Archive for November 29th, 2013

by lizard

Luckily I didn’t need Obamacare talking points to survive Thanksgiving dinner. Instead, after the turkey and stuffing and green bean casserole, I talked with my dad about the rampant systemic greed of capitalism.

I asked my dad if he thought his fellow Christians would ever condemn the greed driving our capitalist system off the cliff, and he immediately mentioned Pope Francis who, if you haven’t heard, is a capitalism-bashing badass:

Pope Francis has attacked unfettered capitalism as “a new tyranny”, urging global leaders to fight poverty and growing inequality in the first major work he has authored alone as pontiff.

The 84-page document, known as an apostolic exhortation, amounted to an official platform for his papacy, building on views he has aired in sermons and remarks since he became the first non-European pontiff in 1,300 years in March.

In it, Francis went further than previous comments criticising the global economic system, attacking the “idolatry of money” and beseeching politicians to guarantee all citizens “dignified work, education and healthcare”.

He also called on rich people to share their wealth. “Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an economy kills,” Francis wrote in the document issued on Tuesday.

“How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?”

Borgias beware!

Or, if you listen to Rush, beware Marxism:

“I’ve gotta be very caref(ul). I have been numerous times to the Vatican. It wouldn’t exist without tons of money. But regardless, what this is — Somebody has either written this for him or gotten to him. This is just pure Marxism coming out of the mouth of the Pope. There’s no such (thing as) ‘unfettered capitalism.’ That doesn’t exist anywhere.”

After referencing Pope Francis, I replied with my obligatory observation, which I’ve made here, that Millennials are apparently warming to the concept of Socialism. Forbes called the findings of the study that broke this bombshell stunning.

To bolster my argument, I cited the fact an openly socialist candidate won a seat on Seattle’s City Council. Her name is Kshama Sawant, and she’s ready to shake things up.

I lived in Seattle a good portion of my life, and my Dad still has a lot of friends who work in the area, so I feel comfortable reporting, based exclusively on my Dad’s description of his Facebook activity, that those in his peer group think Sawant’s call for Boeing workers to take over the factories is sheer lunacy.

A newly elected Socialist city council member wants Boeing machinists to take possession of an airplane-building factory if the company decides to move out of state.

“The workers should take over the factories, and shut down Boeing’s profit-making machine,” Council member-elect Kshama Sawant told union supporters earlier this week, according to KIRO-TV.

Sawant claims Boeing executives are taking part in “economic terrorism” considering out-of-state locations to build the new 777X airliner after machinists rejected a contract that would have guaranteed jobs in Everett for eight years.

Yeah, that’s probably a bit much, and because I’m kinda paranoid, I now wonder if Sawant isn’t some caricature of Socialism designed to poison the waters. Or maybe that was just a hallucinatory vision from my turkeymeat-coma.

Getting into the guts of what is happening, economically, is still very murky terrain for me. One of my go-to informers continues to be Michael Whitney, and his latest piece—Christmas Time on Wall Street—is a must read.

There is one particular nugget that Whitney finds and quotes, and it comes from economist James K. Galbraith, some no-name dude who apparently used this thing called “history” to explain why the Fed’s printing-press policy was going to fail. The title of the article he wrote in 2009 is “No Return to Normal” and here’s the quote Whitney uses:

“Roosevelt employed Americans on a vast scale, bringing the unemployment rates down to levels that were tolerable, even before the war—from 25 percent in 1933 to below 10 percent in 1936… The New Deal rebuilt America physically, providing a foundation … from which the mobilization of World War II could be launched…..

“What did not recover, under Roosevelt, was the private banking system. Borrowing and lending—mortgages and home construction—contributed far less to the growth of output in the 1930s and ’40s than they had in the 1920s or would come to do after the war. If they had savings at all, people stayed in Treasuries, and despite huge deficits interest rates for federal debt remained near zero. The liquidity trap wasn’t overcome until the war ended….. the relaunching of private finance took twenty years, and the war besides.

“A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.”(“No Return to Normal: Why the economic crisis, and its solution, are bigger than you think” James K. Galbraith, Washington Monthly)

Whitney is using this quote to deflate the idea that the Fed’s exclusive focus on bailing out the private banking system has delivered on the credit-expansion promises used to sell this policy. Without government movement on minimum wage, at the very least, growth will be kept to the corporate juicing of stock buy-backs. Here’s Whitney:

Anyway, from the looks of things, it’s going to be hard to inflate much of a credit bubble in any of the usual sectors: Housing, autos, credit cards or student loans. In fact, I would expect to see less money poring into these areas rather than more.

But if credit doesn’t expand, then the only way the economy is going to grow is if wages go up, the government increases its deficits, or businesses boost capital investment. So, what’s it going to be?

Well, we know wages aren’t going up, so we can scratch that baby off the scorecard right away. We also know that budget-slasher, Obama, is not going to do an about-face and launch another round of fiscal stimulus anytime soon. He’s going to keep hacking away government spending and safetynet programs until his sorry term is up and they ship him back to Chicago to work on his memoirs.

That leaves business investment, right?

Oddly enough, there is some good news on that front, although the details may come as something of a surprise. You see, corporations have been borrowing more but NOT to invest in their businesses. Oh, no. In fact, according to Westpac’s Elliot Clarke:

“…business investment has decelerated from over 9% in June 2012 to little more than 2% in June 2013 ….. From the Fed’s flow of funds data, it is evident that nonfinancial firms have been adjusting their financial structure, funding stock buy backs and acquisitions with borrowed funds. This is not only a recent phenomenon; it has been seen throughout the recovery…

This recovery’s business investment narrative then looks to have been all about US corporates maximizing reported profits (both by making the financial structure more efficient and through acquisitions) as opposed to expanding capacity….” (“How effective has QE been at stimulating credit creation?, Elliot Clarke, Westpac)

How weird is that? So, the Fed’s goofy monetary policies have turned the corporations into hedge funds. They’re no longer building factories, piling up inventory, or buying tools and equipment. They’re simply taking advantage of the surge of liquidity the Fed is pumping into the financial markets to buy back their own stocks and juice the price. Or course, none of this leads to more demand for funds, a stronger credit expansion, more hiring, or a sustainable recovery. All it does is goose equities prices paving the way to bigger end-of-year bonuses, which seems to be the objective.

This is the hot mess of late-stage capitalism. It’s insane. We absolutely need to consider other models of human organization.

That said, let’s hold off on taking over factories. Lasting change is a long game. That may not get you headlines, but the real work is not about getting headlines.

It’s about truly understanding how deeply our crony capitalist system is failing.

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