Friday, May 10, 2013

The Phoney War

... is nearly over, according to Tullet Prebon:
The uneasy economic calm that has prevailed since the 2008 banking crisis is analogous to the “phoney war” of 1939-40. Like that military event, this economic one will end with a bang. 
Behind governments’ routine assurances to the contrary, the reality is that the world is ex-growth, governments and economies are indebted far beyond sustainable levels, the banking system remains extraordinarily vulnerable to the next shock, and strong rallies in global bond markets are bubbles waiting for a pin. 
Fundamentally, the problem is that the monetary economy has grown far beyond a scale sustainable by the underlying ‘real’ economy of energy and broader resources. The energy returns equation critical to growth in the real economy is weakening relentlessly, meaning that output is not capable of meeting the future claims embodied in the monetary system. 
No-one in authority has any real idea about how to bridge the gap between the two in any way short of value-destruction on a systemic scale. Moreover, Western governments have entered into welfare spending commitments which cannot conceivably be met in the absence of robust growth. 
In the absence of solutions, governments are prioritising the defence of the status quo in general, and of their own interests in particular. We are witnessing the early but unmistakable stages of an expropriation process designed to transfer private wealth to the state. 
It's all alarmist nonsense, of course, sure no Irish government would ever agree to confiscate people's savings...

3 comments:

  1. "...output is not capable of meeting the future claims embodied in the monetary system. "

    There is the nub. But thus written I believe it is a false statement. Further, thus written, it euphemistically distorts the underlying injustice we should really be disturbed by.

    Indeed, there are millions of savers in the west, with savings they expect to leverage in the future.

    True, the working population of the west will be little able to meet those claims, in the context of the middle class lifestyle this working population is accustomed to, and how much of their output is needed to fund it.

    But, there is Asia and Africa. - THEIR output will go to meet these claims.

    At the end of the day, capitalism is all about the legal or moral claim upon, or power over, the labour of others (every such claim implying precisely as much poverty or debt on one side, as it implies riches or right on the other).

    As Ruskin put it: "... Riches are a power like that of electricity, acting only through inequalities or negations of itself. The force of the guinea you have in your pocket depends wholly on the default of a guinea in your neighbour's pocket. If he did not want it, it would be of no use to you; the degree of power it possesses depends accurately upon the need or desire he has for it, —and the art of making yourself rich, in the ordinary mercantile economist's sense, is therefore equally and necessarily the art of keeping your neighbour poor."

    ... What I'm getting at, in relation to what I quoted at the top of this post, is that the savings embodied in the monetary system have plenty of labour "fodder" in a globalised market to satisfy itself.

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  2. @roc. Yes, capitalism has many ways of exploiting surplus labour - both here and in the developing world - but Gerard's argument 'that the monetary economy has grown far beyond a scale sustainable by the underlying ‘real’ economy of energy and broader resources,' presents a problem that has little to do with the labour "fodder" in a globalised market.

    Although the imposition of the property tax and the impending water charges can be presented as a sensible move to a stable revenue stream, others may see it as the first signs of the new, post-crisis order, where unsustainable public pensions, entitlements and state services are shored-up by direct expropriations of the citizens' savings and earnings.

    The revenue that appeared to be generated by the financial sector has now been exposed as little more than a debt-making machine. That has forced us to look again at what we, in this country, can use to generate authentic wealth. That appears to be the old reliable of agricultural production, with whatever value-added goods arise from that, along with the new possibilities of renewable energy and, perhaps, new opportunities in heritage tourism and the arts.

    Ireland is not a rich country. Politicians and bankers tried to tell us we were rich because it suited their purposes, but we never were. Discussion of how we might leverage our savings in the emerging world fails to understand that the big developing nations with huge natural resources are commodity-rich in a way we can never be. Irish, and indeed Western, savings are all that many of us will have to live on in a low-growth, high-unemployment environment which may well become the norm. The attempt by the elite to maintain the level of services and entitlements to which they have become accustomed, will entail more and more raids by them on people's savings and assets, as our inherent uncompetitiveness with the big, resource-rich nations becomes obvious. What we do to avoid becoming fodder for those who wish to maintain a middle-class lifestyle on the backs of those who are not in control of the state, the banks, or the EU, is surely about to supersede the old argument of 'capitalism v socialism'.

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  3. @Hugh - yep, the old argument is definitely about to be superseded.

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