Wednesday 11 October 2017
QE: the financial elite’s magic money tree and the birth of finance communism
Sometimes you read something that just blows the lid of reality and makes you mad.
In the latest issue of the New Statesman, Christopher Thompson describes how QE is the greatest redistribution of wealth to the rich in history, helping increase wealth for the rich through $8 trillion of central bank money creation, helping spur a $100 trillion expansion of wealth at the top since 2008. The result: 13 zeros added the balance sheets of bankers, stock holders and all those with significant financial assets. Is it any wonder that populism is on the march and people no longer trust mainstream politicians?
This article should be read as a manifesto for revolution. By bailing out the rich, and squeezing the rest through rising asset prices (the house you can’t afford, the giant mortgage you must pay) and wage depreciation, QE should be seen as a form of financial crime — disguised as an economic rescue. No doubt central bankers and politicians genuinely believe they saved us — but really they saved themselves at our expense.
More than that, this is a new model of state finance capitalism — or we could call it finance communism. A permanent guaranteed income for the financial elite, and permanent stagnation and austerity for everyone else. Traditional economics — both neoliberal and Marxist — holds that capitalists use their capital to invest in production and out of this they make a profit.
Neoclassical economics holds that this profit is a reward for risk. Marxism holds that it is surplus value taken from labour (or as rent for land).
But the age of QE effectively marks the end of traditional capitalism. Previous acts of primitive accumulation, to use the Marxist term, occurred during colonialism, slavery, conquest and imperialism. This accumulation then funded early industrial capitalism in the UK and Europe.
According to the believers in traditional free market economics, there was no plunder, rape and colonially induced mass famine, simply voluntary trade in which everyone got richer from the 18th century onwards. (I read this fairy tale every day, a faith that facts cannot impede.)
With less of these opportunities available in recent decades, and traditional honest capitalism also struggling due to financialisation and stagnant wages, the corporate elite must now find new ways to extract wealth and rent from the rest of society.
Old fashioned exploitation is still there, but it is supplemented by state backed extraction. Take the Iraq war: this was a plunder exercise — not just of Iraq’s wealth, but of no-bid contracts (often simply cash in suit cases for fake work) financed by the US Treasury to the tune of $1 trillion. Then, just as the war booty was drying up, along came QE.
This huge bailout is disguised through central bank bond purchases. “Central banks don’t just hand over this money regardless. They do it by buying bonds, most of them issued by governments, from financial institutions such as pension funds and insurance companies, which hold them as investments,” Thompson explains. “Bonds” are just tradable pieces of debt.
This is the best description of what happened after 2008 I’ve read. The central banks of the US, UK and Eurozone (as well as Japan) created $8 trillion for the 1 per cent, or $10,000 per head for the rest of us. Noticeably this vast cascade of magic money has not trickled down. Real wage stagnation has hit incomes of the bottom 90 percent while asset prices for the wealthy have soared in the biggest housing and stock bubble in history.
“Thanks to central banks’ money spigots, rising property, stock and bond markets have helped global private wealth grow by two-thirds since 2008 to $166trn, according to the Boston Consulting Group,” writes Thompson. That's a $100trn wealth gain.
“Banks have been the biggest beneficiaries,” hedge fund boss Paul Marshall, co-founder of Marshall Wace, wrote in September 2015. “Asset managers and hedge funds have benefited, too. Owners of property have made out like bandits. In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a debt to QE.”
As a result of QE “financiers have used the new-found money to go shopping, all at the same time. Suddenly, demand for assets significantly exceeds supply. This pushes up the value of investment assets — including shares, which have surged to record highs despite weak economic growth, and bonds, and also fine art, London property and vintage Château Lafite,” writes Thompson.
QE can’t be stopped, or the markets might panic. They are addicted and so $131bn in new bond purchases by the central banks is added each month in Europe and Japan. National and private debt expands continuously.
What comes next? The 99 per cent must find leaders and policies to take the trillions back. In the next crisis, the rich must take a haircut, and the helicopter money must go to the bottom 90 percent. The people must be bailed out. Look out for parties and leaders who put that in their manifesto. We won’t get fooled again.
Monday 18 September 2017
Can the pattern of revolutionary change be predicted?
History does not proceed in an orderly fashion, but in fits and starts, with long quiet periods followed by a telescoping of spectacular upheavals in a matter of weeks and months.
The title of this piece refers to this pattern of historical change - like buses, none come for ages and then several turn up. Historians draw on past events to give a deeper perspective on current events. In the age of social media, stepping back from the daily tweet storm to assess underlying forces and processes is a useful exercise.
Today we are confronted with profound issues of global economic imbalances, vast movements of people, populism and nationalism. Through the modern era there have been a few historical moments where events can be seen as causing a radical discontinuity, a fundamental changing of the framework of what is possible in human political affairs.
The modern era, demarcated by the discovery of the Americas and the end of Muslim Spain in 1492, has seen one such "crack in history" every 125-130 years, after which nothing is quite the same and no return to the status quo ante is possible.
The first of these was the Protestant reformation, declared by Martin Luther at the Diet of Worms in 1521, followed three years later by the German peasant revolution, in which ordinary peasants across the Holy Roman Empire took up arms, inspired by more radical Protestant leaders. The popular uprising was brutally crushed by the aristocratic ruling elites, supported by Martin Luther, who urged on their slaughter.
Possibly of even greater consequence, 1521 marked the downfall of the Aztec empire at the hands of Hernan Cortez, 400 conquistadores and local allies, sparking a devastating period of conquest and genocide. European conquest of the Americas, and the creation of a global capitalist economy, began here.
Thereafter the Protestant revolution became a clash between the new urban classes and the ruling elites of Europe, rather than an open class war. The ripples of revolution and attempts to cast off the feudal-clerical order continued for decades, sparking the Jesuit counter-reformation. The new creed was adopted opportunistically by Henry VIII in England for his own personal reasons.
The revolution put the word of God into the hands of ordinary people, thanks to radical publishers deploying the social media of the age, the printing press. No more listening to Latin liturgies that few understood from a class of elite clergy. God spoke directly to believers and the interpretation of his works fell to members of the congregation and radical preachers. It was this new form of religious consciousness that eventually led to the next historical break: the English revolution.
In 1649 - 130 years after Luther - a successor to Henry VIII, Charles I, was the first king in the western world to be executed judicially, marking the beginning of the era of republican government. The Cromwellian revolution did not fare well after the death of Cromwell, the Lord Protector, in 1658. Charles's son was restored to the throne in 1660. However the tumult of the revolution created a new kind of constitutional principle that brought the king down from the realm of divine rule into the earthly reach of popular sovereignty. Eventually in 1688, the last absolute ruler of England was dethroned and a Bill of Rights set the limits to kingly power, which has never been rescinded.
A third revolutionary break in western European history was in a sense a radical continuity with England's revolution 130 years earlier. 1789 gave birth to a kind of radical democracy, which, like its English predecessor, could not sustain itself and collapsed in bloodshed and terror, giving rise to the rule of Napoleon and a European war. Despite the Bourbon restoration of 1815, things could not be put back to where they were before the storming of the Bastille. A new wave of revolutions spread to Latin America and the age of democracy in Europe was more or less born in 1848.
The embedding of the bourgeois order in mid 19th century Europe also sewed the seeds of the next revolutionary break, which arrived in 1917 - the import of this event is not yet settled, since it is so close to us it is not merely dead history but still echoing in the present. For a period it seemed as if socialism was the future, until the harsh model created by Stalin gradually unravelled and collapsed in 1989. The significance of the second, Bolshevik, revolution of October is still hugely contested. It is hard though to claim that it did not mark a seismic upheaval in the world system the ripple effects of which have even yet not fully played out. The Trump-Kim Yong-un showdown is perhaps the last, senile iteration of the 1917 cleavage between east and west. As in previous such cleavages, it is only in the death throes of the previous historical earthquake, when the dust finally settles from the first eruption, that the outlines of a new upheaval will unfold.
The North Korean regime was effectively installed by Stalin in 1948, he being the Napoleon figure of the Russian revolution, who, like his Corsican predecessor, created an empire out of a revolution. Like Napoleon, Stalin remained on the lips of many revolutionaries long after his departure from the stage. Stalin was Napoleon to Lenin's Robespierre.
Rather than socialism, the more lasting legacy of 1917 is the western welfare state - rolled back strongly since 1989 - and even more so, a model of non-colonial development and the delegitimation of empire. China is the leading inheritor of this national revolutionary path, today a powerhouse of Leninist state capitalism that could yet eclipse the United States.
If the next definitive upheaval arrives at the same interval as the previous three, it should occur at the beginning of the fifth decade of this century. That's 25 years from now. For an oldie such as myself, that's a long wait.
Between these breaks it is possible to delineate, in each case, an initial period of revolution, followed by counter-revolution, followed by a period of consolidation of the social-cultural changes that emerge from the dialectic of the previous two processes - the second (counter-revolution) in effect a direct reaction to the first (revolution).
I have deliberately not connected this to the economic processes that interact with the politico-social dynamic under scrutiny - although they are clearly intimately linked.
What is certain, apart from the obvious fact that such a projection is a kind of numerology that can only be confirmed if and when it happens, is we can't know what, where or how the break will come, but that come it must.
Thursday 20 July 2017
Grenfell and 9/11: Investigating a crime
It is reported that police forensic investigators on the site of the Grenfell Tower disaster will turn to the forensic teams who worked on the 9/11 attacks because of similarities in scale of the events.
The forensic investigation into 9/11 reportedly cost $80 million. As New Scientist reported last year: "An estimated 2753 people were killed at the World Trade Center site. Just 293 bodies were found intact, and 21,900 pieces were recovered from the debris. Despite the most costly forensic investigation in US history ($80 million so far), the remains of 1113 people are unidentified."
As the New Scientist review of a book on the process of victim identification suggests - perhaps unconsciously - 9/11 investigators faced peculiar problems not just of scale - but due to the explosive collapse of the Twin Towers.
I don't think the following sentences will ever be written about Grenfell, since there was no "blast" and body parts are surely unlikely to ever be found on adjacent buildings. A normal fire - if you can call Grenfell normal, considering the criminal negligence that led to it - do not scatter remains so widely.
"We learn how some first responders tried to “reconstruct” bodies, often mingling remains from different people in one body bag. He tells how the blast meant that sometimes parts from one person ended up inside the body cavity of another. And how the different authorities failed to coordinate on the most basic levels, adding to the confusion.
"The inexperience of the New York Police Department in mass gathering of information and biological samples made the OCME’s job harder, because the collection of DNA samples was haphazard and didn’t follow protocols. And although initial recovery efforts focused on the 16-acre site of the World Trade Center, for years afterwards, body parts were still being found in vent shafts, roofs and on ledges of neighbouring buildings."
Clearly I am no scientist or forensic expert, but video footage of 9/11 shows that the collapse of the two towers was so violent that debris was spread far and wide. Despite fires at Grenfell burning at 1000 degrees centigrade for several hours there was no comparable collapse - or "blast" as the New Scientist writer put it, in a strangely revealing way.
For a more scientific review of the terrible events of 9/11, please see the interview with a former National Institute of Scientific Research (NIST) employee Peter Michael Ketcham, who raises profound questions about the nature of the events that puts them into a very different category than Grenfell.
NIST carried out the investigation into the collapse of WTC7 on 9/11, the third building to collapse that day. Ketcham questions their methodology, and confesses his own blindness to the nature of the events until recently. He no longer works for NIST.
The forensic investigation into 9/11 reportedly cost $80 million. As New Scientist reported last year: "An estimated 2753 people were killed at the World Trade Center site. Just 293 bodies were found intact, and 21,900 pieces were recovered from the debris. Despite the most costly forensic investigation in US history ($80 million so far), the remains of 1113 people are unidentified."
As the New Scientist review of a book on the process of victim identification suggests - perhaps unconsciously - 9/11 investigators faced peculiar problems not just of scale - but due to the explosive collapse of the Twin Towers.
I don't think the following sentences will ever be written about Grenfell, since there was no "blast" and body parts are surely unlikely to ever be found on adjacent buildings. A normal fire - if you can call Grenfell normal, considering the criminal negligence that led to it - do not scatter remains so widely.
"We learn how some first responders tried to “reconstruct” bodies, often mingling remains from different people in one body bag. He tells how the blast meant that sometimes parts from one person ended up inside the body cavity of another. And how the different authorities failed to coordinate on the most basic levels, adding to the confusion.
"The inexperience of the New York Police Department in mass gathering of information and biological samples made the OCME’s job harder, because the collection of DNA samples was haphazard and didn’t follow protocols. And although initial recovery efforts focused on the 16-acre site of the World Trade Center, for years afterwards, body parts were still being found in vent shafts, roofs and on ledges of neighbouring buildings."
Clearly I am no scientist or forensic expert, but video footage of 9/11 shows that the collapse of the two towers was so violent that debris was spread far and wide. Despite fires at Grenfell burning at 1000 degrees centigrade for several hours there was no comparable collapse - or "blast" as the New Scientist writer put it, in a strangely revealing way.
For a more scientific review of the terrible events of 9/11, please see the interview with a former National Institute of Scientific Research (NIST) employee Peter Michael Ketcham, who raises profound questions about the nature of the events that puts them into a very different category than Grenfell.
NIST carried out the investigation into the collapse of WTC7 on 9/11, the third building to collapse that day. Ketcham questions their methodology, and confesses his own blindness to the nature of the events until recently. He no longer works for NIST.
Ketcham says that the official narrative of 9/11 may be slowly collapsing. Perhaps it will undergo a rapid collapse like the Twin Towers did, much to the surprise of many news commentators on the day, who described the collapses as looking like a controlled demolition. That idea - of blasts and demolition - disappeared from the public discourse soon after and was forced into the territory of the so-called truth movement. Ketchum is not your classic truther and neither are the scores of scientists who do not accept the official story. Of course, they remain a minority. After 16 years of a bloody war on terror, what they say should be heard and more importantly, listened to.
Tuesday 18 July 2017
Asset owners are enjoying a bubble - but a 'major loss event' could be coming
Here's a really sound - and pretty much Marxist - explanation for the current stock market boom from Southbank Research:
"We’ve created an environment — for an extended period — where we have a decreased frequency of loss events, an accumulating risk of a major event, and a bias that does not contain the wisdom of navigating any such event. So, market volatility is low. At the same time, this environment is increasing the potential for a major loss event.
A “major loss event” is pretty much just what it sounds like. A correction. Or even a crash. Something you don’t see coming until it’s right between your eyeballs, caving in the bridge of your nose.
Yet it’s been over a year since there was even a 5% pullback in the S&P 500. The S&P is in the middle of its longest such “quiet period” since 1995. No matter how hard you look, you will struggle to spot any sign of trouble on the horizon.
Here it would be tempting to make some analogy about dormant volcanoes. Eventually they erupt. Ka-boom! Pyroclastic flows. Herculaneum. Pompeii. Ash, fire, death.
But geologic time scales are so long compared to our own puny lives that few of us would be genuinely afraid about a volcano erupting and ending the world as we know it. And that’s no way to go through life anyway, waiting around for a volcano to erupt.
Let’s leave off the apocalyptics and suggest there may be something else going on today in financial markets. But what, exactly?
The something else is that the financial markets have become a semi-private means for the wealthy and well-connected to improve their position. There are two worlds now. One for people who can afford to own stocks and bonds and one for everyone else.
The share of profit going to corporations is going up. The share to workers is going down. In this way, corporate earnings are quite bullish looking. That’s great news if you’re a shareholder.
Wall Street and the City have the support of the Federal Reserve and the Bank of England, respectively. Asset owners and asset managers have friends in high places. And those friends have printing presses.
This is why it’s possible for stockmarkets to make higher highs even as most of the middle class in the Western world falls further behind. If you work in or around finance, you have a chance to earn a big wage and buy financial assets, which are bid up and backed up by the central bank.
If you’re out in the real world with a skill and have to compete for your wage with several other billion people who can also make things or provide services, you’ll be lucky to find a job and stay out of debt (unless you want to buy a home, in which case, borrow away and good luck paying). You’ll be lucky to keep the robots off your back.
Granted all this is just a theory about why stocks can go up while wages (for most people) struggle to match rising health, education and housing costs. But it’s not a bad theory. There are two systems. And they are only connected at the margin.
The world isn’t really a less risky place now that it was 20 years ago. It’s just that all the risks are in one system. All the benefits are in the other.
But don’t rule out “a major loss event”, especially when it’s the most unexpected. One trait we all have in common in the modern world is our increasingly short attention span. Our collective memory is failing."
Thursday 13 July 2017
Bonapartism, Thermidor and Stalin
is still essential reading. I abandoned Stalinism when I was 20. The Bonapartist Soviet state built by Stalin survived longer than Trotsky could have known, largely because of the Soviet victory over the nazis, which relegitimised the Soviet state and secured its position in Europe and the world.
The fundamental contradictions of that state were never resolved, but the Bolshevik tradition could never be restored after the purges of 1935-39.
The difference between bourgeois Bonapartism - developed of course under Napoleon - is that the bourgeois revolution can survive the elimination of popular participation. Capitalist relations, once embedded, will not revert to feudalism even with the restoration of aristocratic power, as happened in France in 1815 after Napoleon's defeat.
BY contrast, as Trotsky explained, bureaucratic socialism, in the absence of popular democracy, is a husk. He believed a renewed proletarian democratic struggle could revive socialism if Stalinism fell. But the proletariat was atomised and the revolutionists were liquidated by the Stalinist regime. A restoration of socialist democracy was therefore never possible. Only capitalist restoration could happen - it took another 50 years after Trotsky wrote this article.
The strange thing about modern day Stalinists is they are incapable of drawing the logical historical lessons that the Soviet type states have all reverted to capitalism of a particular kind - bereft of socialist democratic traditions and internationalist class consciousness. In many cases they are ultra-liberal, authoritarian, religious chauvinist states. This ought to clarify the way in which stalinism strangled the progressive, revolutionary and democratic traditions of the working class movements in just about all countries in which it was imposed. Once all power was concentrated in the bureaucratic state and leaders like Stalin, the transition was inevitably one toward capitalism. The world-historic conditions for such a restoration did not exist after 1945 and the victory against fascism, achieved by the Soviet army and people.
Despite the Stalinist regime's opposition to indigenous revolutions elsewhere, it did co-opt and ally with various liberation movements in the colonised countries, especially in the relatively adventurous period of Khrushchev's leadership. Only in the 1980s did conditions arise again for full counter-revolution in Russia and worldwide.
It will take decades for a socialist movement, grassroots based development to return to these countries. This is not simply due to imperialist conspiracy. It is because of the reactionary soil in which such capitalist restoration can flourish in former stalinist states and the atomisation and petrification of autonomous labour and socialist movements in these countries.
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