mfioretti: 2008 meltdown*

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  1. In 2007, the greatest financial crisis of of the modern age hit like a tsunami. What was the response from the UK? Well, it was to bail out the banks with public money. Of course, that raised levels of debt. Now, that was no big deal: governments can always print money, and during times of extreme crisis, whether famine or financial, they should. Furthermore, national debt is not the sum of your debt and my debt, and it has no real bearing on our live whatsoever: just as you can happily carry a credit card balance forever, and many people do, so prosperous nations can bear debt, and the strength of a nation is precisely to be able to do so.

    But the average person was tricked into believing the very opposite. They came to think, through sophistry masquerading as economics and punditry disguising itself as analysis and sheer propaganda that there was no way out of this mess except to rip the heart out of public life, to pay off the debt incurred by bailing out the banks by cutting public goods and services. Thus public goods — the NHS, BBC, transport, education, and so on — were eviscerated to pay off private debts, and even that is an understatement: the moneys spent went of course to lavish compensation packages and grand accoutrements, not really to “paying off debt”, which is still high, and still doesn’t matter a whit to the average person.

    Perma austerity killed the UK economy, by producing perma stagnation. And then came Brexit. Brexit was another misguided, maleducated response: since the UK needed to “save money” to “pay off its debt” the average Brit was again conned into believing that the next great cost, after public goods, was EU membership. “You’ll save millions a week!” the propaganda went. But who was “saving” and what precisely was being “saved?” Nothing at all, as it turns out, because now the economy is well and truly dead, stagnant into forever.

    So: this logic, that one must “save money” to “pay off the national debt” or else — who knows? Just like a mafia intimidation tactics, the threat is never really fully stated, is it? — has been proven to be wrong. It has killed the British economy dead.

    And it’s also precisely how the American economy died, too. Where do you think Britain learned this illogic from? From the American fringe. There, starting in the 1980s, American extremists championed a strange new set of concepts: “fiscal responsibility,” “personal responsibility,” “balanced budgets,” and so on, all of which really meant the above: “pay off the debt” by “saving money” — perma austerity, which also means that we can never invest in anything at a social level, because, of course, that would add debt for a few years. Why? Because cities and towns and countries don’t pay for things in cash or gold, they issue bonds, and that is how finance has always worked since the beginning of time. Do you think any society in human history has paid for a subway system or healthcare system in cash or gold? How? By sending supertankers of notes across the world? Perhaps you see the absurdity of perma austerity now.

    So. “Paying off the debt” to “save money,” “personal responsibility” and “fiscal responsibility” — these aren’t economic ideas: they are to economics what ancient aliens are to biology. They have no empirical basis, no factual reality, and no evidential proof. Indeed, the opposite is true.
    Tags: , , , , by M. Fioretti (2017-11-23)
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  2. Why do Nomads live like this?

    We live in a culture where if your number didn’t come up, you’re a bad person, you’re lazy, you should be ashamed of yourself. It eats away at people. It makes them more exploitable.

    What are the challenges they face?

    I talked to one couple, Barb and Chuck. He had been head of product development at McDonald’s MCD, -0.84% before he retired. He lost his nest egg in the 2008 crash and Barb did, too. One time, Barb and Chuck were standing at the gas station to get $175 worth of gas and the horror hit them that their account had $6 in it. The gas station gentleman said ‘Give me your name and driver’s license and if you write a check, I will wait to cash it.’ He waited two whole weeks before he deposited it.

    These jobs can be rough physically, right?

    I know someone in his 70s who walked 15 miles on a concrete floor, sometimes for 10 hours. Your feet can get messed up, you can get repetitive stress injury and a tendon condition. The Nomads talked to me about soaking their feet in salt baths at night and being too tired to go out. When I went to the sugar beet harvest, it was 12 hours a day in the cold, shoveling. Oh my God, my body hurt! And I was 37!

    Tell me about Amazon’s CamperForce program, which hires thousands of Nomads.

    It began in 2008, within months after the housing collapse. Amazon contracts with an RV park and pays the CamperForce to do warehouse work loading and packing and order fulfillment. From the outside looking in, you’d say: ‘Why would you want older people doing this? The jobs seem suited to younger bodies.’ But so many times, the recruiters in the published materials talk about the older people’s work ethic and the maturity of the workforce and their ‘life experience,’ which is a code word for ‘Hey, you’re old.’

    You write that sometimes the Nomads are exploited. How?

    I filed a Freedom of Information Act request with the Forest Service and learned that some of their workers aren’t getting paid for all their hours. They weren’t allowed to invoice.

    Some of the Nomads had to work alongside robots, such as in the Amazon warehouses. How was that?

    The robots were making them bonkers. This is isolating work and there’s one scene in the book where a robot kept bringing a woman in her 70s the same thing to count.

    What needs to change to prevent people from having to become Nomads or to help them live better if they are?

    For one thing, Amazon should pay its workers more and give them better working conditions. It’s laughable that the workers get a 15-minute break when they have to spend it walking to the break room. It’s completely insane.

    Nomads need a voice, but at the same time, it’s extremely unlikely that they’ll organize for better working conditions because they’re vulnerable and always on the move.
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  3. the new World Bank poverty figures may tell a very different story from what has been suggested elsewhere: The numbers in poverty outside China rose during the heyday of neoliberal policies, and began to fall as the grip of those policies was loosened after 2005.
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  4. Massive infusions of cash by way of the central bank, combined with runaway mass panic-buying has stampeded Chinese people into buying into the property markets in boomtowns like Shenzhen, despite the insane prices that almost guarantee that they will default on their mortgages -- because they fear that rising property prices will shut them out forever if they don't buy now, and the new rentiers who've speculated on all that property are cranking up rents so fast that renting is worse than buying.

    It's an eerie echo of the runup to the subprime collapse of 2007/8, a blend of toxic debt and panic-buying fueled by the fear of literally not having a roof over your head and the belief that property markets can only ever go up because no one remembers the last time they cratered.
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  5. alla clientela italiana sulla fiducia, cioè presentandole come investimenti sicurissimi.

    A questo punto, il governo ha cercato un’alternativa: mettere insieme un consorzio di banche ‘amiche’ che comprano i cattivi investimenti del Monte dei Paschi, liberandolo dalla zavorra che lo sta facendo affondare. La proposta era di trovare 5 miliardi di euro provenienti da Santander, Goldman Sachs, Citi, Credit Suisse, Deutsche Bank e Bank of America. Secondo l’accordo il Monte dei Paschi avrebbe venduto 27 miliardi di cattivi investimenti, che sarebbero stati ‘riconfigurati’ con l’ausilio dei derivati in titoli del valore di 9,2 miliardi di euro. Si sarebbe trattato del terzo prestito in due anni, dai salvataggi precedenti la banca di Siena aveva ricevuto 8 miliardi di euro.

    Ma questo accordo non è andato in porto. Con il referendum alle porte, il governo ha, dunque, pensato di lasciare che il Monte dei Paschi facesse un’emissione pubblica per raccogliere 4,6 miliardi in titoli. Il problema è che il valore di mercato delle azioni della banca è oggi 740 milioni di dollari, basso, troppo basso per garantire l’emissione dei titoli. Secondo la banca il Qatar sarebbe interessato a sottoscrivere l’emissione, anche se non si capisce bene perché.

    Renzi sa bene che il fallimento del Monte dei Paschi darebbe vita ad un effetto domino simile a quello del crollo della Lehman Brother, anche se in proporzioni ridotte; sa anche che Bruxelles e la Bce ne sono coscienti e che la vittoria del No farebbe crollare la fiducia nei confronti del sistema bancario italiano, ed ecco perché è tornato a dirsi disposto a giocare la carriera sui risultati del referendum. Spera che questi timori convincano gli italiani a votare Sì, anche se questa decisione darebbe carta bianca a chiunque, non solo al suo partito, vinca le prossime elezioni.
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  6. Before the global financial crisis, a rise in raw-materials prices used to be bad news for the economy and stocks in general. Since central bank easy-money policies took off, that's become a thing of the past.

    One possible explanation is the level of exposure that banks and investors have to the industry. The 5,000 biggest publicly traded companies tracked by Bloomberg in the iron and steel, metals and mining, and energy sectors have a combined $3.6 trillion in debt, according to their most recent financial reports, double what they had at the end of 2008.
    Gushing IOUs

    Much of the increase is due to money that was borrowed to dig mines and wells whose output, at previous prices, would have easily repaid most maturing bonds and loans. But as commodity prices have tumbled, so has the ability of companies to meet their obligations. The Bloomberg Commodity Index is still only 3.9 percent higher than a 25-year low hit on Jan. 20.

    Five years ago, those companies tracked by Bloomberg had more operating income than debt, on average. Now, it would take them more than eight years' worth of current earnings, without provisioning for interest, taxes, depreciation or amortization, to clear their combined net obligations.

    It's unclear where the other portion of the $3.6 trillion in liabilities lies but probably, most of it is owed to banks. If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5 percent of the total assets of all the world's publicly traded banks. That doesn't seem very significant, or any cause for concern. But to put it in some context, U.S. subprime mortgages represented less than 1 percent of listed banks' assets at the end of 2007.
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  7. My own pick might be a story that passed largely unnoticed in our American world. Sitting atop some of the planet's great oil reserves and getting 73% of their revenues from oil sales (income that dropped by 23% last year), the Saudi royals just hiked the domestic price of gas at the pump by 40%. Though it still remains dirt cheap by global standards, that act -- which is like charging for salt water in the middle of the ocean -- is an indication that something startling is going on. And note that, in the years to come, that kingdom's rulers are planning to cut back on similar subsidies for “electricity, water, diesel, and kerosene.” In other words, the world’s largest oil producer and a country of striking wealth (and foreign reserves) no longer feels comfortable giving away gas to its own population, even though this is part of a bargain it struck long ago for peace in the kingdom.

    And the reason for this has little to do with Iran or Syria or Yemen or Iraq or the Islamic State. The problem is far more basic, as TomDispatch’s resident energy expert Michael Klare points out today. It’s the price of oil, which in the last 18 months has dropped through the floor. In a sense, the oil business -- with its constellation of giant energy firms, until recently among the most profitable companies in history, and its energy-producing states, until recently riding high -- may prove to be the natural-resource equivalent of a failed state, and, as Klare makes clear, the changing economics of oil will transform the political face of the planet. So keep your eye on Saudi Arabia. Things there could get ugly indeed.

    As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040. Think of this as the energy equivalent of a monster earthquake -- a pricequake -- that will doom not just many “tough oil” projects now underway but some of the over-extended companies (and governments) that own them.

    Brent prices rose to stratospheric levels, reaching a record $143 per barrel in July 2008. With the failure of Lehman Brothers on September 15th of that year and the ensuing global economic meltdown, demand for oil evaporated, driving prices down to $34 that December.

    With factories idle and millions unemployed, most analysts assumed that prices would remain low for some time to come. So imagine the surprise in the oil business when, in October 2009, Brent crude rose to $77 per barrel. Barely more than two years later, in February 2011, it again crossed the $100 threshold, where it generally remained until June 2014.

    Several factors account for this price recovery, none more important than what was happening in China, where the authorities decided to stimulate the economy by investing heavily in infrastructure, especially roads, bridges, and highways. Add in soaring automobile ownership among that country’s urban middle class and the result was a sharp increase in energy demand.

    in early 2014, when the price pendulum suddenly began swinging in the other direction, as production from unconventional fields in the U.S. and Canada began to make its presence felt in a big way. Domestic U.S. crude production, which had dropped from 7.5 million barrels per day in January 1990 to a mere 5.5 million barrels in January 2010, suddenly headed upwards, reaching a stunning 9.6 million barrels in July 2015. Virtually all the added oil came from newly exploited shale formations in North Dakota and Texas.

    In mid-2014, these and other factors came together to produce a perfect storm of price suppression. At that time, many analysts believed that the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would, as in the past, respond by reining in production to bolster prices. However, on November 27, 2014 -- Thanksgiving Day -- OPEC confounded those expectations, voting to maintain the output quotas of its member states. The next day, the price of crude plunged by $4 and the rest is history.

    Aside from the continuing economic slowdown in China and the surge of output in North America, the most significant factor in the unpromising oil outlook, which now extends bleakly into 2016 and beyond, is the steadfast Saudi resistance to any proposals to curtail their production or OPEC’s.

    Many reasons have been given for the Saudis’ resistance to production cutbacks, including a desire to punish Iran and Russia for their support of the Assad regime in Syria.

    In the view of many industry analysts, the Saudis see themselves as better positioned than their rivals for weathering a long-term price decline because of their lower costs of production and their large cushion of foreign reserves. The most likely explanation, though, and the one advanced by the Saudis themselves is that they are seeking to maintain a price environment in which U.S. shale producers and other tough-oil operators will be driven out of the market.

    Only three developments could conceivably alter the present low-price environment for oil: a Middle Eastern war that took out one or more of the major energy suppliers; a Saudi decision to constrain production in order to boost prices; or an unexpected global surge in demand.
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  8. In a long article, Charlie Stross breaks down the way that climate change, human reactions to climate change, and economics are turning the world into a place overrun by heavily armed racist kooks with the power and willingness to destroy everything in their race to get rich enough to buy a mountaintop retreat before the seas rise.

    A good parallel read is Bruce Sterling's "general health-check for our world's many regions and peoples," which includes such nuggets as "Iraq remains a catastrophic mess. Since they're so visibly keen on sectarian ethnic-cleansing, they ought to abandon the shell of the national order and form balkanized mini-states. It makes sense, but I don't think even that would help them."

    Oh, and "Russia is so lastingly humiliated by their failure to globalize that they've become a 'troll state... Americans used to have all kinds of practical "reform" advice for Russia, but that's worse than useless now. If you show up in Russia and tell 'em to follow the American Dream, it's like showing up with whooping cough at a house party for tuberculosis."

    Restricting transnational mobility for the proles/serfs/99.9% is part of the program and plays well to the nativist strand in climate change politics, which is why unless you've got a few million burning a hole in your back pocket you'll find it really difficult to legally immigrate into the UK or USA or other top-tier countries from outside the developed world. And why all our corporate-owned media (that is, 95% of them: Reddit is owned by Conde Nast, The Times and Fox News and 90% of the newspapers in Australia are owned by Rupert Murdoch, and so on) are banging the drum against immigration, at the behest of their (investor visa equipped) owners.

    But anyway, here's my summary of the next decade:

    1. The weather's going to get worse.

    2. We're going to see more and more unscrupulous huckster types leading revanchist, nativist right wing political movements and banging the anti-immigrant drum, world-wide. Civil rights include the right to free movement; this makes civil rights an easy scapegoat and target for the angry populist nativists. Sensible media capitalists (those with a sense of self-preservation) will pander to these assclowns. Courageous media capitalists (those with the odd ethical bone in their body) will stand up to them and get themselves assassinated or imprisoned. Luckily we have the internet except, oops, Facebook owns it and FB will do whatever they're told. (And if not Facebook, Google. The internet is infrastructure, and if annoying dissidents are drinking from the pure tapwater of honest news and you own the pumping station ...)

    3. This is going to happen both in nominally/formerly Christian countries and in the Muslim world. Both sides will see each other in a mirror and hiss like cats, but it doesn't really signify anything. Fear of terrorism is a rallying point, so expect unscrupulous politicians to use crack-downs on their local minorities to bolster their popularity. This will of course include crack-downs on civil rights because nothing annoys a political entrepreneur trying to posture as a strong leader like a civil rights lawyer with a good case.

    4. The ongoing 1300-year Sunni/Shi'ite cold war will continue, sometimes hotter, thanks to climate-induced disruption in the Middle East and the eventual collapse of the Saudi petrochemical economy. The ongoing Saudi succession crisis isn't going to help (as we just saw).

    6 None of this political posturing is going to do jack shit to roll back the already-in-train effects of climate change so the immigration pressure will continue, driving trends (2) and (3).

    7. Don't buy long term coal or oil futures.
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  9. Questa dei mercati emergenti è solo l’ultima, in ordine di tempo, di tre grandi bolle finanziarie arrivate a sgonfiarsi rapidamente. La prima è stata quella del mercato immobiliare americano (2007), poi è arrivata la crisi del debito sovrano europeo (2011), adesso quella delle economie emergenti. In ognuno di questi casi a creare la gravità del problema è stata sempre la massiccia, rapida, e spesso più emotiva che ragionata, inversione dei flussi di denaro da un area geografica di investimento ad altre aree. Si verifica quindi, nelle aree dove viene a mancare il “lubrificante” finanziario, una improvvisa crisi di liquidità alla quale diventa difficile, e in qualche caso persino impossibile, porre rimedio.

    Il mercato globale è stato inondato per circa cinque anni consecutivi da una massa enorme di liquidità a bassissimo costo proveniente dalle tre manovre consecutive di Quantitative Easing della Fed americana. Da quest’anno non c’è più, ma c’è ancora quella, appena iniziata quest’anno, del Qe europeo a dare ancora un po’ di euforia finanziaria in giro, e poi?
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  10. The red flags and marching songs of Syriza during the Greek crisis, plus the expectation that the banks would be nationalised, revived briefly a 20th-century dream: the forced destruction of the market from above. For much of the 20th century this was how the left conceived the first stage of an economy beyond capitalism. The force would be applied by the working class, either at the ballot box or on the barricades. The lever would be the state. The opportunity would come through frequent episodes of economic collapse.

    Instead over the past 25 years it has been the left’s project that has collapsed. The market destroyed the plan; individualism replaced collectivism and solidarity; the hugely expanded workforce of the world looks like a “proletariat”, but no longer thinks or behaves as it once did.

    If you lived through all this, and disliked capitalism, it was traumatic. But in the process technology has created a new route out, which the remnants of the old left – and all other forces influenced by it – have either to embrace or die. Capitalism, it turns out, will not be abolished by forced-march techniques. It will be abolished by creating something more dynamic that exists, at first, almost unseen within the old system, but which will break through, reshaping the economy around new values and behaviours. I call this postcapitalism.

    As with the end of feudalism 500 years ago, capitalism’s replacement by postcapitalism will be accelerated by external shocks and shaped by the emergence of a new kind of human being. And it has started.

    Postcapitalism is possible because of three major changes information technology has brought about in the past 25 years. First, it has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. The coming wave of automation, currently stalled because our social infrastructure cannot bear the consequences, will hugely diminish the amount of work needed – not just to subsist but to provide a decent life for all.

    Second, information is corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant. The system’s defence mechanism is to form monopolies – the giant tech companies – on a scale not seen in the past 200 years, yet they cannot last. By building business models and share valuations based on the capture and privatisation of all socially produced information, such firms are constructing a fragile corporate edifice at odds with the most basic need of humanity, which is to use ideas freely.
    British capitalism is broken. Here’s how to fix it
    Read more

    Third, we’re seeing the spontaneous rise of collaborative production: goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy.

    New forms of ownership, new forms of lending, new legal contracts: a whole business subculture has emerged over the past 10 years, which the media has dubbed the “sharing economy”. Buzzwords such as the “commons” and “peer-production” are thrown around, but few have bothered to ask what this development means for capitalism itself.

    I believe it offers an escape route – but only if these micro-level projects are nurtured, promoted and protected by a fundamental change in what governments do. And this must be driven by a change in our thinking – about technology, ownership and work. So that, when we create the elements of the new system, we can say to ourselves, and to others: “This is no longer simply my survival mechanism, my bolt hole from the neoliberal world; this is a new way of living in the process of formation.”

    Even now many people fail to grasp the true meaning of the word “austerity”. Austerity is not eight years of spending cuts, as in the UK, or even the social catastrophe inflicted on Greece. It means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up.

    Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.

    Neoliberalism, then, has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody.

    That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

    The result is that, in each upswing, we find a synthesis of automation, higher wages and higher-value consumption. Today there is no pressure from the workforce, and the technology at the centre of this innovation wave does not demand the creation of higher-consumer spending, or the re‑employment of the old workforce in new jobs. Information is a machine for grinding the price of things lower and slashing the work time needed to support life on the planet.

    the banking system, the planning system and late neoliberal culture reward above all the creator of low-value, long-hours jobs.

    Innovation is happening but it has not, so far, triggered the fifth long upswing for capitalism that long-cycle theory would expect. The reasons lie in the specific nature of information technology.

    In the 1990s economists and technologists began to have the same thought at once: that this new role for information was creating a new, “third” kind of capitalism – as different from industrial capitalism as industrial capitalism was to the merchant and slave capitalism of the 17th and 18th centuries. But they have struggled to describe the dynamics of the new “cognitive” capitalism. And for a reason. Its dynamics are profoundly non-capitalist.

    If we restate Arrow’s principle in reverse, its revolutionary implications are obvious: if a free market economy plus intellectual property leads to the “underutilisation of information”, then an economy based on the full utilisation of information cannot tolerate the free market or absolute intellectual property rights. The business models of all our modern digital giants are designed to prevent the abundance of information.

    I’ve surveyed the attempts by economists and business gurus to build a framework to understand the dynamics of an economy based on abundant, socially-held information. But it was actually imagined by one 19th-century economist in the era of the telegraph and the steam engine. His name? Karl Marx.


    The scene is Kentish Town, London, February 1858, sometime around 4am. Marx is a wanted man in Germany and is hard at work scribbling thought-experiments and notes-to-self. When they finally get to see what Marx is writing on this night, the left intellectuals of the 1960s will admit that it “challenges every serious interpretation of Marx yet conceived”. It is called “The Fragment on Machines”.

    In the “Fragment” Marx imagines an economy in which the main role of machines is to produce, and the main role of people is to supervise them. He was clear that, in such an economy, the main productive force would be information. The productive power of such machines as the automated cotton-spinning machine, the telegraph and the steam locomotive did not depend on the amount of labour it took to produce them but on the state of social knowledge. Organisation and knowledge, in other words, made a bigger contribution to productive power than the work of making and running the machines.

    Given what Marxism was to become – a theory of exploitation based on the theft of labour time – this is a revolutionary statement.
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