The European Union's proposed recovery fund to counter the pandemic's economic fallout seems destined to leave the majority in every member state worse off. Finance will again be protected, if badly, while workers are left to foot the bill through new rounds of austerity.
The euro crisis that erupted a decade ago has long been portrayed as a clash between Europe’s frugal North and profligate South. In fact, at its heart was a fierce class war that left Europe, including its capitalists, much weakened relative to the United States and China. Worse still, the European Union’s response to the pandemic, including the EU recovery fund currently under deliberation, is bound to intensify this class war, and deal another blow to Europe’s socioeconomic model.
If we have learned anything in recent decades, it is the pointlessness of focusing on any country’s economy in isolation. Once upon a time, when money moved between countries mostly to finance trade, and most consumption spending benefited domestic producers, the strengths and weaknesses of a national economy could be separately assessed. Not anymore. Today, the weaknesses of, say, China and Germany are intertwined with those of countries like the US and Greece.
The unshackling of finance in the early 1980s, following the elimination of capital controls left over from the Bretton Woods system, enabled enormous trade imbalances to be funded by rivers of money created privately via financial engineering. As the US shifted from a trade surplus to a massive deficit, its hegemony grew. Its imports maintain global demand and are financed by the inflows of foreigners’ profits that pour into Wall Street.
This strange recycling process is managed by the world’s de facto central bank, the US Federal Reserve. And maintaining such an impressive creation – a permanently imbalanced global system – necessitates the constant intensification of class war in deficit and surplus countries alike.
Deficit countries are all alike in one important sense: whether powerful like the US, or weak like Greece, they are condemned to generate debt bubbles as their workers helplessly watch industrial areas morph into rustbelts. Once the bubbles burst, workers in the Midwest or the Peloponnese face debt bondage and plummeting living standards.
Although surplus countries, too, are characterized by class warfare against workers, they differ significantly from one another. Consider China and Germany. Both feature large trade surpluses with the US and the rest of Europe. Both repress their workers’ income and wealth. The main difference between them is that China maintains huge levels of investment through a domestic credit bubble, while Germany’s corporations invest much less and rely on credit bubbles in the rest of the eurozone.
The euro crisis was never a clash between the Germans and the Greeks (shorthand for the fabled North-South clash). Instead, it stemmed from an intensification of class war within Germany and within Greece at the hands of an oligarchy-without-frontiers living off financial flows.
For example, when the Greek state went bankrupt in 2010, the austerity imposed on most of the Greek population did wonders to restrict investment in Greece. But it did the same in Germany, indirectly repressing German wages at a time when the European Central Bank’s money-printing was sending share prices (and German directors’ bonuses) through the roof.
Class warfare is arguably more brutal in China and the US than it is in Europe. But Europe’s lack of a political union ensures that its class war verges on being pointless, even from the capitalists’ perspective.
Evidence that German capitalists squandered the wealth extracted from the EU’s working classes is not hard to find. The euro crisis caused a massive 7% devaluation of the surpluses that the German private sector had accumulated from 1999 onwards, because capital owners had no alternative but to lend these trillions to foreigners whose subsequent distress led to large losses.
This is not only a German problem. It is a condition afflicting the EU’s other surplus countries as well. The German newspaper Handelsblatt recently revealed a notable reversal. Whereas in 2007, EU corporations earned around €100 billion ($113 billion) more than their US counterparts, in 2019 the situation was inverted.
Moreover, this is an accelerating trend. In 2019, corporate earnings rose 50% faster in the US than in Europe. And US corporate earnings are expected to suffer less from the pandemic-induced recession, falling 20% in 2020, compared to 33% in Europe.
The gist of Europe’s conundrum is that, while it is a surplus economy, its fragmentation ensures that the income losses of German and Greek workers do not even become sustainable profits for Europe’s capitalists. In short, behind the narrative of northern frugality lurks the specter of wasted exploitation.
Reports that COVID-19 caused the EU to raise its game are grossly exaggerated. The quiet death of European debt mutualization guarantees that the gigantic increase in national budget deficits will be followed by equally sizeable austerity in every country. In other words, the class war that has already eroded most people’s incomes will intensify. “But what about the proposed €750 billion recovery fund?” one might ask. “Is the agreement to issue common debt not a breakthrough?”
Yes and no. Common debt instruments are a necessary but insufficient condition for ameliorating the intensified class war. To play a progressive role, common debt must fund the weaker households and firms across the common economic area: in Germany as well as in Greece. And it must do so automatically, without reliance on the kindness of the local oligarchs. It must operate like an automated recycling mechanism that shifts surpluses to those in deficit within every town, region, and state. In the US, for example, food stamps and social security payments support the weak in California and in Missouri, while shifting net resources from California to Missouri – and all without any involvement by state governors or local bureaucrats.
By contrast, the EU recovery fund’s fixed allocation to member states will turn them against one another, as the fixed sum to be given to, say, Italy or Greece is portrayed as a tax on Germany’s working class. Moreover, the idea is to transfer the funds to national governments, effectively entrusting the local oligarchy with the task of distributing them.
Strengthening the solidarity of Europe’s oligarchs is not a good strategy for empowering Europe’s majority. Quite the contrary. Any “recovery” based on such a formula will short-change almost all Europeans and push the majority into deeper despair.
“That 70s Show”
The hit TV series "That 70s Show" aired from 1998 to 2006 and focused on six teenage friends living in Wisconsin in the late 70s. The irony was that the…
The hit TV series “That 70s Show” aired from 1998 to 2006 and focused on six teenage friends living in Wisconsin in the late 70s. The irony was that the actors playing the teenagers were not born in the late 70s and had never experienced life during that period. Many alive today cannot fathom a lifestyle devoid of the internet, cable television, mobile phones, and social media. Oh…the horrors.
Yet, today, almost 50 years later, financial commentators, many of whom were not alive at the time, suggest that inflation and yields will repeat “That 70s Show.” Understandably, the increase in inflation and interest rates from their historic lows is cause for concern. As James Bullard noted, “Inflation is a pernicious problem,” which is why the Federal Reserve lept into action.
“When the US Federal Reserve embarked on an aggressive campaign to quash inflation last year, it did so with the goal of avoiding a painful repeat of the 1970s, when inflation spun out of control and economic malaise set in.” – CNN
That concern of “spiraling inflation” remains the key concern of the Federal Reserve in its current monetary policy decisions. It has also pushed many economists to point back at history, using “That 70s Show” period as the yardstick for justifying their concerns about a resurgence of inflation.
“The chair of the Federal Reserve at the time, Arthur Burns, hiked interest rates dramatically between 1972 and 1974. Then, as the economy contracted, he changed course and started cutting rates.
Inflation later roared back, forcing the hand of Paul Volcker, who took over at the Fed in 1979, Richardson said. Volcker brought double-digit inflation to heel — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
‘If they don’t stop inflation now, the historical analogy [indicates] it’s not going to stop, and it’s going to get worse,’ said Richardson, an economics professor at the University of California, Irvine.”
However, such may be an oversimplification to suggest Burns was wrong and Volker was right. The reason is the economy today is vastly different than during “That 70s Show.”
Today Is Very Different Than The 1970s
During the 70s, the Federal Reserve was entrenched in an inflation fight. The end of the Bretton Woods and the failure of wage/price controls combined with an oil embargo sent inflation surging. That surge sent markets crumbling under the weight of rising interest rates. Ongoing oil price shocks, spiking food costs, wages, and budgetary pressures led to stagflation through the end of that decade.
What was most notable was the Fed’s inflation fight. Like today, the Fed is hiking rates to quell inflationary pressures from exogenous factors. In the late 70s, the oil crisis led to inflationary pressures as oil prices fed through a manufacturing-intensive economy. Today, inflation resulted from monetary interventions that created demand against a supply-constrained economy.
Such is a critical point. During “That 70s Show,” the economy was primarily manufacturing-based, providing a high multiplier effect on economic growth. Today, the mix has reversed, with services making up the bulk of economic activity. While services are essential, they have a very low multiplier effect on economic activity.
One of the primary reasons is that services require lower wage growth than manufacturing.
While wages did rise sharply over the last couple of years, such was a function of the economic shutdown, which created a supply/demand gap in the employment matrix. As shown, full-time employment as a percentage of the population fell sharply during the pandemic lockdown. However, with full employment back to pre-pandemic levels, wage growth declines as employers regain control over the labor balance.
Furthermore, the economic composite of wages, interest rates, and economic growth remain highly correlated between “That 70s Show” and today. Such suggests that while inflation rose with the supply/demand imbalance created by the shutdown, the return to normalcy will lower inflation as economic activity slows.
With a correlation of 85%, the inflationary decline will be coincident with economic growth, interest rates, and wages.
Unlike “That 70s Show,” where economic growth and wages were rising steadily, which allowed for higher levels of interest rates and inflation, There is a singular reason why a repeat of that period is quite impossible.
The Debt Burden And Economic Weakness
What is notable about “That 70s Show” is that it was the culmination of events following World War II.
Following World War II, America became the “last man standing.” France, England, Russia, Germany, Poland, Japan, and others were devastated, with little ability to produce for themselves. America found its most substantial economic growth as the “boys of war” returned home to start rebuilding a war-ravaged globe.
But that was just the start of it.
In the late ’50s, America stepped into the abyss as humankind took its first steps into space. The space race, which lasted nearly two decades, led to leaps in innovation and technology that paved the wave for the future of America.
These advances, combined with the industrial and manufacturing backdrop, fostered high levels of economic growth, increased savings rates, and capital investment, which supported higher interest rates.
Furthermore, the Government ran no deficit, and household debt to net worth was about 60%. So, while inflation increased and interest rates rose in tandem, the average household could sustain its living standard. The chart shows the difference between household debt versus incomes in the pre- and post-financialization eras.
With the Government running a deep deficit with debt exceeding $32 trillion, consumer debt at record levels, and economic growth rates fragile, consumers’ ability to withstand higher inflation and interest rates is limited. As noted previously, the “gap” between income and savings to sustain the standard of living is at record levels. The chart shows the gap between the inflation-adjusted cost of living and the spread between incomes and savings. It currently requires more than $6500 of debt annually to fill the “gap.“
It Is Not The Same
While the Fed is currently engaged “in the fight of its life,” trying to quell inflation, The economic differences are vastly different today. Due to the heavy debt burden, the economy requires lower interest rates to sustain even meager economic growth rates of 2%. Such levels were historically seen as “pre-recessionary,” but today, they are something economists hope to maintain.
This is one of the primary reasons why economic growth will continue to run at lower levels. Such suggests we will witness an economy:
- Subject to more frequent recessionary spats,
- Lower equity market returns, and
- A stagflationary environment as wage growth remains suppressed while the cost of living rises.
Changes in structural employment, demographics, and deflationary pressures derived from changes in productivity will magnify these problems.
While many want to suggest that the Federal Reserve is worried about “That 70s Show,” we would be lucky to have the economic strength to support such a concern.
The Fed’s bigger worry should be when the impact of higher rates causes a financial break in a debt-dependent financial system.unemployment economic growth monetary policy fed federal reserve spread lockdown pandemic interest rates unemployment oil japan france germany poland russia
Federal Reserve trails global counterparts in balance sheet reductions, data reveals
Quick Take The Federal Reserve’s balance sheet of total assets has seen a reduction of an additional $75 billion in the past week, with total assets…
The Federal Reserve’s balance sheet of total assets has seen a reduction of an additional $75 billion in the past week, with total assets now slightly surpassing the 8 trillion mark. For context, prior to the COVID-19 pandemic, the Fed’s balance sheet was approximately $3.5 trillion.
Despite the considerable distance yet to be covered, substantial efforts have been made to reduce the balance sheet via quantitative tightening, achieving a reduction of about 5.5% year to date.
It is interesting, however, to juxtapose this with other leading global central banks. The Bank of England (BOE) has surpassed the Fed’s reduction rate with a 6.5% decrease, the People’s Bank of China (PBoC) at 7.5%, and both the Bank of Japan (BOJ) and the European Central Bank (ECB) have outpaced with reductions exceeding 10%.
This continuation of quantitative tightening will put further pressure on bond yields, with the U.S. 10-year treasury yield rising to 4.5%.
This data underscores the concerted global effort by central banks to rebalance their respective financial territories, navigating the delicate path of recovery in the post-pandemic world.
The post Federal Reserve trails global counterparts in balance sheet reductions, data reveals appeared first on CryptoSlate.fed federal reserve recovery japan european china
Britain’s Parliament Demands That Rumble, X Deplatform Russell Brand
Britain’s Parliament Demands That Rumble, X Deplatform Russell Brand
Authored by Andrea Widburg via American Thinker (emphasis ours),
Authored by Andrea Widburg via American Thinker (emphasis ours),
Two hundred and fifty years ago, Great Britain bequeathed to us our notions of due process and free speech. That country, however, no longer exists. Instead, we have a country that is demanding that Russell Brand, who has been accused of alleged sexual wrongdoing that occurred decades ago (charges he denies), must be deplatformed from Rumble, a site built upon free speech. Fortunately, Rumble is standing strong.
Russell Brand has admitted that he was a sex and drug addict. Then, he cleaned up his act. I don’t doubt that he did regrettable things during his years of debauchery, although whether he did anything illegal or even outside the bell curve of a sex-saturated society has never been examined in a law court of law.
During those same years of debauchery, Brand was an out-and-proud leftist, as well as an edgy (very edgy) comedian. Now, though, during his years of clean living, Brand has become something of a libertarian, talking to people like Tucker Carlson and Ben Shapiro because he stood against COVID and vaccine madness.
Given that Brand has been red-pilled and is becoming redder by the day, many conservatives think it’s not a coincidence that he has suddenly been accused of sexual wrongdoing dating back a couple of decades. Regarding the specific accusations, I haven’t read the details and, frankly, I’m not interested.
The fact is that I’m very suspicious of charges floating up after decades. The “he said-she said” dynamic that bedevils many sex crimes is multiplied by the passage of time. That’s why we have statutes of limitations. Indeed, much as I think Joe Biden is capable of sex crimes, the only reason I believed Tara Reade’s allegations was because her mother called Larry King and discussed the issue when it happened.
Attached is the letter from the UK Parliament. pic.twitter.com/MdeYrlt06J— Rumble - ????☠️ $RUM (@rumblevideo) September 20, 2023
[ZH: X received a letter as well...]
This is straight up INSANE. https://t.co/EAagbfu3y9— Tracy Beanz (@tracybeanz) September 21, 2023
The letter acknowledges in its opening sentence that there is no proof that Brand misbehaved. There are only “allegations.” The same letter, from Dame Caroline Dinenage, the Committee’s chair and, believe it or not, a conservative MP, says that the Committee is “concerned that he may be able to profit from his content on the platform.” In other words, based on allegations of long-past crimes, the British Parliament would like to see someone deprived of his income. (And yes, I assume Brand is rich, but it’s the principle of the thing.) The Committee’s sole concern is that “creators are not able to use the platform to undermine the welfare of victims of inappropriate and potentially illegal behaviour.” As far as I know, there aren’t victims. There are only accusers who have managed to survive for decades without talking. After a fair trial (something increasingly unlikely in the third decade of the 21st century), we can revisit whether there are actual victims. To his great credit, Pavlovski wrote a polite “stick it up your derriere” letter in response:
I especially love this bit:
We regard it as deeply inappropriate and dangerous that the UK Parliament would attempt to control who is allowed to speak on our platform or to earn a living from doing so. Singling out an individual and demanding his ban is even more disturbing given the absence of any connection between the allegations and his content on Rumble. We don’t agree with the behavior of many Rumble creators, but we refuse to penalize them for actions that have nothing to do with our platform.
That’s exactly right. The final sentence—“We emphatically reject the UK Parliament’s demands”—is something that would have made America’s Founders proud.
It’s deeply disturbing that a government would try to destroy an individual based on ancient allegations. What’s sad about this action is that it was Britain that bequeathed to us our fundamental concerns with free speech (the First Amendment) and due process (the Fifth Amendment). George Orwell saw it coming, but that doesn’t mean we have to be happy that it’s here.
[ZH reactions have been sharply critical of the UK government's move to deplatform someone who hasn't been convicted of anything. In particular, Elon Musk has had Brand's back]:
I support Russell Brand. That man is not evil.— Elon Musk (@elonmusk) September 17, 2023
There is more to this than meets the eye.— Elon Musk (@elonmusk) September 21, 2023
If the concern is actually sexual predation in the entertainment industry, that is a very long list.
Why @rustyrockets and why now?
Of course a version of this blueprint has been around for a long time, but to my knowledge this is the first time YouTube has actually demonetized an account based on media accusations that have nothing to do with YouTube. This is an escalation.— Matt Walsh (@MattWalshBlog) September 19, 2023
This seems out of line. Accusations do not mean someone is guilty. That is for the courts to decide.— Elon Musk (@elonmusk) September 20, 2023
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