If, as Mohamed El-Erian suggests, European monetary policy is causing the US stock markets to give off the wrong signals, what else might be to blame for this other than insanely connected globalism? Brexit is but one small dimension of why financialised globalism is self-destructive, and the technocratic enemy of individual human fulfilment. Only the open minds along us are rejecting the nightmare of Tomorrow.
Mohamed El-Erian is, in my considered opinion (considered in that I’ve been following his writings for over ten years) one of the wisest bourse-watchers in the world. He was the driving force behind Pimco, and he now works with Allianz – although he doesn’t need to work. He is worth a frightening amount of money, but he has made it giving solid, sound and hugely insightful investment trend advice.
Two days ago, he spoke on CNBC and offered a contrarian view on the US inverted yield numbers that strongly suggest a recession at some point before the end of 2020. His view is that, like it or not, QE + Zirp driven low interest rates are bound to infect American monetarist economic measures, but they might be giving “a false prediction”. (My italics there are significant)
I am daunted by the idea of taking on any opinion offered by such a heavyweight, but bear with me, because the critique that follows is one with which he might well privately agree. Either way, it seems to me that he is in danger here of commenting on the smell from the bathwater, but ignoring the Devil’s spawn that created it.
When Damien the son of Devil Takethehindmost was put in the bath to clean off his birth-gunge, he variously vomited, urinated and defaecated the following into the water:
- Mercantile monetary Globalism
- Greed and wealth inegality – and thus
- Growth data perverted by Debt.
Let’s take a look at each in turn.
Globalist ‘free’ trade
The current globalist model of capitalist commerce itself reflects a number of extremely unhealthy developments: the rise and rise of the accountant looking to cut costs in every way (from offshoring production through to diluting product quality) with little or no eye on the consequences; the emergence of neocon foreign policy, in which market expansion and access to energy steamroller over any considerations of sensitive and peaceful initiatives to solve regional problems; and the construction (largely on sand) of wannabe superstate trading blocs fighting head to head for global market share.
The effect has been to corporatise diplomacy to the extent of creating myriad potential and actual flashpoints, for example China v Japan v the US, Russia v the EU v the US, Islam v Israel v Russia v the US, The US v South America v China, and not forgetting India vs Pakistan v the US v China.
Others have come to call this neo-colonialism, and indeed the EU (and its peripatetic megaphone Guy Verhostadt) very clearly have that in mind when it comes to Africa. Thus here too, the immediate future looks like the EU v US v Russia v China.
In the nuclear age, this is not so much unhealthy as suicidal. The globalist ideal was that such trading interdependence economics would knock out war as a weapon of diplomacy forever. It isn’t really working out that way, but then very few of the folks who came up with the idea really had that in mind in the first place.
There is no such thing as ‘free’ trade. Everything is a protectionist negotiation to one extent or another, and the bigger the trading partner you have, the more likely you are to be threatened, screwed, and if necessary dragged to the negotiating table by having your currency variously shorted or blocked out of transmissions.
Globalism is really nothing more than a dangerous scramble by various big players to bid for planetary hegemony.
Greed & Wealth inegality
Neoliberal domestic monetary and neocon foreign policy have had equal effects, albeit on different levels of wealth definition: poorer countries compete with the West almost entirely on low cost delivery, while those who had their jobs shipped offshore manage as best they can….but with labour over-supply, their disposable income declines. In the Third World, the lowest-cost provider model in turn demands that wage growth is held back.
In all three ‘worlds’, what we have seen is the most spectacular transfer of power from labour to capital in history; but overarching that has been the concentration of untold wealth in fewer and fewer hands, with the poorest standing still, and a vast ‘middle’ demographic – ranging from thirty-something artisans and entrepreneurs to retired baby boomers – squeezed until their pips squeak by service-supply inflation from below, and stealth taxation from above.
If you want to know the explanation for the election of Donald Trump, the popularity of Boris Johnson, and the uniquely broad appeal of the Gilets Jaunes in France, then read that last paragaph again. It’s all there, and utterly inevitable.
What we see is a chain reaction that has created this crisis in ‘financialised capitalism’.
Vast wealth in the hands of a few is never going to be able to kick-start a flagging economy dependent on repeat-consumption power among the many.
Data perversion and Debt
As the personal disposable income (PDI) is not there among a broad enough spectrum of societies across the world, easily-available and cheap credit has become the Establishment’s weapon of choice in order to keep the show on the road.
‘Growth’ based on debt is fool’s gold. It is merely the bringing forward of unaffordable purchases, and the putting off of an inevitable Day of Reckoning. GDP data showing growth since roughly 2013 has been every bit as bent as data suggesting that people no longer receiving welfare have somehow miraculously obtained a job. This is because almost all of the PDI created has come not from real PDI growth, but from instantly available credit being used to build a debt mountain.
I repeat the statistics I quoted in my post of three days ago: ‘In 2007, total global indebtedness was $112 trillion; today, that number stands at $250 trillion. Last year alone, the combined debt of the world’s four largest economies increased ten times faster than gdp’.
That debt is, of course, multivariate: it is household debt, corporate debt, and bourse trading debt. Think of it this way: respectively, product and service consumption, stock market valuations, and trading positions are all “underwritten” by debt.
Every interest rate rise on debt depresses or endangers all three. Hence the US Fed’s volte face from rate increases to doing nothing to – in October, without much doubt – making a rate cut.
As I have written over and over again, rate normalisation is impossible in the world that globalist neoliberals have created.
Endless three-card tricks, monetary “tools”, banal balm, assurances about algorithms, lies about precious metal values, manipulated commodity prices and energy “explanations” can cut it for only so long.
When El Erian writes about the US being infected by the eurozone, he isn’t describing an anomoly: he’s pointing out a Page One problem with the whole construct. An electronically connected capitalisation system routinely engaging in dysfunctional intra-trading that capitalises nothing (merely taking short-term sales advantage and huge medium term risks) is just another perversion of purpose.
The bourses most emphatically do not provide cheap capital for healthy mezzanine entrepreneurs: they provide the means by which Big can get Bigger (and quoted company directors richer) by mergers and acquisitions that frequently dilute shareholder value.
‘Economies of scale’ that shed jobs will never replace real organic sales growth based on creative innovation. The first is a monopolist accountancy trick, the latter is genuine employment-creating capitalism.
What we are witnessing here is another dimension of the abandonment of open-minded philosophy in favour of rigid ideology. Some basic assumptions about economic futures are in need of urgent and rigorous interrogation: the received truths need to be revealed for the convenient falsehoods they are. These include.
Global bullying versus community and national self sufficiency
Planned agricultural provision versus uncontrolled migration
Bottom up initiatives versus top down bureaucracy
Devolution of power versus supranational blocism
Independent/Neutral foreign policies versus kneejerk alliances
Individual potential versus One size fits all
Greedy profit-taking versus infrastructural investment
The globalist monetary conjurors have a narrative for each of the above. Self-sufficiency is condemned as ‘siege economy’. Migration is depicted as worker freedom, not the wage-suppressant it really is. Devolved community capitalists are dismissed as ‘tree huggers’, those who value absolute dependence are ‘snowflakes’, and investments in health and transport are condemned as ‘non-productive’ by bourses still obsessed by 25% returns on the gross each and every fiscal year.
I conclude where I started by making this observation: if you’re in the business of post-rationalising a mad approach to the economics of social anthropology, you will get mad data-bending, madly unstable dominoes knocking over other stage-set dominoes, and mad signals that are hard to read. Mohamed El Erian may indeed be right about the last of those, but it goes with the territory: you’re in an asylum being run by the lunatics. Don’t just suggest their conclusions are wrong, get the word out there that somebody shot all the psychiatrists.
For the 12% who ‘don’t know’ – and might yet at some point be asked to vote in another Brexit referendum – let me offer a repeat of the opinion expressed several times before in these columns.
If you vote to Leave the EU, the last thing it means is that you are a racist Little Englander who was poorly educated by socialist teachers in a failing Comprehensive, and very probably the sort of tedious bore who recycles farts, sports sandals over grey socks knitted from Peace Camp underwear, and wants to deport everyone without a bloodline stretching back to Henry IV. This hate figure exists only in the infantile, insulting and self-contradictory propaganda of hypocrites like Alastair Campbell, Keir Starmer and Tony Blair.
But if you do vote to Leave, then it’s about far more than Brexit. You’ll be voting in the vanguard of those who, long term, want to demolish the giant superstate blocs….the enemies of individual liberty and proponents of obscene giga-wealth.
You’ll be voting, in fact, against a future in which talented men like Mohamed El Erian have to factor in the imperial megalomania of EU functionaries in order to figure out whatTF the Dow Jones index is on about.
Imagine a future in which you don’t have to wonder why we’re bombing Syria, robbing the Greeks blind, and insulting the Hungarian People. One in which we don’t appease mad Islam, George Soros and the Saudis. Where your capital earns interest, and nobody insists you must love financial maniacs and fanatical religious rapists. A future, one day, devoted to the rejection of ideological systemics in favour of the greatest realisation of the potential of the smallest human being.
Go for it.