
Why compare Bernie Sanders, who ably represented his State, with your brief and disastrous spell in office?
Can the spectre of this Nationalist International be absorbed or defeated by the Global Establishment? It takes a great deal of faith to think that it can, in view of the Establishment’s deep denial and persistent coordination failures. Is there an alternative? I think so: A Progressive International that resists the narrative of isolationism and promotes inclusive humanist internationalism in place of the neoliberal Establishment’s defence of the rights of capital to globalise.
OMG! 'Inclusive Humanist Internationalism'! That's got to mean something right? 
In Europe this movement already exists. Founded in Berlin last February, the Democracy in Europe Movement (DiEM25) is attempting to achieve that which an earlier generation of Europeans failed to do in 1930. And 1920, 1910, 1900 and every previous and succeeding decade. Why? Because the thing can't be done. In 1976, I called upon the world to unite to put an end to all naughtiness and evilry. Perhaps, as the year 2016 comes to a close, my call will at last be heeded. Already there are promising signs. Last week the Ending Naughtiness and Evilry Worldwide Movement was inaugurated down my local boozer. We want to reach out to democrats across borders and political party lines asking them to unite to keep borders and hearts open while planning sensible economic policies that allow the West to re-embrace the notion of shared prosperity, without the destructive “growth” of the past. Sensible economic policies? Well, in that case you can't be involved.
But Europe is clearly not enough. DiEM25 is encouraging progressives in the US, who supported Bernie Sanders and Jill Stein, in Canada and in Latin America to band together into a Democracy in the Americas Movement. Coz that's worked so great in Europe. We are also seeking progressives in the Middle East, especially those shedding their blood against ISIS, against tyranny, and against the West’s puppet regimes to build a Democracy in the Middle East Movement. Lovely! Please come to Aleppo immediately to discuss it. We'll meet you at ground zero for Putin's bombs. 

Trump’s triumph comes with a silver lining. It demonstrates that we are at a crossroads when change is inevitable, not just possible. But to ensure that it is not the type of change that humanity suffered from in the 1930s, we need movements to spring out and to forge a Progressive International to press passion and reason back into the service of humanism.as opposed to writing worthless shite.

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