Why We Are Doomed.

July 19, 2010

For two years, the global economic system has been systematically plundered and asset-stripped in order to conceal the catastrophic state of the global economic system.
This may seem bizarre, but it makes perfect sense. In essence, for thirty-five years Western capitalism demanded the right to commit theft and fraud, and over that period Western governments increasingly granted that right. Meanwhile, the West, since it dominated the world, was free to steal and cheat everywhere, with the backing of its governments.
There were two problems with this. One was that, since theft and fraud were increasingly profitable, Western capitalism naturally increasingly devoted itself to these pursuits (known colloquially as “finance capital”) and stopped making stuff, or investing money in any actually productive activity of any kind. Another was that since theft and fraud were so rampant, the biggest thieves and hoopla artists became the richest, and this set off a cycle promoting the system and steadily increasing social inequality within Western societies.
As a result of the death of productive activity and the dramatic fall in consumer incomes, the Western economies should have come to a complete standstill. They did not, because part of the fraud entailed pretending that the West had enormous amounts of money to pay to poor countries. Therefore poor countries happily set up manufacturing industries (and all the ancillary support services) on their territories, exporting goods and services to the West in exchange for paper which was supposedly worth something. The problem was that when these goods and services arrived in the West, someone had to buy them, despite the fall in working-class and middle-class incomes. Since the rich were not prepared to share their money with anyone else, the solution was, once again, to pretend that the West had enormous money to pay to its own citizens, and the banks were encouraged to lend at preposterous rates and levels of risk, so that the poor could pretend to be rich.
In short, the whole system depended on lies and cheating, which existed to legitimate ruling-class theft.
Obviously this couldn’t last forever. The first place where it blew apart was in the Western banking system, which suddenly revealed that it couldn’t honour its pledges to the poor. Unfortunately, the poor now had no money, including money to pay the interest on its debts, and so every bank in the Western world was now bankrupt, a situation last seen in 1932. To solve the problem, Western governments had to give the banks vast amounts of money — but unfortunately there was not enough money in the world to pay off the banks’ real debts. Therefore, the immense amounts of money the West gave to its banks were not enough to make the banks solvent, and thus the banks were unable to lend more money.
Meanwhile, of course the ruling class was not prepared to contribute to solving the financial mess which it had caused. It demanded that the middle class and working class pay the bills, but every government in the West knew that if they tried to do this, they would lose the next election on their ears; what was also obviously the case was that the middle class and working class did not have the money. Furthermore, if the middle class and working class were driven into ruin (as happened in 1932) then there would be catastrophic depression of demand, and this would expose the West’s inability to fund its imports, which in turn would cause the collapse of the only economically productive region in the world, namely Asia. So they borrowed the money they gave to the banks.
This staved off the banking collapse for a while and covered up part of the economic crisis. What couldn’t be covered up was the collapse of employment, for every rich person responded to the economic crisis by firing employees. The surge in unemployment meant that the economy wound down; even successful countries have 10% unemployment, and in the Mediterranean it’s more like 20%. Nothing like this has been seen since the 1930s. The problem is that under such conditions a recovery is almost impossible, for with such high unemployment it’s impossible to create the demand to kick-start the economy. Obviously a Keynesian solution would be to borrow vast sums and put the unemployed to work, but unfortunately those vast sums have already been borrowed and given to the rich. Besides, the rich would be very unhappy to see vast sums borrowed and given to anyone but themselves, and since Western governments are completely controlled by the rich, there is no prospect of a New Deal, or of the kind of redistributive project undertaken by China to prevent depression there.
Now, the problem is that governments are running out of money to fund the facade of economic stability created by the “bailouts”, and sustained by the well-trained cheats and confidence tricksters known as government and corporate economists. Most governments are deep in deficit, and while this does not seem to be a short-term problem, it is a long-term problem particularly because it is so universal. The United States could run up absurdly high deficits so long as its trading partners did not do the same, but now everybody is in deficit, and the economic consequences of borrowing immense amounts and using them unproductively are rapid inflation and collapse of confidence in the banking system. Why we aren’t having inflation is uncertain, but is probably a product of the fact that the money is disappearing as fast as it is borrowed. The global ruling class are a gang of Scrooges; they don’t even blow their dosh on drugs and whores, let alone on anything useful.
The money to sustain current policy has to come from the poor. However, taking money from the poor will slow down the economy further. There will be less cash floating around to pay for goods and services, and the global economy will fall further into depression and overproduction; more people will go out of work and be unable to buy stuff, and a vicious cycle of collapse will begin. One of the side effects of this will be that the money being pumped into global stock exchanges to keep them artificially high will vanish, and global stock exchanges will crash harder than they did in 2008, eradicating global pension funds and destroying supplementary middle-class income. If this happens, 2012 will make 1932 look like the Summer Of Love. (Maybe the Mayan prophecies were actually drafted by economists?)
But they wouldn’t do anything so dumb, would they? Our global leaders are surely not suicidal sociopathic imbeciles . . . may the Creator present you with your wake-up coffee? Sorry it’s laced with cyanide.
Yes, they are doing that. What’s worse, they are all doing it at once. You will have noticed the so-called Greek crisis, which is really a European crisis, which is why it became an Italian, Spanish, Hungarian and Irish crisis, but definitely not a British or French crisis because that can’t be mentioned. All these crises had the same factor in common: the government could not meet its debts. The promise was that Greece would be bailed out (on the understanding that everyone would pretend that Greece was the only country facing crisis). The “bail out” meant giving tens of billions of Euroes to the Greek ruling class in exchange for the Greek working and middle class being reduced to poverty. However, when this happened, understandably the ruling classes all across Europe decided to expose the real calamitous state of their economies so that they, too, could trouser away tens of billions.
Of course, there wasn’t enough money in Europe to perform such a “bail out”, so the whole system failed. Immediately, the European countries who had pledged money they didn’t have to save the Greek ruling class from itself, reneged on the pledges and left Germany holding the bag. Everybody bailed out of the bail out. No surprise there, it has happened everywhere else that Europe has pledged vast sums to help somebody.
But the Germans got grumpy. Germany is the country with the lowest budget deficit in Europe. Suddenly they realised that if they behaved towards Europe the way Europe has behaved towards them, and stopped splashing cash about but instead pulled in their horns, they could slash their deficit to manageable levels in a few years. Then they could be the only financially stable country in Europe and could dictate terms to everybody else. Angela Merkel stuck on her pickelhaube and her toothbrush moustache (both of which suit her admirably) and all but proclaimed the Fourth Reich.
Of course, that will only work if everybody else is not in deep recession, but continues staggering along in perennial crisis, like now. The risk was that Germany cutting back on spending would throw the rest of Europe into crisis. Unfortunately, the British had just elected a government pledged to cut back on spending (on the poor, naturally; the rich will still be getting the usual bungs). Recently it turned out that they would have to cut spending much more savagely than they thought if they wanted to reduce the budget deficit. (Unfortunately the budget deficit is due to low tax revenue, which is due to the depression, and slashing spending will exascerbate the depression, thus reducing tax revenue, so this kind of behaviour is chasing after your own shadow in the hope that it is carrying a pot of gold.)
Meanwhile, not to be left out, the cretinous Sarkozy government has announced plans to cut back on French pensions. In other words, all three major European economies which pretend not to be in depression (unlike the Mediterranean and Eastern European countries which are undeniably basket cases) have developed plans to undermine their economies. What this means is a race to see whose economy will collapse first, last person standing wins, until they collapse, which would probably happen a second after the victory ceremony.
Oh dear.
Meanwhile in Japan, as is well known, those inscrutable Orientals are feverish imitators of our Western ways. Sometimes it pays dividends. In this case, however, the Japanese invented the crisis we are in; their economy hit the buffers in 1989 (by which is meant, concertinaed in a bloody wreck and burned to ashes) and they have been running on credit ever since. Now they have decided to stop running on credit. Unfortunately they are spending so much of their income on servicing debts that they can’t afford to stop running on credit. Guess what — they are going to cut back on spending on the poor. Phew — just in time! Who knows, perhaps the Japanese economy and the British economy will collapse simultaneously, and perhaps their Prime Ministers will commit seppuku in unison after a mutual tea ceremony.
Just to make everything absolutely certain, the Chinese have run out of money for their Keynesian stimulus package. Not wanting to get into the same difficulties as everyone else is in by borrowing vast sums of money, China is stopping redistribution of wealth. That would be fine assuming that the global economy were on the mend. If it isn’t, however, China will be in a little difficulty if its exports collapse when Europe and Japan stop buying manufactured goods. It would have to turn to the United States, but the United States is tied closely to Europe and Japan. China is economically healthy almost entirely because the United States owes it vast amounts of money. Unfortunately, the United States cannot afford to pay that money. If China ever calls in its debts, it will discover that the banker is as broke as bankers everywhere else are.
So what we face is both an exascerbation of the global depression, and the collapse of the international financial system, which will exascerbate the global depression. The whole world faces what happened to Europe when the Credit-Anstalt and Ivar Krueger collapsed, except that in 2010 it looks as if the collapse of financial institutions is going to be far more severe. And meanwhile governments are much more completely under the control of rich people than they were in 1932 (which is saying something) and will therefore enforce the asset-stripping of society at gunpoint, if necessary. (The Australian Prime Minister has just been deposed in an internal coup which probably relates to his floundering attempts to gain revenue by taxing multinational mining companies; the Labour government is about to fall and be replaced by a Liberal government which will do the right thing, namely, save money by cutting back on spending on the poor. And, meanwhile, in South Africa, our economy is soaring like a stuffed eagle, so beautifully that we lost a hundred thousand jobs in the first quarter of 2010.)
But don’t worry. Everything is going to be all right. The press and pundits paid by the plutocrats say so. What could possibly go wrong?