Teetering.

May 19, 2016

The last few years have seen a number of U.S. foreign policy initiatives, all of which have been disastrous. The U.S. government has avoided taking responsibility for these disasters by claiming in retrospect that it had nothing to do with them — the “Arab Spring” calamities, the invasion of Libya, the assault on Syria, the attack on Russia, the invasion of Yemen, the deliberately raised tension with China, the political and economic chaos in Brazil, the political, military and economic chaos all across West Africa. All of these were problems which could have been avoided, but the U.S. government and its allies in NATO determined to promote the problems as if they were solutions. This, on top of all the calamities which arose out of the Afghan, Iraqi and Somali invasions, has generated the greatest global refugee crisis in history (which is a pretty impressive accomplishment given the bloody history of the past couple of hundred years) and a scale of political chaos almost unprecedented; vast areas of Africa and Asia either have no effective government, or no legitimate government, and the march of disaster continues ceaselessly.

So we have grown accustomed to bad political conditions in countries which cannot defend themselves. What is a little unusual about this is not only the scale of the problem, but also the fact that some countries, it would appear, can defend themselves. Syria and Yemen did not just roll over and submit to the Wahhabi aggression of Saudi Arabia. Russia resisted the attempt to seize her military bases in Crimea. Iran was not bullied by American warmongering. China was fazed neither by the American blustering attempt to bully them out of the South China Sea, nor by yet another risible American attempt to seize control of the faltering economies of the Pacific Rim. (The Trans-Pacific Partnership, if successful, will deftly eliminate competitors to China, since American economic domination of a country invariably means the collapse of manufacturing there, and hence the countries involved will be more dependent on China and financially weaker in relation to it).

It would appear that not only is America a gangster who can only effectively rough up toddlers, but that some of the toddlers have called in their big brothers, or invested in steak-knives. That is why the American gangster is now obliged to rough up babies in pushchairs (Honduras, the Central African Republic, Burundi and so on) because it dares not take on anything that can even feebly fight back — a logical extrapolation of the Powell Doctrine.

All this is bad, but it’s not very bad for those not directly bombed, shot, burned or robbed. It does little harm to that part of the world which is able to defend themselves against imperialist aggression. Admittedly, it means that those countries where imperialist aggression is most effective are growing steadily economically weaker. This might be quite beneficial for those who can defend themselves (basically, Russia, China and their friends). The big problem is, however, that economic activity is global, and those who are able to defend themselves against bombers and gummen might not be able to defend themselves against bankers.

Why is the global financial system behaving so oddly? The DOW is up to levels which were only fantasies in the 1990s — a book called DOW 18,000 was jeered at when it came out, but now the DOW has reached that level. European and NATO-supporting Asian stock markets are at record highs. The US unemployment rate is down from where it was five years ago. It appears, according to the financial trade papers, that we are booming, and yet those same trade papers are telling us that there is a crisis, the exchanges are jerking around wildly, currencies are bouncing up and down as if they were on bungee cords, and Solemn Utterances from Lenders of Last Resort are delivered to Inspire Confidence, which of course causes panic because everybody knows that the lenders of last resort, the privatised entities which were once national banks, have no money worth the paper it is printed on or the electrons it was created with.

The general issue seems to be twofold: the collapse of the oil price, and the collapse of the Chinese economy. Together these are sending the world into a tailspin. The collapse of the oil price is of course nobody’s fault because that is the inscrutable working of the invisible hand in the free market. But the collapse of the Chinese economy is the fault of the Communists, and the solution to that problem is to overthrow the Communist Party and have the IMF install a free-market dictatorship in Beijing (possibly Chiang Kai-Shek could be disinterred and propped up with cushions), a policy which worked so well in saving the economies of Italy, Greece and above all Ukraine.

Now that we’ve all had our little laugh at the explanations in every newspaper in the world, shall we consider what is actually happening?

The big hidden issue is that national treasuries, mainly the Federal Reserve, the Bank of England and the European Central Bank, have been creating money and using it to buy bonds from various financial institutions which were in trouble, so that those institutions could have liquidity and could lend money without fearing that they might be caught short without cash and go bankrupt. This has been going on since 2008 in some cases, and it involves vast amounts of money, none of which has anything to do with productivity.

If the money had actually been lent to producers in the form of investment, then it would have generated massive economic growth (and also quite a lot of inflation). This is the theory behind the concept of monetarism, of supply-side economics; create enough money and the economy will automatically look after itself. It has been repeatedly disproved, but it remains alive because it puts financial institutions, which are highly centralised industries with few employees, at the centre of the national economy, relegating all productive activities to the margins. Anyway, once again the theory was disproved. What the banks did was to plough the money into the stock markets all over the world, which duly soared, although the money was not used for productive investment there either; it was mostly recycled into web-based and financial companies.

What all this means is that the global economy is now more of a Ponzi scheme than it was in 2007; the bulk of economic growth in the NATO countries and their allies is in financialised systems which depend heavily in cash generated by national treasuries. This money is virtual, however; if anybody starts to sell seriously, the value of the stocks and bonds will fall precipitately, as began to happen in China before the Chinese government stepped in to stop the game of musical chairs (the Chinese National Bank is not a private entity and the Chinese stock exchange is under government control). In other words, the moment the mythical gold actually needs to be produced, it will turn back into straw — which is what you expect from fairy gold. Meanwhile, the US government has stopped pumping money into the system, and although the Japanese and the Europeans are pumping money into the system it is not taking up the slack, partly because the US government has also raised interest rates and is expected to do so some more.

Basically, everybody is waiting for a huge financial crisis which will probably make the 2007 crisis look puny (since the global economy is more fragile than it was, and since the financial system is less resilient and more endebted than it was) and the Americans are pursuing policies which seem likely to precipitate the crisis, believing (almost certainly wrongly) that they are better able to ride out a crisis than their competitors in Europe and Japan. In other words, while NATO is engaged in a shooting or a cold military war with the rest of the world, the U.S. is engaged in a financial war with the rest of NATO.

Meanwhile, the Chinese economy has slowed down. We are told that this is a crisis, but in fact the Chinese economy has slowed from a growth rate of 7.7% to a growth rate of 6.9% per annum — in other words, instead of growing three and a half times faster than the U.S. economy and eleven times faster than the South African economy, it is growing three times and ten times faster respectively. A recession that ain’t.

What is more significant is that the Chinese financial economy is in trouble — a real estate bubble and various related financial scams has taken severe toll on the Chinese stock exchange and banking system, although there have been few substantial failures and of course there is plenty of money sloshing around because of China’s rigid exchange controls and nationalised central banking system. Many of China’s billionaires working in hot money and derivative scams have lost their shirts — which pleases the Chinese government, because financial billionaires are much too independent for their liking, and they don’t want to have to kowtow to them. However, the West ploughed a lot of money into those silly schemes, and so a lot of Westerners have lost a lot of money and are worried about it. Hence they are blaming the Chinese in order not to blame themselves.

Maybe that isn’t a big enough disaster to trigger a financial crisis — although given the feeble state of the European and Japanese financial economies, and America’s destructive financial policies, it might be. But the fall in the oil price is an ostrich delivering its plops on the head of Wall Street’s bronze bull.

The oil price has fallen because the Americans wanted it down. Having so much money, they could easily manipulate the futures price in oil, and that would spook investors to bring the current price down in line with that. Meanwhile, when they told the Saudis that they wanted the oil price down, the Saudis were happy to oblige. The Saudis were flush with cash, and they were busy eliminating two of their enemies by overthrowing the Ba’ath Party in Syria and persuading the Israelis and Americans to invade Iran. Cutting the oil price wouldn’t have to be a long-term thing, and once the Wahhabis were in power in Damascus and Iran had collapsed into civil war and chaos, the Saudis would rule the region.

But the other big thing was to hammer the U.S. fracking industry. Fracking in the U.S. is to some extent another Ponzi scheme — it doesn’t produce nearly as much oil and gas as the propaganda pretends, it’s grotesquely expensive and environmentally devastating, and in the long run it makes it harder to get the bulk of the hydrocarbons out because they get lost in the cracks. However, in the short term it was the biggest growth industry in the U.S. and the thing which was going to make Barack Obama’s Presidency look good in its last year. But that was when oil was $60 a barrel and set to rise. Now that it’s below $35 a barrel, no sane person would invest in fracking. So the industry has lost its investments and is frozen — actually it’s set to collapse. So why did the Americans permit this? Because they wanted to see Russia, Iran and Venezuela collapse first, and because the fracking industry is insured against losses.

So the American insurance industry is having to bail out the fracking industry. But this has been going on for a long time, and the heat is on the insurance industry and on the fracking industry, both of which look in a bad way. At a time when the possibility of a financial crisis looms large, this is not a good thing to see. Meanwhile, Russia and Iran have shown no sign of collapsing — the American-promoted sanctions against both countries have meant that they don’t need all that much foreign currency to survive, and both countries have developed strong manufacturing industries. Venezuela is in a bad way, but that doesn’t really matter. And also meanwhile, the Saudis have spent vast amounts of money in the Syrian quagmire and their dream of a Wahhabi regime in Syria is nowhere near fruition; meanwhile they overstretched themselves by invading Yemen and are in another quagmire there, and so they are blowing vast amounts of cash which they don’t have, based on income they aren’t getting, and are screaming for help. As is Nigeria, America’s closest ally in West Africa (and an economic basket case).

So, basically, the next few months could see a calamitous global financial collapse. But not just a financial and banking collapse; a serious decline in the purchasing power of Western currencies, and a substantial crisis of overproduction in Asia and Germany which will throw people out of work in those regions — problems which didn’t come up in 2007. That will combine with the bursting of the bubbles which have been inflated by massive money-creation over the last few years, and with the decline in trade caused by the devastation of so many minor countries in recent years. This looks like a perfect storm — and given that there are so many politico-military flashpoints which the Americans have engineered between themselves and their allies and their competitors, and given that the NATO countries will be the big victims in any such collapse, the consequences could be a global war.

Invest in candles and cans of beans!

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Na-na-na-na-na Nene, nê?

January 12, 2016

Nyaaaaah. So the President has sacked his Finance Minister. Big, fat, hairy deal. Presidents sack Finance Ministers all the time, don’t they?

Well, not really, comes the refrain. Finance Ministers are frontline soldiers in the global war against the working class. Sacking your Finance Minister is like sacking your boss general in wartime. The French did that in May 1940, when they fired General Gamelin for losing the Battle of Sedan and brought in General Weygand, who proceeded to lose all of northern France, Paris and Bordeaux, after which he blamed the politicians and handed power over to the French Fascists who set up a Commission of Inquiry which exonerated them and explained that France had been stabbed in the back by Communists, Jews and Freemasons, who were all handed over to the Nazi occupiers as soon as convenient.

Um, maybe that’s not a very comforting analogy.

What did Nhlanhla Nene do wrong? Not really anything much — in fact, Nene hasn’t done anything. He was made Deputy Minister after Manuel was purged, when Gordhan was dragged out of SARS and shoved into Finance. When Gordhan, after half a decade of comprehensive failure, was kicked sideways into Local Government (where he has made a dog’s breakfast) Nene rose without trace into Gordhan’s ballet-boots. Of course he has presided over the decline of the economy. Five years of declining economy gradually erased all the accomplishments of the previous ten years.

But, as Dali Mpofu of the EFF observed, this isn’t simply Nene’s fault, or Gordhan’s either. Of course, as neoliberals and agents of the ruling plutocracy, they are complicit in the immiseration of South Africans and the degeneration of our economy. However, because the government and the ANC and the Tripartite Alliance are in league with the local and global ruling class in pursuing policies which further those objectives, nothing else can be expected. As Mpofu happily said, you could appoint Jesus Christ as Finance Minister and you’d get the same result; the moneylenders would still be in full control of the temple.

So there isn’t an obvious logical reason related to Nene’s performance which accounts for his dismissal. Nor does his “redeployment” to the South African branch of the BRICS Development Bank make any real sense; the South Africans are an insignificant element of the Bank even though it is based in South Africa, and there were already quite enough competent people involved in it. So there must be some other reason, and since Zuma hasn’t bothered to invent a plausible one, speculation is, as the saying goes, rife. (What else is rife? As the Chinese would say, rife is for the riving.)

One logical conclusion is that it’s all about Dudu Myeni, Zuma’s lass at South African Airways. (It is claimed that she’s his mistress, because newspapers need to be sold.) Apparently Nene refused to recapitalise SAA again (as it has been recapitalised so often before). So naturally the argument is that Zuma fired Nene because Nene was nasty to his chick.

Now, obviously this is possible. Myeni appears to be a strikingly incompetent person to run SAA and is certainly not the right person to run the airline. On the other hand, she is clearly not the only person to have run the airline into the ground.  So why particularly focus on her? Is there any other reason why certain people, especially in the corporate-owned media, should want to attack her stewardship of SAA at this particular time? Obviously there is; there is a concerted campaign to call for the privatization of SAA. The incompetent management of SAA is not essential to SAA; it is a product of the distortion of South African politics and economics by Zuma and his cronies. However, by pretending that nothing more can be done to save SAA, it is possible to claim that the only solution is privatization – which will probably be for asset-stripping purposes and thus will make a lot of money for the patrons of the corporate media, as well as setting a promising precedent for the profitable privatization of other state-owned enterprises. Yippee!

Now, Nene has been quite emphatic about not being willing to offer SAA money. This is fair enough, so long as Nene was saying that the Treasury was not willing to do this without a sensible business plan administered by a person who could handle the task. Not really hard to envisage. (Actually a little hard to envisage under the current climate – airlines are in fairly desperate circumstances and the South African economy is in the proverbial tailspin anyway.) But there’s no real sign that he was going to make such conditions, so presumably Nene was in league with whoever wants to privatise SAA. Maybe not a bad thing. Maybe even a good idea. But violently opposed to government policy, like his hostility to the nuclear deal (which was opposed by the ruling class before it was even arranged, let alone decided on.) In other words, it seems likely that Nene was trying to use his position to shove Zuma even further to the right than he has already moved – which surely helps to explain why the ruling-class media and propagandists generally responded with such preposterous outrage to Nene’s removal, and why they panicked when someone unknown was brought in, fearing that Zuma was about to nationalize everything, impose exchange controls and Africanise the economy.

He won’t ever do that, but that won’t stop the right-wing loonies who dominate debate on economic matters from shitting their breeches. Therefore they set up a vast clamour that the economy was declining too fast — apparently if the value of the currency, and the value of the stock exchange, and the rate of economic growth, and the rate of employment, all decline steadily, that’s a good thing; the Bad Thing is when it all happens so fast that even the middle class notices it.

What this did, of course, was to telegraph to the speculators all over the planet that the South African economy was vulnerable, and therefore to announce that those speculators could make some money by betting against it, and in doing so they precipitated the collapse of the rand, a massive spike in bond interest rates (because to keep people holding South African bonds they have to be bribed with higher returns) and a general financial panic in the country. This was Zuma’s fault, of course, but it was also the fault of the system which permits this to happen — but since the right-wing loonies who precipitated the crisis are totally invested in preserving the system, this will never be mentioned.

So Zuma, with the cowardice with which he has consistently performed in government, sacked the nonentity with which he had replaced Nene. Of course, he couldn’t put Nene back, for that would be to declare that what he had done was utterly wrong. Therefore he brought Gordhan back, and the economy immediately went into another nosedive while the media sang hosannas about how the economy was now booming thanks to this safe pair of hands on the tiller. If you were writing a fantasy about an utterly corrupt society where nobody had any integrity and no action was ever taken for altruistic motives while nobody told the truth under any circumstances except by accident, you would be depicting what was happening in this horrible case. Since Nene’s replacement couldn’t simply be turfed out of the Cabinet, he was sent to replace Gordhan in Local Government — a field in which he has at least some experience and a track record (though, alas, not a good one).

Does any of this matter, really? Isn’t Mpofu’s point still valid? Indeed it is; the ruling class is determined to keep ruling, and it rules because it wants to make a truckload of money. Gordhan and Nene’s job was to keep on making them that money, and they will continue to do so regardless of what happens to the economic indicators, up to and until the point at which the economy implodes, which will probably take several years. Zuma had to back down because he was interfering with the interests of the ruling class, or at least they could pretend that he was. However, now that the ruling class has pointed out to its friends all over the world that the South African economy is vulnerable and will not be protected, we can expect our economy to decline much more rapidly.

This is, of course, partly Zuma’s fault, but we shouldn’t forget that Zuma is only the patsy here; the real incompetence is the incompetence of the ruling class who are trying to game the system (including trying to replace Zuma with someone even less competent and more subordinate) and are, more or less by accident, finding themselves obliged to ruin our country.