One of the true delights of watching Camerlot in action is that the I saw you coming syndrome gets funnier with every week. Thus the way in which George Osborne told us all on Thursday that credit ratings don’t matter any more (seven hours after which S&P seriously downgraded our outlook) was almost Gallic in its risible transparency. Little Georgie is running out of plums to pull from pies…and pork pies to bake. Our squeakiest ever Chancellor has (whether he now likes it or not) tied his credibility to Britain’s Triple-A, and even if the couch-potatoes have forgotten that, none of the media have.
But the profound truth that lies not far below the superficiality of fiscal spin is that every finance minister, central bank head, and political chief executive in the West today faces the same problem: the current model of capitalism has nowhere to go from here.
The generally accepted reality in the EU now is that Angela Merkel will try and put everything on hold until the Autumn of 2013. I severely doubt she has a cat in Hell’s chance of achieving that, but either way, the utterly selfish survival mania that all these people have continues to astonish. The European Union cannot act in concert because the national leaders put their own power and national interests way above any consideration called ‘Europe’. To argue that the Greek social disaster is all being undertaken for the good of Europe is so obscenely false, there are times when I really do wonder when the Greek people will wake up and tell Brussels-Am-Berlin to go and take a running jump…rather like Spain already has. Rajoy has done that for the simple reason he knows that not to do so would result in him too falling from power. In France, M. Hollande has weighed in and insisted that the Greek feeding tube remains up that unfortunate country’s backside purely because he has been told that the French banking system would melt down were it to be otherwise….and he too would lose power.
But like Osborne on a smaller scale (and everything about Osborne is small) Merkel too is fast running out of options. Cynics will continue to thread here and say “they’ll keep it going blah blah”, but this is Planet Earth, not a moon of Planet Merkel: other people are involved here, and they’re far more powerful than a bunch of Belgian cod poets. China is slowing down, for one very simple reason – its export markets aren’t consuming. If the dash for a decent standard of living goes into neutral in China, the leadership knows it will soon be out of a job. But the real export numbers are way down – if you look at them in the light of growth rates we’ve seen in the last decade there.
China’s main market of course is America. Last week Ben Bernanke yet again gave out a signal loud and clear to those who were prepared to listen: the ‘recovery’ isn’t going to plan in the US. President Obama beamed for the cameras afterwards, and told his electorate that America was getting back to work. But as with Cameron’s hyped unemployment figures recently, the Black Dude’s employment numbers have been massaged and obfuscated to say stuff that kept him in the White House….nobody is issuing the warnings and then action required to solve the problem. Playing with sub-stats within the numbers, massaging time periods, and counting part-time cleaning work for five hours a week as ‘a job’ may fool the People, but in the end it won’t fool the markets.
The Republican failure to deconstruct the Obama drivel is a reflection of how completely bereft the senior GOP players are these days when it comes to economic analysis and philosophy. Democrat voters argue that Republicans simply don’t care about unemployed people, but that is incorrect: they have to care – otherwise they too will, in many cases, lose power next Congressional time around. But chiefly, the American Right in general is obsessed with the deficit and the debt at the expense of every other factor. They are, in econo-fiscal terms, absolutely right to be focused on the eye-watering amount of money the US owes; but in political terms, this is a crazy windmill at which to tilt, for two reasons.
First up, it makes them look like saboteurs and wreckers, stopping the President from taking action to get people back to work – purely to score political points. The debt ceiling is real enough, but most voters would much rather have a job than a balanced Federal budget. Secondly, there is not a damned thing they or anyone else can do about US governmental debt….until such time as those tickling the levers of power realise that a drastic change of economic strategy and objectives is the only way to even start doing it.
The idea for the GOP in November was to get Barack Obama out, and the Right failed massively in that task. They were always going to, because had they attacked the President on the basis of diminishing QE returns, easily unravelled unemployment lies, and falling share of export markets, it would’ve meant the Republicans admitting that their glorious neocon system was a heap of crap. One senior hitter in Washington told me during September, “The one thing [the GOP] dreads is the President coming out and saying ‘Look buddy, I didn’t make the system – you did’.” So the Right had to fall back on overspending on health alongside the rising debt problem. Criticising factors that are distant from, or vital to, floating voters has never won an election in history, ever. To rephrase an old adage, the Republican Party was hoist by its own facade.
But Obama too has now reached the cliff face…or the cliff edge, demanding on the degree of doom you foresee. And so we see a world in which every major economic player is fenced in by ideology, and the one remaining mega-rogue – Russia – faces economic collapse, because nobody will want its energy when the whole mess comes to a grinding halt.
I well remember about two years ago, a regular Slogger – a minor financial celebrity as it happens – stopped reading The Slog and wrote me an email explaining that he’d done so because I’d ‘cried wolf’ too many times. I wasn’t exactly what you could call a lone wolf in that howling process, but nevertheless I thought it a daft comment, and still do. What I and millions of other commentators underestimated was the ability of politico-banking gangsters to grab the reins of power and then lie pathologically while cheating everyone and everything in their way.
But it still remains true that this is the only thing keeping the show on the road: secretly printing funny money, subordination of bondholders, embezzlement of SME assets, and manipulation of both Libor rates and gold prices are all criminal offences. They all happened, and nobody went to jail. Had I forecast that in 2008, most ‘mainstream’ business writers would’ve dismissed me as just another Max Keiser.
Timescales are a mug’s game in that context: but every timescale is finite, by definition. Everything is in flux, all things pass, nothing is forever. Be it cliff face or edge, when one is just behind you and the other is dead ahead, something big has to happen. The reality of our presence in that place has been made clear by one conclusion about any other: QE is a failure. It was a failure waiting to happen on the day it made an entrance into our lives, but the difference today is that it is a palpable, measurable failure.
The first QE bout geed up the markets by 25-40%…but only temporarily. The second managed about 12-18%, the third made no measurable difference, and the rest have simply undermined opinion-leader confidence in an American recovery, full stop. The effects have been lower, and the bonus shorter, as time has passed. “One last heave” is just the triumph of blind faith over experience. Ben Bernanke knows it, Mervyn King knows it, and Mario Draghi probably always knew it. The remaining weapon in the Central Bank armoury isn’t working. This is it, guys: we’re screwed.
It’s worthwhile, I think, taking a few paragraphs here to give a view on why demand isn’t responding. I think there are three reasons. First, the neocon survival strategy of ‘squeezing the middle’ is a short-term fix for the élite, but it has within it the seeds of their destruction. I’ve said this before, but it bears repeating: you cannot kickstart a stalled economy when nearly 60% of the population is strapped for cash. Tax rises, zero interest rates and medium-term loss of earning power will all depress demand. All the Western economies in trouble now share these illnesses to one extent or another – albeit with obvious emphasis differences between Greece (taxes) and the UK (zero rates).
The second factor is anthropological, and involves naked fear. Beyond the Underclass intelligence level and mass market media distraction, there are still plenty of sensible folks trying to make ends meet, yet feeling fairly sure that the Big Shots have messed up, and things will get nasty. When you have no confidence in the immediate future, no confidence trickster is ever going to work his scam. People at the sharp end know that both Cameron and Obama are dissemblers, and people in the media have finally grasped that export shares are falling in all three major Western economies. Nobody in the middle is going to buy a new durable in that context. Across Europe at the minute, every housing sector below the top-top end is in a slump of historic depth. Almost all the fear around that market is based on whether the currency can survive, and if so, what it will be worth afterwards.
But it’s the third consideration that not only exacerbates the first two above, it explains really simply why growth cannot come given the current model. It’s a six-letter word called credit.
Some time during the period from 1976 to 1984, the human being’s ability to consume goods underwent the biggest leap in history. What had been the American Express charge-card for a few became the mass-market credit card for the many. A Liverpudlian friend of mine’s uncle was so terrified when Midland Bank mailed him an unsolicited Access card in 1972, he took it up to the roof-space, locked it in a metal box, and then went outside to throw the key down his grid to the sewers. It’s a great story, but who was the sane one – him or us?
The loosening of credit at all levels and in all sectors literally powered market sectors single-handed. The first big UK property hikes began at this time, as mortgages quickly changed from being a privilege to a right. Throughout the 1990s, property ownership in the US zoomed down the demographic scale and across genders as never before. By 2000 in the UK, almost everyone in a job had a credit card; the debit card then arrived (just as emotionally painless when at the point of purchase) and fed yet more lax rules about overdrafts. And when these cards and current accounts were maxed out, clearing banks hired entire floors full of salespeople working around the clock to sell people credit they couldn’t possibly afford to repay.
New Labour, the Democrats, the GOP, Brussels and every central bank watched this happen, and did nothing. In many instances, the trend was actively encouraged. But it isn’t the morality or ethics involved here that interest me in this piece: it is the addiction to credit – and the assumptions of growth and profit – that got hold of capitalists, bankers and markets across the globe.
And then suddenly, bang: in 2008, the drugs were withdrawn. Ever since then, its been cold turkey for everyone except the mad folks who invented the whole crazy notion of a never-ending growth paradigm.
“After 2008,” remarks opinion-leading UK wealth manager John Robson of Full Circle, “all four of the sectors consuming or selling credit – Government, Financial, Corporate and Household – went into reverse as never before. But it still hasn’t been grasped by even quite sophisticated people that credit-growth modelled capitalism cannot produce the goods until that about face is reversed, rethought, and reconfigured. No senior politician in the West shows any sign of knowing how to get out of this situation”.
Like me, Robson argues for widespread and massive debt forgiveness at the banking and sovereign levels. Also like me, he thinks the aims and methods of neocon capitalism have perverted the original idea of wealth creation. The Friedmanite tendency has justified itself by creating financial paper wealth that is worthless in the real currency system, and fiat currencies themselves that no longer have a credible backing such as gold. Mario Draghi is the sole banker I’m aware of considering the backing of eurobonds with gold (many believe this has prompted the Germans to ask for their gold back) but nobody senior in either Brussels or Frankfurt will officially recognise that such planning is under way. To do so, they reason, would start a panic withdrawal from all eurodebt. They’re right, but that’s going to happen anyway: I only hope they can get their timing right on that. If they did, it would be a first for the EU.
I am sure that experts will now pop up to call this analysis “simplistic” – or some other equally patronising term to bluster their way out of a blindingly obvious failure. The Young Libertarian Right, especially in the UK, thinks the rather silly practice of calling proposed alternatives Marxist, collectivist, State socialism and so forth is some kind of answer to the problem. In doing so, they appear at times to be indulging in almost unbalanced logic: “Let’s call some equally clueless bourgeois liberals communists: that should solve our dilemma in supporting a system whose adherents are also clueless”.
The problem is the same at all levels and on all sides of politics, economic philosophy, fiscal theory and financial marketing: hero-worship of yesterday’s polemics, denial on a global scale, complete lack of balls, and most of all, no creative vision that would require cojones in order to deliver it in the first place. Socio-cultural debate, the arts, sport, gender roles, and climatic theory all display the same arid, dull Spanish Inquisition Crusader mentality: let’s trash the other lot….so much easier to do that than have an original idea.
Our species inflexibility, paranoia and aggression have for too long been allowed to dominate the position held by anthropologists and sane religious leaders: that competition is fine, but without cooperation it will end in tears. As things look going into 2013, it may indeed be the death of us. The powers rumbling around in the Middle East, the growing madness among the North Korea-China-Japan steroids-chomping militarists, and the inexorable rise of murderous Islam: all these are yet more of the predictable distractions and displacement actions Homo sapiens indulges in when he feels cornered. You can see where it’s leading. Well, we can – even if ‘they’ can’t.
The very superfluity of descriptions used to ‘explain’ our current business modus operandum on Earth in a sense gives away the truth that it is too complex, multivariate and difficult to explain. Globalist mercantile laissez-faire credit-for-growth driven Reaganomic neoconservative financial capitalism: it’s quite a mouthful.
There is a safer, more sustainable and longer-term altogether culturally more healthy alternative. This can be explained succinctly and without recourse to jargon: nation state self-sufficiency, and trade in the surpluses. That, I become more certain with every year, is where we will wind up. But we might well have to hang a lot of psychopaths along the way.