Wednesday 15th of May 2024
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the game of cash and imperial military...

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There are two things that should be understood about the global financial markets as the world faces what is being called the Great Reset, or Bretton Woods 2. 

The first is that the US dollar rules the world (as distinct from the US nation). 

The second is that the system is insane. 

Sure, it may look rational with all those numbers, charts, ratios, algorithms and impressive-sounding technical terms. But collectively the whole thing is mad. As the great British writer GK Chesterton said: 

 

The madman is not the man who has lost his reason. The madman is the man who has lost everything except his reason.

 

[Cute maxim, but relatively wrong to the madness of some mad people I know — Gus]

That nicely describes the global capital markets and it does not bode well either for an effective reset or the survival of the monetary system itself.

The US dollar has dominated the global financial markets since 1945, when Franklin D Roosevelt did a deal with King Abdulaziz of Saudi Arabia to denominate oil trade in the American currency, leading to the creation of the ‘petrodollar’ which then became the world’s reserve currency. 

The petrodollar has long since faded; more oil is actually denominated in Chinese yuan now than American dollars (although the yuan is fixed to the US dollar so it is not really separate). But the bulk of international trade and asset buying is still denominated in US dollars out of habit and the US dollar has been further entrenched because of the emergence of the global derivatives market. Derivatives are transactions derived from, or rather are gambles on, conventional financial assets such as currencies, interest rates and shares. 

The ‘value’ (whatever that means exactly) of these derivatives is $US500-1000 trillion, give or take the odd $US100 trillion.

This intense financial activity, most of which occurs in microseconds, is like having a massive roulette wheel spinning above the earth. According to the Bank for International Settlements, the daily cross border trades with the US dollar on one side equates with almost $US6 trillion. 

To give some idea of how big that notional ‘money’ is, the entire US Federal debt, built up over decades, is about $US27 trillion, or the equivalent of less than five days trading. It has entrenched the US dollar as the world’s reserve currency and allows America to do whatever it likes on its Federal budget, its military spending or whatever other financial excesses it can devise, such as a $US21 trillion hole in the defence budget. 

Whatever debt the US issues is swallowed up by the massive demand for dollars in the foreign exchange markets. No other country has that freedom.

It has recently become popular to criticise so-called ‘fiat money’, money that is determined by government edict. The contention is that when President Richard Nixon took America off the gold standard in 1971, because the nation could not pay for the Vietnam War, it ushered in an era of government-created money whose value has been progressively degraded.

Though superficially persuasive the argument is entirely misleading. The repeated crises in the financial markets over the last four decades have not been because of too much government intrusion but the opposite: a refusal by governments to govern properly, which allowed private players to run amok.

It was a cleverly engineered scam. 

In the 1980s and 1990s there was a world-wide push, prosecuted by well-funded think tanks and lobbyists, to ‘deregulate’ the financial markets. What nobody seemed to notice, or if they did notice they conveniently chose to ignore it, is that this argument is, literally, nonsense. It is impossible to deregulate financial markets because they consist of regulations. Deregulating financial markets is like trying to take the hydrogen, oxygen and wetness out of water. Other types of markets can be deregulated because regulations are external to the economic activity, but in finance they are the same.

Enter insanity. 

By convincing Western governments that deregulation was a fine thing (usually using water metaphors to make it seem that regulations somehow got in the way of monetary ‘flows’) private actors were able to make up their own rules, triggering ‘financialisation’, or wealth extraction by the finance sector at the expense of everyone else.

The ridiculous invention of rules has been most obvious in the derivatives markets, which are a complete free-for-all – think of a bet, any bet. It also occurred in the real economy, where unshackled banks and financial institutions invented different ways to create ludicrous levels of global debt that are now, in aggregate, unpayable. The only option for central banks in developed countries has been to drop interest rates to almost zero in the hope of kicking the can down the street and printing money, known as ‘quantitative easing’, on what is laughably called their ‘balance sheets’.

There were plenty of warnings that ‘deregulation’ was dangerous. In 1998, a derivatives company, Long Term Capital Management nearly brought down the Western banking system. Bizarrely, the chairman of the US Federal Reserve, Alan Greenspan, responded by aggressively increasing the number of derivatives traders in the belief that it would all, sort of, balance itself out.

It didn’t. 

The 2007-2008 financial crisis revealed the insanity of allowing private players to invent their own rules when there was a near collapse of the entire system. It was only saved because the US Treasury head, Henry Paulson, decided to re-regulate instead of standing back and allowing ‘market forces’ to work.

It was a close run thing, though. On September 18, 2008, $US550 billion went out of the US money markets in a couple of hours. Paulson responded by closing down all America’s money accounts and announcing a guarantee of $250,000 for all bank deposits. That is, he issued a fiat. The Treasury later estimated that had he not done so $US6 trillion would have exited the US financial system by the end of the day. Given that banks lend out roughly 20 times their capital base this would have spelt the end of the monetary system of the world.

Like all good madmen, banks and financial traders, incapable of taking any responsibility for their own actions and faithfully adhering to their smug anti-government rhetoric, outrageously blamed governments for a crisis that they had caused. They got away with it. Almost no financiers went to jail and they continued their debauch of the system, exploiting lower interest rates to increase debt to its current unsustainable levels.

Can a genuine reset be achieved? Not with the current finance technocrats, who have probably never scrutinised an assumption in their lives. Compare these superficial thinkers with John Maynard Keynes, the person who led the British delegation to Bretton Woods 1 in 1944. A member of the Bloomsbury Group Keynes thought deeply both about what money is and how it should function (he is associated with the economics of government spending but that is only a cartoonish version of his thought). Almost none of the current crop of central bankers, heads of global institutions or schemers in the World Economic Forum are capable of such reflection. Most did not even notice that ‘financial deregulation’ is a flat contradiction.

WHAT SHOULD BE DONE? 

 

First:

Remove the central assumption behind the madness and recognise that money is a system of rules in which government has to be a central player, an umpire. The demonization of ‘fiat money’ is rubbish. So is the idea of freeing up market forces by deregulating the finance system. The question is not whether governments should be involved, but how they should be involved – what constitutes good governance of the system.

 

Second:

Find ways – it will require a jettisoning of the circular arguments of neo-classical economics – to reimpose some sort of control over the quantity of money. Because of financial deregulation, authorities ceded any control over the amount of credit in the system. They can only control the cost of money, the interest rate. With interest rates at close to zero that remaining tool has been rendered useless.

Critics of fiat money get starry-eyed about reintroducing the gold standard or buying Bitcoin. This is because both are finite; in theory they introduce some control over the quantity of money and raise the prospect that it might once again function as a means of exchange rather than something to be debauched in an endless regress. But it is a blind alley. Neither Bitcoin nor gold can be realistically used as a means of exchange, and in any case they are both valued in fiat currency: US dollars. They are just another type of financial asset for investors to play with.

 

Third:

The financial schemers should, even for their own sakes, shelve any ideas about a global central bank digital currency for cross-border transactions, no matter how seductive it might seem as a power grab. It would be a genuine threat to US dollar dominance, imperilling the US military’s ability to spend what it wants. The centralisation of power it implies also poses a threat to Chinese and Russian military autonomy.

Financiers like to think that soldiers are just guns for hire, that money rules everything. A glance at history suggests otherwise. If the financiers go head to head with military interests they will get some nasty surprises and we will be no closer to a solution to the monetary debauch.

 

 

Read more:

https://off-guardian.org/2021/01/30/avoid-the-great-reset-in-three-easy-steps/

 

 

Image at top: Mischief by Gus Leonisky of a Dana Fradon cartoon...

robin hood eventually lost against the sheriff?...

The online trading app Robinhood became a cultural phenomenon and a Silicon Valley darling with a promise to wrest the stock market away from Wall Street’s traditional gatekeepers and “let the people trade” — making it as easy to put millions of dollars at risk as it is to summon an Uber.


This past week, in the middle of a market frenzy pitting amateur traders against hedge fund bigwigs, that veneer began to chip. As it turned out, Robinhood was at the mercy of the very industry it had vowed to upend.


The frenzy morphed into a crisis when legions of armchair investors on Robinhood, who had been buying up options and shares of GameStop, a video game retailer, enlarged those bets and also began making big trades in other stocks, including AMC Entertainment.


As the trading mania grew, the financial system’s risk reduction mechanisms — managed by obscure entities at the center of the stock market called clearinghouses — kicked in on Thursday, forcing Robinhood to find emergency cash to continue to be able to trade. It had to stop customers from buying a number of heavily traded stocks and draw on a more than $500 million bank line of credit. On Thursday night, the company also took an emergency infusion of more than $1 billion from its existing investors.

A high-flying start-up suddenly looked a lot like an overwhelmed, creaky company.


“From a marketing standpoint they position themselves as new, innovative, cool,” said Peter Weiler, the co-chief executive of the brokerage and trading firm Abel Noser. “What I think everyone is missing is, when you peel the onion back they are just a heavily regulated business.”


Robinhood’s distress follows a familiar narrative: A Silicon Valley company that promised to disrupt an industry ends up being overcome by the forces it unleashed and has to be reined in by regulators, or in this case, the industry it promised to change. Its arc is not all that different from Facebook and Google, which changed the ways in which billions of people socialize and search for information, but are now caught in the cross hairs of lawmakers and an angry public.


“They were trying to change the rules of the road without understanding how the road was paved and without any respect for the existing guard rails,” said Chris Nagy, a former trading executive at TD Ameritrade and the co-founder of the Healthy Markets Association, a nonprofit that seeks to educate market participants. “It ended up creating risk for their customers and systemic risk for the market more broadly.”


The fiasco will almost certainly have consequences for the company. The Securities and Exchange Commission said on Friday that it would closely review any actions that may “disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.” Lawmakers on both sides of the aisle called for hearings over complaints that customers were shut out of trades.


After Robinhood limited some trading on Thursday and the price of the stock plunged, furious users flooded online app stores with vitriolic reviews, with some accusing Robinhood of doing the bidding of Wall Street. Others sued the company for the losses they sustained. Robinhood’s continuing vulnerability, even after raising $1 billion, became clear on Friday when it restricted trading in more than 50 stocks.

“It was not because we wanted to stop people from buying these stocks,” Robinhood said in a blog post on Friday night. Rather, the start-up said, it restricted buying in volatile stocks so that it could “comfortably” meet deposit requirements imposed by its clearinghouses, which it noted had increased tenfold during the week.


None of this seems to be slowing down its growth. Even as Robinhood’s actions angered existing customers, it was winning new ones. The app was downloaded more than 177,000 times on Thursday, twice the daily download rate over the previous week, according to Apptopia, a data provider, and it had 2.7 million daily active users on its mobile app that day, its highest ever. That’s more than its rivals — Schwab, TD Ameritrade, E*Trade, Fidelity and Webull — combined.


...


That’s what happened on Thursday morning. The D.T.C.C. notified its member firms that the total cushion, which was then $26 billion, needed to grow to $33.5 billion — within hours. Because Robinhood customers were responsible for so much trading, Robinhood was responsible for footing a significant portion of the bill.


The D.T.C.C.’s demand is not negotiable. A firm that can’t meet its margin call is effectively out of the stock trading business because D.T.C.C. won’t clear its trades any more. “If you can’t clear a trade, you can’t trade a trade,” said Robert Greifeld, the former chief executive of Nasdaq and current chairman of Virtu Financial. “You’re off the island. You’re banished.”

 

...

 

 

Read more:

https://www.nytimes.com/2021/01/30/business/robinhood-wall-street-gamestop.html

"economicians" that know?....

WASHINGTON — The US economy will bounce back to its pre-pandemic size by the middle of the year without any emergency stimulus, the US Congressional Budget Office projected Monday.

The report throws a monkey wrench into President Biden’s push to pass an enormous $1.9 trillion rescue plan ahead of a meeting with 10 Republican lawmakers at the White House on Monday evening after they presented their own more modest proposal.

The nonpartisan federal agency paints an optimistic forecast following a year-long fight with the coronavirus that has killed 441,000 Americans, put millions out of work, and shuttered large swaths of the US economy.

The office said gross domestic product would return to pre-pandemic levels by mid-2021 and will continue growing until 2026 as a vaccine reduces the number of new infections and the need for social distancing.

“Labor market conditions continue to improve. As the economy expands, many people rejoin the civilian labor force who had left it during the pandemic, restoring it to its pre-pandemic size in 2022,” the report said.

 

Read more:

https://nypost.com/2021/02/01/us-economy-will-recover-mid-2021-without-biden-rescue-cbo/

 

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the game of tax and harmonising the empire...

US Treasury Secretary Janet Yellen has signalled a stronger engagement on issues from climate change to human rights to tax evasion, pledging to restore America's economic leadership.

"America first must never mean America alone," she said in her first major speech on its overseas economic policy.

Ms Yellen is also keen for greater global co-operation, rolling back Donald Trump's protectionist policies.

She also raised the issue of a global corporate tax rate.

"Over the last four years, we have seen first hand what happens when America steps back from the global stage," Ms Yellen said pointing to a reversal of Mr Trump's international economic policies.

The US "isolated ourselves and retreated from the international order that we created," she added.

 

Marking an American return to the global stage, she said: "For in today's world, no country alone can suitably provide a strong and sustainable economy for its people."

As part of the increased global leadership role for the US, Ms Yellen outlined the case for a harmonised corporate tax rate across the world's major economies.

"Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth and prosperity," Yellen said during an online interview with the Chicago Council on Global Affairs.

Corporate taxes are one of the revenue-raising proposals for President Joe Biden's $2.25 trillion (£1.62 trillion) package of infrastructure and other spending announced last week. 

Ms Yellen wants to halt what she described as an international "race to the bottom" by countries competing to lure corporations with lower taxes.

China threat

While she said the Biden-Harris administration is committed to helping "make the world economy stronger" she added that it also wanted to "advance American interests". 

 

Ms Yellen hinted at a softer approach towards the growing threat of China, which the US is still embroiled in a trade war with.

"Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be, and adversarial where it must be," she added.

 

Read more:

 

https://www.bbc.com/news/business-56635894

 

This US Treasury Secretary is a stooge for making sure countries do not do better than, or go it alone against, the USA Empire... Her words are as empty as my old barrel of Penfold port 1953 and are actually wickedly smooth like crocodile tears. 

 

 

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tax and economic returns...

The US president's major infrastructure plan that includes the first massive federal tax increase in decades has met opposition from many, particularly Republican lawmakers and the previous president, Donald Trump, who slammed the plan as a "massive giveaway" to China.

Corporate tax hikes included in Biden's $2 trillion infrastructure plan may cause damage to the US economy that could outweigh the benefits provided by the proposal, claims a new study by the Tax Foundation think-tank that was released in late March.

According to the think-tank, federal investment will not deliver as many economic returns as private investment, "5 percent versus 10 percent."

"A dollar of federal spending results in only $0.67 worth of actual investment because state, local, and private sector entities reduce their spending in response to the federal dollars", think-tank president Scott A. Hodge said. "Federal investment financed by debt or taxes could do more economic harm than good because federal borrowing and taxes crowd out private investment. To avoid harming the economy, federal investments should be financed by cuts in other discretionary programs."

The think-tank noted that, on average, returns on federal investment accrue more slowly than returns on private investment, as most private investment is focused on physical capital, while the majority of the government's non-defense investment is usually poured into education and research and development.

"The net effect is 'that $1 increase in federal investment reduces investment by states, localities, and private entities by one-third of a dollar.' In other words, when the federal government invests $1, nonfederal sources reduce their investment by $0.33, which leaves a net investment of $0.67, not the full $1", the Tax Foundation announcement asserted.

The think-tank study concluded that "the economy would be better off if the $2 trillion in taxes that President Biden wants to finance his package were left in the hands of the private sector."

Mixed Reaction to Biden Tax Hikes 

US President Joe Biden rolled out his infrastructure plan last week, particularly asking to increase the corporate tax rate from 21% to 28%, while also skyrocketing the global minimum tax on US corporations, to 21% from 13%.

According to the president, who pitched the decision to raise taxes under his plan as key to building the “strongest, most resilient, innovative economy in the world", the move "will not slow the economy at all".

"We're asking corporate America to pay their fair share", he insisted during his Friday remarks.

Not everyone appears to agree with his enthusiasm over the infrastructure plan. Among vocal critics of Biden's initiative are former US President Donald Trump, who said that the plan "will crush American workers and decimate US manufacturing, while giving special tax privileges to outsourcers, foreign and giant multinational corporations".

"Sacrificing good paying American jobs is the last thing our citizens need as our country recovers from the effects of the Global Pandemic", Trump said in a statement on his Telegram social media account.

Other observers suggested that Biden is risking a "class war" against the wealthy, warning that tax hikes will push American companies overseas to escape high tax costs.

 

Read more

https://sputniknews.com/us/202104061082550043-tax-hikes-damage-will-outweigh-economic-benefits-from-biden-infrastructure-plan-study-claims/

 

 

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an empire in decline...

 

Last week in Saint Petersburg, Russia, one of the most important economic forums of recent times was held. It was the Saint Petersburg International Economic Forum (SPIEF). Although attended, in person or electronically, by representatives of more than 170 countries across the world, it barely attracted a mention in the western mainstream media.

The forum provided the opportunity for a major discussion of what might fairly be described is the new economic order: the shift of economic emphasis from the West, where it has prevailed for the past 200 years at least, to the East.

There are many symptoms of this fundamental shift in the world’s economic focus. An obvious one is the steady decline of the United States dollar as the medium for international trade. This was discussed at one of the forums of the conference where IMF managing director Kristalina Georgieva, Russian central bank Governor Elvira Nebiullina and Russian minister of finance Anton Siluanov shared a forum.

Siluanov announced that in May of this year for the first time, less than 50% of Russia’s exports were nominated in United States dollars. Siluanov announced that Russia intended to totally abandon the United States dollar in the Russian wealth fund. This was part of a major restructuring of the Russian foreign exchange system.

The role of the British pound was also to be reduced (which won’t endear the Russians to the British). The role of the Euro and Chinese Yuan would also be increased, with the status of gold and the Japanese yen remaining stable. These changes may be seen as preparation for heday, which many now see as imminent, when Russia is excluded from the world financial system.

A further topic of discussion at SPIEF was the increasing role of the Chinese in Eurasia’s economy. A combination of Chinese technical capability and Russia’s massive energy resources will provide the foundation of an Eurasian market that will progressively diminish the West’s hitherto dominant role.

One of the principal factors driving the change is decades of United States abuse of the power they retained as the source of the world’s main trading currency. When the use of that power turned to abuse, as has been manifestly obvious for the past several decades, it inevitably produces a reaction. The Russian and Chinese led abandoning of the dollar is the obvious outcome of the growing disenchantment with decades of United States abuse of its position.

The timing of the SPIEF conference is also notable. It occurred in the days before the G7 and NATO summits and two weeks before the Biden – Putin summit set to occur in Geneva. The impetus for this summit has come from Biden. Together with a softening of some points of difference with Russia in recent weeks, and notably with the withdrawal of United States opposition to the completion of the pipeline providing Russian gas to Germany and elsewhere in Europe. The United States clearly has expectations of making geopolitical gains at the Geneva meeting. In all probability, it will be too little, too late.

The Russians are plainly aware of United States attempts to separate them from China, upon whom the Americans are increasingly concentrating their antipathy. The Russian-China partnership has developed too far to make any fantasy of a United States inspired separation feasible.

An outstanding example of Russia – China Corporation can be seen in the progressively greater role being played by the Shanghai Cooperation Organisation. The SCO currently has eight member states, including somewhat surprisingly Pakistan and India cooperation in their mutual interests, four observer states, including, of particular interest, Afghanistan, looking to a post United States future, and six dialogue states. Its membership spans the Eurasian region.

Along with other important regional groupings such as the International North South Transportation Corridor, and the Russian originated Eurasian Economic Union, which after a slow start became a serious body in 2010 with the implementation of the Eurasian Customs Union and the 2011 signing by eight countries of a free trade agreement. It is notable that there is overlapping membership of these different organisations. One thing they have in common is the desire for a non-western dominated set of arrangements to govern their economies, and increasingly other, concerns.

The Russian perspective on these developments was recently provided by President Putin. In a wide-ranging discussion on future developments, Putin drew a direct parallel with the Soviet Union and the United States. As quoted by Reuters, Putin said the United States was wrong to think that it is “powerful enough” to get away with threatening other countries, a mistake he said, that led to the downfall of the Soviet Union.

Putin made the comments during a meeting late on Friday as he spoke about United States sanctions against Moscow, according to Russia’s news agency Tass. “We hear threats from the Congress, from other sources. This is done within the control of the United States’ domestic political press” Putin was quoted as saying. “The people who do this, they probably assume that the United States has such economic, military and political might that it can get away with it. It is no big deal, that is what they think.”

Putin said such behaviour reminded him of the Soviet Union “the problem with empires is that they think they are powerful enough to make such mistakes. We will buy these people, bully them, make a deal with them, give necklaces to them, threaten them with battleships. And this will solve all the problems. But problems accumulate. A moment comes when they cannot be solved anymore.”

It is this background that Putin will bring to his meeting in Geneva with Biden. There was no reason to expect the Russians to make any significant concessions to the Americans. They clearly see the latter as an empire in decline. It is doubtful that the Americans have as clear a view of their own future as seen by others.

The world is changing, perhaps faster than Biden appreciates. Whether he and his advisors have the wit to recognise the impact of these changes remains an open question. It would perhaps be unwise to place too much reliance upon an American capacity for insight into these changing realities.

 

James O’Neill, an Australian-based former Barrister at Law, exclusively for the online magazine “New Eastern Outlook”.

 

READ MORE:

https://journal-neo.org/2021/06/07/the-world-is-changing-but-do-the-americans-recognise-it/

 

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