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!