It won't be over till the fat man sings

As I write, it is 10:07 AM and the world is eagerly anticipating Ben Bernanke's latest aria. As one might expect, the markets are tanking (with the Dow currently down by over 200 points). That's what is known as a "signal." Or better, yet a "cue." The markets are the chorus in this bizarre opera, singing "Help us help us help us, or we will all slide into perdition." That's Big Ben's cue to sing, "No, I'll never never never allow that to happen. Let QE3 begin." At which time the markets will reverse course abruptly and the day will be saved.

Unfortunately for this melodrama, the villain, aka Governor of Texas and likely Republican candidate Rick Perry has threatened our hero with dire consequences if he dare mess with our economy again, and since everyone is now running scared of anyone with ultra conservative creds -- it's gonna be an interesting morning.

The question on my mind is what will happen to the markets if Bernanke's aria falls flat. Will they follow his lead and flatten out with him? After all what's the point of continuing to signal if the signal has been ignored. Or will it continue to tank, caught up in its own reckless momentum.

We'll see very shortly. Fun fun fun. And it won't be over till the fat man sings . . .

Another Country Part 2

Tito's Yugoslavia developed under conditions far worse than anything that could possibly emerge today due to a financial collapse. We tend now to see it simply as a part of history, but World War II was the greatest calamity by far that ever befell the human race. It was truly an unimaginable disaster that no book or movie could ever begin to convey. Yugoslavia was unique in being the only country that liberated itself and as a result, Tito was able to remain independent from either the Western powers or the USSR. I won't claim he was an angel, but he was certainly an extremely capable leader and politician, who understood how to manage a country that began in total abjection and poverty, not to mention all the many political strains due to the fallout from the war -- which had pitted certain parts of the country against others.

He united the country to the point that, when I visited, it was truly a multicultural society. The family I lived with in Mostar were "Muslims," i.e., of Turkish background, though no longer practicing as Muslims, but they had close friends of Serbian and Croatian background and no one thought anything of it. Not then, anyhow. Yugoslavia was theoretically a "communist" country, but Tito's brand of communism was very different from that of Stalin. He initiated communal farms, but when that didn't work out, he backed off and allowed the small farmers to keep control of their land. I remember hearing church bells ringing out on Sundays, and once visited a small village during an all day Catholic festival (that was actually partly pagan, which is why I was there, because that interested me). Stalin persecuted Muslims and Christians alike, but not Tito, he tolerated them.

One day I took a hike through some mountainous terrain, feeling very proud of my strength and endurance -- until I encountered a family coming from the other direction, including a woman and her small children, a family of Gypsies migrating in their usual fashion, from one mountain to another. While Gypsies were either persecuted or forced to settle down in most other countries, they were allowed to live their traditional lifestyle in Tito's Yugoslavia.

Economically things were very interesting, because it really did seem to me that poverty had been eliminated. So had wealth. Everyone had a house to live in. Everyone had enough to eat. Everyone, so far as I could tell, had a job. No slums. No beggars. Nothing much extra, either. A typical birthday present was, for example, a pair of socks. Individual families were allowed considerable leeway when it came to doing a certain amount of business. The family I stayed with were able to regularly take in boarders and make a profit from that bit of "free enterprise." I saw no real signs of government interference in any aspect of daily life and as I said, no one seemed afraid to speak openly on any topic, including politics.

There was also an excellent health system, as far as I could tell. When I got sick (actually a bad case of constipation and nothing more, though I was sure it was appendicitis), my friends took me to the local health center, a modern, well equipped establishment, where I encountered the first female doctor I'd every seen. (This was back in the 60's remember.) She was young and seemed extremely competent. She examined me and decided I was constipated and prescribed some medication that would have cost a dime in US money -- only my girlfriend insisted on getting me the meds for free with her worker's card. If you had a worker's card, you paid nothing for your health care or medications. (She was a lawyer for a local factory, by the way, the first female lawyer I had ever met.)

The biggest problem, especially for educated people, was boredom -- a feeling of being shut off from all the interesting cultural developments taking place in the "developed" world around them. For this reason it was not a country I would have wanted to settle down in. But the people as a whole were far, far better off than in any capitalist country you could name. Better off not only for not living in poverty but also for not living in wealth either, which as I see it is also a problem. I wouldn't want to be poor but I also wouldn't want to be wealthy and, for example, be expected to have servants and need to worry about being robbed or kidnapped and having security people around me all the time, who I could never be sure whether or not to trust, etc.

Ultimately, after the death of the dictator (which Tito was, after all), the country collapsed into a horrible civil war and when I heard about that and had to read about what was going on during that period it broke my heart. But the war had nothing to do with economics, nothing to do with "communism" or "socialism" or "free" markets. It was due to tensions that had festered for many years, thanks to very deep divisions during WW II when certain regional ethnic groups sided with the Nazis and others had sided with the partisans. Not to mention much older divisions stemming from ethnic rivalries going very far back into European history. Tito was able to hold all these factions together, but he made the huge mistake of not allowing the country to develop into a true democracy, so after the "strong man's" death, all the old problems re-emerged.

The moral of my story is that a free and equable society, based on a reasonable, sane approach to politics and economics, CAN emerge, even out of the most disastrous imaginable conditions. It happened in Tito's Yugoslavia and it can happen here. Oh and by the way, Yugoslavia wasn't really a communist country. But it WAS a socialist country, for sure. Also a dictatorship. You can't have everything, I guess (though you can certainly TRY).

And For Our Next Trick . . .

Yesterday's market antics were so extreme and so fascinating, I feel forced to drop everything else and make some comments. Here's what the Dow and Nasdaq looked like (click on image to enlarge):

 

As you can see, the Dow began with a rapid leap upward, by roughly 100 points, only to suddenly dip downward, by roughly 150 points, followed by a rapid surge upward once again, by over 200 points, all in the first half hour of trading (the market opens at 9:30). I've seen volatility like this before, but never by such huge amounts in such a short time. It then remains relatively steady, though still with large surges back and forth, until about 2:20, when there is a sudden, enormous dip of over 200 points, all in one gulp. Then, inexplicably, it surges upward again, just as rapidly, by about 150 points -- and then takes a huge, absolutely breathtaking plunge of almost 300 points, all in about 15 minutes.

This last activity is apparently a reaction to an announcement by the Federal Reserve indicating that no dramatic actions will be taken by them in the near future, coupled with an assurance that interest rates will be kept to a bare minimum for the next year or so. It looks at first as though the market was expecting some sort of dramatic announcement that never came, and in response threw a hissy fit, plunging off a cliff in a desperate bid for attention.

But then a strange thing happens, which for me is absolutely inexplicable.  The sudden drop is followed by a steady upswing over the next hour or so, of a staggering 600 points!!!!

If you compare the Nasdaq with the Dow, you'll see that, aside from the first few minutes, both are moving practically in tandem, with a Rockettes-like precision, even during the wildest and most unpredictable swings.

It is now 9:19 AM, and the markets are due to open in about 10 minutes. I can't wait to see what these performing seals will come up with today, but given what we saw yesterday, it will no doubt be totally unpredictable, wild and scary. While many economists may be breathing a sigh of relief at the remarkable upswing, as far as I'm concerned, a surge of 600 points upward should be just as alarming as a similar surge downward. Because what yesterday's antics tell me is that the market has either gone completely bonkers, or -- more likely -- is being manipulated. In either case, this is no place for ordinary people to keep their money, because an "investment" in stocks can no longer be regarded as an investment, nor even a gamble (since when we gamble we at least know the odds), but a foolhardy act of total and complete recklessness.

Another Country

I visited Yugoslavia way back in 1965. I hadn't taken a vacation since early 1963. I wanted to take some time out to work on a book project and write music. And, after making some inquiries and doing some basic math, I realized that, even factoring in the cost of transportation, I could live much more cheaply in Europe than in New York City -- and I could write music anywhere. My first stop, after an ocean voyage on the Rotterdam (cheaper than flying, believe it or not), was Paris, where a room at the Hotel des Grands Hommes, on the left bank, could be had for the equivalent of about $2.50 a night. (Yes, that's a decimal point between the 2 and the 5 -- the current rate starts at 280 Euros!) But that was still too much for my miserly budget, and anyhow, after a week or so, Paris began to bore me.

A friend had urged me to go to Yugoslavia, showing me a picture of a beautiful bridge in a town called Mostar, which she'd visited and loved.  The exchange rate looked really good: 1,000 dinars to the dollar. Even better, I could make my way to Yugoslavia in style via the legendary Orient Express. To make a long story short I wound up spending about two months in Yugoslavia, staying for the most part in Mostar, with a family that charged me 1,000 dinars (that's one dollar) a night for a room. I also spent some time in Dubrovnik, Sarajevo, and Zagreb.

I didn't notice at first, but after a while it began to dawn on me that Yugoslavia was different from any other country I'd ever lived in. For one thing, there were no beggars! There was an old man who sold little packages of nuts in downtown Mostar. But he was more of a peddler than a beggar. And there was the little boy who approached me for what I thought was a handout. But when I offered him some money, he shook his head and pointed to a group of Gypsies encamped nearby. They had assembled some wood for a campfire. All they needed was a match. He needed a match. Which I didn't have, much to my regret.

Also, there were no homeless people (other than Gypsies, who were allowed to roam freely with no interference) -- and no slums. At least none that I ever noticed, and believe me, I got around. Since Yugoslavia was a "communist" country, I anticipated a certain amount of repression, and reluctance on the part of the people to talk with strangers. But I saw no sign of that. People were open and friendly. I became friends with the family I was staying with in Mostar, especially their beautiful daughter, and would spend a lot of time talking with her and her friends, all of whom were educated and articulate. I asked all sorts of questions about politics, economics, and the policies of President Tito, about whom I was very curious. They answered all my questions openly, with no hesitation and no sign of anxiety. For them Tito was a hero, and it was easy to understand why.

(to be continued . . . )

The Spectres, Part 2

And so: what will happen after the monumentally destructive forces of "free-market" capitalism drive  themselves into the ground, taking the rest of us with them? Truthfully, I don't know. Another great depression? A period of "social unrest"? A period of uncertainty? A period of post-apocalyptic chaos? A revival of Communism? Fascism? Nazism? (Glen Beck would make a marvelously paranoid fuhrer.) Possibly all of the above.

But what I'd like to think would ultimately happen would be a great awakening. A passing through the Gateless Gate. Money will return to being a harmless medium of exchange rather than a commodity in itself. Our leaders will be forced to find ways to fairly and equably produce and distribute resources through judicious planning. Instead of lending money to bankers who then lend money to other bankers who then lend money to other bankers who then lend money to businesses which then create products and jobs, governments will realize that the most efficient method of creating and distributing wealth is to eliminate all those parasitic middlemen and create products and jobs without them. If technology has provided us with the means to increase productivity then, once those middlemen have been eliminated (or more accurately eliminated themselves), technology can be put to use directly for the benefit of all, rather than the few.

This sounds like a Utopian dream and I suppose it is. But it is also possible. We can make it real. How do I know that it's possible and not a daydream? Because I saw it with my own eyes. When I visited a country that no longer exists, which is a terrible shame. A country without slums, without poverty, without beggars, without coercion and without fear. It was called: Yugoslavia.

The Spectres

We've all read that famous line: "A spectre is haunting Europe — the spectre of communism."

The socioeconomic analysis offered by Marx and Engels in their "Communist Manifesto" was right on the mark. In essence: "The history of all hitherto existing society is the history of class struggles." Its object: universal human freedom in a classless society. The analysis was brilliant, the object admirable. Unfortunately, almost all subsequent experiments along Communist lines have turned out badly. Very badly.

Maybe it's time now for someone (not me) to write a "Capitalist Manifesto." It could open with a very similar statement: "A spectre is haunting the developed world -- the spectre of the free market." Its essence: "The history of all hitherto existing society is the triumph of naked self interest and greed." Its object: the uncontrolled free reign of financial markets and the class that controls them. Unfortunately, as we now know, our experiments with free market capitalism have also turned out badly. Perhaps not as badly as Communism, though it's still too early to say.

No one reading here could possibly assume I'm a capitalist. Some might assume I'm a Communist. But that would be equally untrue. As I see it, it's high time we put both these spectres to rest. Nevertheless, there is something to be learned from their failures, which can be seen in the light of an interesting dialectic:

Communism fails because it will never be possible to rid the world of naked self interest and greed, which will manifest even in the most rigorously "classless" society. Capitalism fails because it will never be possible to completely rid the world of class consciousness, which will always impel certain groups to resist exploitation by others.

Capitalism also fails for the reason given by Marx: it contains the seeds of its own destruction. But so also, in a way, does Communism. Both fail, ultimately, because they presume the existence of certain universals. And, as thinkers such as Derrida, Baudrillard, Lyotard, etc., have taught us, all "universals" are cultural constructs, not givens of either nature or human psychology.

 So. What's the answer? Or, to paraphrase Lenin paraphrasing Tolstoy: what is to be done? And the good news, as I see it, is that there is no need anymore to do anything whatsoever. Unless being amused can be seen as doing something. Or, as in my case, writing compulsively about anything and everything that amuses me about our current socioeconomic situation.

Soviet Communism self destructed back in 1989. But it took another three years before the reality of that event sank in, and the Soviet Union was finally dissolved, in 1991, after a bloody coup.

In the aftermath, there was an attempt, led by the Russian President, Boris Yeltsin, to transform the country via free market "reforms." However,

the Yeltsin era was marked by widespread corruption, economic collapse, and enormous political and social problems in the wake of the disintegration of the Soviet Union into a group fledgling nation-states of which Russia was the largest.

Ongoing confrontations with the parliament climaxed in the October 1993 Russian constitutional crisis, a political standoff culminating dissolution, besieging, and later shelling of the Russian White House, killing hundreds, and injuring hundreds more. Yeltsin then scrapped the constitution under which the parliament had attempted to remove him from office, temporarily banned opposition parties and media, and deepened his economic experimentation. (Wikipedia)

The free-market "reforms" urged by the US and other Western powers were in many ways a disaster, but there seemed at the time no meaningful alternative, so the Russians plodded on, even in the wake of a major default (yes, Virginia, sovereign defaults can happen).

Free market capitalism in the West took a bit longer to self-destruct -- not until 2008. And as with the fall of the Soviet Union, the reality didn't completely sink in until some years later. I.e.: not until NOW!

So why do I find all this so amusing? Because time after time we see history repeating itself, and time after time the lesson is NEVER learned. So what's the point in trying to galvanize the public into taking action, when it's by now so very clear that whatever action is taken will be the wrong action. Better to just let history take its course. If monolithic institutions such as Communism and Capitalism contain the seeds of their own destruction, then, very simply, let them destroy themselves.

In our present situation, as I see it, the worst thing we can do is try to put the broken system together again, by instituting the sort of "reforms" that will enable the pretense to continue for a little while longer. What's the point? The bankers tell us they can't be regulated because tough regulations, of the sort that are "needed," will prevent them from earning the large amounts of money required for the entire US economy to remain on course, i.e., to produce the necessary jobs and consumer demand. And they are right. We're told, "get tough with the banks," but for the last, oh, 30 or 40 years, the shenanigans of these bankers have been by far the greatest source of national income. So. We can't live with them and we can't live without them. The good news is that they are monumentally self-destructive, so we don't really need to regulate them because their own frantic momentum will ultimately drive them into the ground.

(to be continued . . . )

The Burning

The Professor looks down. “I am a prophet.    Prophet.  A prophet.  I speak for the Ancestors.  They are angry.    Angry.    Now I know why.   Finally I figured it out.  I understand.   Seen the light light the light.   Finally.   Finally.  Finally.  They are angry.”

One of the spectators laughs derisively. “Ancestors?   What ancestors?  Whose ancestors?”

The Professor ignores him. “Years.   Millions of years.   All that residue of the most ancient forms of life.  The most ancient residue of living matter.  Where is it now?   Where?    Where is it?   Slumbering deep deep down in the dirt, the earth, earth, hidden away very deep in the bowels of the earth undisturbed for billions of years in the dirt.”

He pauses to let his words sink in. “And then.   One day.     One cold day.   Some human digs.  And digs.   And finds something.  Something to burn.   Burn.   Some sort of handy substance you can burn.   Limitless supplies, huge, huge, huge amounts of organic material buried deep, deep in the earth and under the sea, dead matter, residue, remnants.   In fact, the remnants of our oldest ancestors, from the earliest beginnings of life on Earth, remnants we’re now dredging up from their ancient burial places – in the form of coal, oil, natural gas, what we call  ‘fossil fuels.’   You think you can treat it with indifference, as though it were just nothing at all but something sitting there for you to use, for you to burn, burn, to burn.   It keeps you warm.  It powers your cars.    It drives your turbines, produces your electric power, fuels your factories, your armies, makes everything possible -- for those who can control it.”

Another pause.  “But reflect – REFLECT!  Every living thing on Earth is descended from these ‘fossil fuels.’  They are a part of you – and you of them.    Their primordial desires, desires desires, pri-mordial, are buried deep within you still, embedded in your very DNA.   And now.  They are burning.  Your ancestors are burning.   Burning.   You have violated the earth and the sea to dig dig dig them from their ancient resting place.  And you are burning them.  Burning.  Burning them up.   This burning of the ancestors, it is what has made our modern world possible.   And what is now choking it to death.” 

 

The budget, the deficit, and the collapse

OK, first of all the budget isn't really the problem. It's the deficit (i.e., the national debt) that's the problem. But this debt is the result of 1. the huge Bush era deficits, which were astronomical and have accumulated, with interest; 2. the effects of the economic collapse of 2008, which was beyond astronomical. Obama's budget can't possibly be the problem because he is far from being the big spender the Tea Partiers are painting him as -- in fact the discretionary items in his budget are modest.

The biggest items in the budget are those that are usually considered beyond his control, the so-called "entitlements," and the cost of funding outsized and out of control military operations in Iraq, Afghanistan and now Libya. As I see it, the entitlements are not really a problem, so long as we are willing to accept a fairer, more equable, and more effective system of funding them via progressive taxation. (See the three previous posts.) Military expenditures represent a much more challenging problem. We definitely need to wind down our military operations, as humiliating as that will be, because we can no longer afford them. The Republican call to reign in the budget will therefore be meaningful only if it is applied most strongly to the military budget, which is the last item the Republicans want to touch.

So. As far as the budget is concerned, we need not cut back entitlements so long as we are willing to accept changes in the tax code; and military expenditures need not be a major problem so long as we are willing to pull out of Iraq and Afghanistan.

The national debt, however, is another matter entirely. It truly is out of control. It is in fact, essentially, the result of an ongoing Ponzi scheme, disguised by creative accounting methods worthy of Enron during its last, most desperate, phase. As I've argued in earlier posts, the world economy totally collapsed in 2008. Everything that's happened after that has just been smoke and mirrors to disguise this fact, in the hope that, if we kick the can far enough down the road, we'll be saved by a miracle.

While I have no respect whatsoever for the Tea Party and their mainstream Republican enablers, I do agree with the faction that opposed raising the debt limit. And I was, very frankly, hoping the failure of the two parties to reach a compromise would bring the crisis to a head by abruptly halting the US government's ability to borrow. Because the ability of the US to increase its debt in this manner is in fact equivalent to the ability of a con man like Bernie Madoff to suck more "investors" into his scheme. Nothing of value is being produced to warrant such an "investment." The only reason Treasuries are being purchased is because, as with Madoff's operation, they are deemed "safe." In fact, there is nothing really there to back them up. It's all a bluff.

If the debt limit could no longer be raised, and the US were forced into default, then the world would have no choice but, finally, to accept the bitter fact that there is no "there" there, that we can never return to the "free market" status quo. And we can finally begin the long process of constructing an alternative system, hopefully one that is fairer, more effective and more meaningful.

Significantly, just after the great compromise was reached, the Dow took a nosedive of almost 200 points. This after already having fallen by several hundred points in the previous week. Regardless, there was a great sigh of relief and everyone went back to their nice little pipedream in which at the very worst we have something called a "double dip" recession, which really doesn't sound all that bad, and at best we somehow manage to fully restore the status quo prior to 2008.

Like Wile E Coyote, in the cartoon I posted some time ago (see The Power of Magical Thinking) we are hovering over a vast expanse of nothing. But we won't actually take the fall until we become fully aware of our precarious condition. The collapse has already occurred, but it's going to take one more major event to shake us out of our complacency to the point that we are able to accept our fate -- and move on. The only alternative is a depressing and demoralizing process of gradual decay, leading to even more unfairness, inequality and cruel indifference.

What sort of event is looming? Well, we've all noticed how the too big to fail banks are once more taking outsized risks of exactly the same sort that caught up with them in 2008. If some of those events are repeated then, sorry Charlie, you may be too big to fail, but all the money in the world won't save you next time. You'll be going down -- and taking the rest of us with you. Another scenario, just as likely, would be the collapse of the Euro, precipitating a domino effect in which one bank after the other will collapse, and the world economy along with it.

As I see it, the sooner something like this happens (I like to call it the "Rapture") the better. Because, as I've argued many times, what we're talking about here is something that exists purely in the virtual world: money. It isn't really real, but somehow we've been hypnotized into thinking it is. When the financial system collapses, and only then, we will be freed from the spell. Looking around us, we'll see that everything of true value is still there. In the immortal words of John Cage: "nothing was lost when everything was given away."

Inequality

To answer the question I posed yesterday: NO, taxation is NOT theft. The original Tea Party was a legitimate protest against taxation without representation, which IS a form of theft, yes. Ever since the American Revolution we've had taxation WITH representation, which is NOT a form of theft, but part of a social contract whereby a fraction of national wealth is pooled for the common good. In the past, the affluent recognized that they owed a large part of their success to opportunities made possible ONLY through policies instituted by the US government, a government strong enough to both encourage and protect individual initiatives, innovations and investment. (Compare, for example, with Mexico.) Today, many of our wealthiest citizens and corporations prefer to believe they did it all on their own, and owe nothing to anyone. Today's "Tea Party" is a self-serving attempt by such wealthy and powerful private interests to manipulate certain naive segments of the public, with the goal of weakening the only force strong enough to stand up to them: the federal government.

The real problem in this country is NOT government spending -- anemic in literally every area except defense -- but inequality. And not simply inequality, which has always been a given of life in the USA, but drastic inequality, not only of wealth but of political clout, which seriously threatens our democratic system. Too many in this country worry about money in the wrong way. Instead of worrying about government expenditures on "entitlements" and other beneficial projects, they should be worried about the kind of potentially destructive power that can be wielded by someone with a billion dollars to spend supporting his or her own selfish interests. It is not enough to force such individuals to pay their fair share in taxes. What is of greatest importance at this moment in history is to do everything possible to save democracy itself from their potentially destructive influence.