Posts Tagged ‘Current Affairs’
A New, Clandestine Fiscal Policy?
Towards the end of the 2008 US Presidential election, Barack Obama’s opponent John McCain repeatedly insisted that “the fundamentals of the economy are sound.” Just two months before the election, the widespread fraud committed by organized finance — popularly referred to as a “financial meltdown” in the media — threatened to undermine “the orderly exchange of commodities in interstate commerce.”
The 2008 financial crisis precipitated by “sub-prime lending” involved fraud in accounting, fraud in the real estate industry, fraud in the use of novel financial instruments to back residential mortgages, and fraud in global inter-bank lending.
Before the 2007 financial crisis that precipitated the 2008 crisis, the 2000 Dot-Com Bubble, the 2001 Enron energy trading crisis, the 2002 Arthur Anderson accounting crisis, and the 2002 WorldCom accounting scandal, gave ample evidence that the impending 2008 “financial meltdown” might have been averted were the Department of Justice, for example, to make it a routine practice to hire professional criminologists to pro-actively look for evidence of fraud in major financial markets.
“Crisis” would, rather, seem to be a common metaphor for “normal.” Or, at least where it comes to when decisions about huge amounts of money are made. Or, perhaps, an exciting, news-worthy way to say the world is run by crooks, and the commercial media sure as shit isn’t here to help.
If you think “social media” is the vital democratizing force here to save us, good luck to you and the malfunctioning DNA that made you.
Major Shifts in the Market for US Treasury Debt
In the wake of the Sub-Prime Mortgage Lending Scandal that served as the proximal cause to a global “financial meltdown” that was severe enough to help tip the 2008 US Presidential election, President Obama’s Administration implemented a policy of “Quantitative Easing” begun at the tail end of the George W. Bush Administration.
Quantitative Easing involved a significant change in US fiscal policy. Quantitative Easing involves the US Federal Reserve Bank purchasing US Treasury debt in huge volumes. This is highly unusual historically, untested economically, correlated with massive transfers of wealth to the wealthy recently, and is intensifying.
Before the “2008 Crash,” the Federal Reserves purchasing of US Treasury Securities was steady. This is a reasonable way to diversify the Fed’s holdings and to stabilize demand for Treasuries. This process of “monetizing debt” must take place on the open market: the Fed doesn’t buy straight from the US Treasury, but from major banks — which helps create credit.
President Obama’s fiscal policy for managing the “toxic mortgage assets” involved stabilizing the currency market by purchasing “toxic assets” to increase their price, recapitalizing insolvent banks by expanding the money supply by purchasing huge volumes of Treasury bills, and restricting lending to slow the rate at which the new money enters the economy as a means to limit inflation.
Over the course of President Obama’s eight years in office, the Federal Reserve tripled its holdings of Treasury bills to just over $2.4 trillion. This is, roughly, the amount of Treasury debt held by China, Japan, Canada, and Mexico combined (our major trading partners). These debt purchases meant that the US economy received $2.4 trillion more than the total goods and services produced.
Injecting large amounts of cash into the economy risks creating inflation, and control over interest rates is the main tool the Federal Reserve uses to combat inflation. During the Obama Administration the Fed took an additional inflation risk, as interest rates plummeted to spur economic activity in the form of borrowing (creating more consumer debt and profits for the banks). At the same time, rates for interest on savings also plummeted, so that anybody with modest savings would lose the yields they previously earned from mundane financial instruments like CD’s or their bank’s savings account (gradually shifting more money to the major backers of the banks). A savings account as the cornerstone of smart personal finance is no longer a meaningful option.
While the jury is very much still out on the long-term effects of this type of fiscal policy, its use does not appear to be limited to this single, major financial crisis. At the end of the Trump Presidency, the US embarked on another round of quantitative easing — without much discussion of how to manage the long-term consequences.
More Major Purchases of US Treasury Debt
When the COVID Pandemic led to lockdowns and layoffs, the US was facing various forms of economic disruption. By April 2020, over 20 million people found themselves out of work, and the unemployment rate rose above 14%. This, in turn, threatened the purchasing power of many families and, ultimately, the revenue of large corporations. Because interest rates were already so low — pegged at .05% in April 2020 — the Fed could not invoke this tool to spur economic activity.
Because Congress is unwilling to tax the wealthy or aggressively tax large corporations, the only option available to the Federal Reserve was to provide more credit itself by purchasing Treasury bills.
Instead of easing back on Treasury purchases as planned — which would gradually restrict the money supply after creating trillions of dollars in new credit — the Fed resumed Treasury purchases in early 2021, eventually doubling the amount of Treasury debt on the books — which had already tripled in the previous decade.
This policy — creating massive amounts of new credit in the form of Fed Purchases of US Treasury bills — appears to be continuing into the Biden Administration.
What Are the Implications of This Fiscal Policy?
This fiscal policy is pumping new credit into the financial system, but not in a way that benefits ordinary individuals. Taxpayers have continued to struggle financially through the COVID pandemic, receiving small, infrequent stimulus payments, and relying on extended unemployment benefits because available wages aren’t keeping up with the cost of living.
At the same time, the wealthy have become astronomically wealthier. The top few percent of the wealthy — whose wealth derives from structured finance — have increased their wealth by 54%, or $4 trillion during the pandemic, while 200-500 million people slid into poverty. While the relationship is not exactly direct, this $4 trillion figure is nearly identical to the amount of new credit the Federal Reserve has created during the pandemic. Bailouts to large, struggling corporations wind up in executive bonuses at a much higher rate than in the pockets of employees: during 2019, CEO compensation increased 14% such that the average CEO makes 320 times as much as the average employee.
The long-term implications for the economy are unclear, as this is a new, little-discussed acceleration of the processes of financialization that began in the 1980’s. In addition to facilitating massive wealth transfers, this may, ultimately, impact the global market for dollars and the “real economy” that is increasingly marginalized by the financial sector.
Under the post-war neo-Keynesian economic model, Federal debt is perfectly sustainable as long as the economy continues to grow at a rate that exceeds interest on the debt. Several key historical US policy decisions echo this principle: Woodrow Wilson ended the Gold Standard in 1913 while simultaneously establishing the Federal Reserve, while Nixon ended the convertibility of dollars to gold in 1973. As a result of these two policy decisions, the US dollar was able to become a major global reserve currency.
It is not true that “since the US abandoned the gold standard the value of the dollar isn’t based on anything anymore,” as argued by many conservatives who would like to see the US return to a fixed dollar price. The value of the dollar is driven by the demand for dollars — largely backed by the demand for US goods and oil from OPEC.
Although many Americans despair that “the United States doesn’t make anything anymore,” this is not true either. The United States manufactures more than ever before, except this is done with machines now instead of people — especially since the highly-contested election of George Bush II in the Fall of 2000 signaled a change in the political order. Foreign buyers who want US goods need dollars first — and this demand for dollars helps maintain the price of the dollar.
Another major demand for dollars comes from the demand for oil. The US produces more oil than Saudi Arabia. Because oil is a global commodity, oil is priced according to global demand, and the global demand for oil helps maintain the value of the dollar. When Nixon ended the last vestige of the gold standard, he struck a deal with OPEC: OPEC agreed to price oil exclusively in dollars, creating the petrodollar. Any buyer on Earth who wants oil from OPEC must purchase dollars first, which creates a global demand for dollars.
At the moment, Federal Reserve policy is creating the demand for dollars out of thin air. Foreign governments currently hold about $10 trillion in Treasury securities, about equal to what the Federal Reserve and local governments hold — except half of that is just from the past decade, representing a major shift in the financial order.
What happens if OPEC stops pricing oil in dollars, and starts using the yuan? This would be a problem for the dollar, unless the Federal Reserve acts to avert such a crisis with another round of quantitative easing. What happens if electric vehicles reduce the global demand for oil? You can be sure that large corporations — having failed to plan for this eventuality — will be rewarded with another round of quantitative easing.
What this Fed policy appears to be creating is a financial order where the demand for dollars among the owners of financial wealth keeps the “real economy” functioning: essentially, the demand for dollars among the wealthy can be used to replace the demand for dollars among nations seeking oil or US manufacturing goods. With interest rates near zero, inflation can be controlled by ensuring that most people never see any of the Fed’s new financial wealth: as long as those dollars stay in a rich person’s offshore bank account, they stay out of the economy.
This is a financial system that requires an ultra-wealthy, financialized oligarchy who, in turn, sell ordinary citizens commodity survival on credit. The purpose of the individual in this new system, then, is to convert credit into debt — no more, no less. No more owning music on vinyl or tape or CD, or films or physical books, or owning phones that now are leased, or cars, or houses or even one’s own online social activity, or the economic value thereof, unless one is selling images of one’s young, un-spent body.
Gone are the days when individualist economists like Friedrich Hayek cautioned that using individuals as means to economic ends was the hallmark of the authoritarian economies.
When capitalism enjoys a monopoly and no longer needs to compete in the marketplace of ideas, all options are on the table; education, healthcare, arts, and culture become unnecessary social expenses that diminish the ability of individuals to convert credit into debt.
New World Order for Fun and Profit
The Martial Lord of Wei asked one of his ministers what had caused the destruction of a certain nation-state. The minister said, “Repeated victories in repeated wars.”
The Martial Lord said, “A nation is fortunate to win repeated victories in repeated wars. Why would that cause its destruction?”
The minister said, “Where there are repeated wars, the people are weakened; when they score repeated victories, rulers become haughty. Let haughty rulers command weakened people, and rare is the nation that will not perish as a result.”
— Masters of Huainan (ca. 200 BCE)
What Just Happened?
Although many American voters feel alarmed and disoriented by Donald Trump’s rise to power, this is nevertheless the direct, causal result of millions of Americans pretending that Democrats are an opposition party over the last 30 years. Unfortunately, for these naive souls, the real difference between Democrats and Republicans is that Republicans are delusional while Democrats are in denial.
At present, Barack Obama and other prominent Democrats are blaming Russia for manipulating the election, which is pure propaganda. Russia probably manipulates every election. Russia, China, and others probably do too — just like we routinely interfere with theirs.
The real issue is both more nuanced and more troubling. In Wisconsin, for example, less than 1% of the vote separated Clinton from Trump. For comparison, in Florida after the 2000 election, a similarly narrow result triggered a recount by statute.
When one looks at what factors constitute that 1% of the vote in Wisconsin, however, the role of Russian involvement is not the decisive factor (though it may be a bit of a wildcard). Rather, a number of pervasive influences within American society amount to a far more profound influence:
1) Systematic black disenfranchisement due to Reagan-era federal sentencing guidelines (2.2 million voters nationally)
2) Systematic disenfranchisement through Voter ID laws (coordinated among statehouses through think tanks like ALEC)
3) Closed-source electronic voting machines with proprietary code that behave anomalously but can’t be audited
5) Campaign strategies that game the electoral college (Clinton won the 2016 popular vote, just like Gore won the 2000 popular vote against Bush)
6) Citizens United Supreme Court ruling overturning campaign finance reform, opening a floodgate of un-traceable political manipulation
7) Sporadic election fraud by officials like Kathy Nickolaus in Waukesha
Of course, Barack Obama — in blaming Russia — cannot call attention to these issues, because it undermines the validity of the very system from which he derives his power, influence, prestige, identity.
This was the same reason Al Gore couldn’t call for protests in the street after the 2000 election: he’s part of the system and therefore needs to help preserve it. So now, instead of solutions, we get propaganda from the left in addition to the right.
What Does it Mean?
Historian Robert Paxton has analyzed historical fascist movements, and has discerned five distinct stages along the way to fascism:
1. Development of the ideology
2. Ideology takes root
3. Ideology gains power
4. Ideology exercises power
5. Open society overtaken by entropy or becomes a police state
In Paxton’s analysis, the proto-fascist disillusionment with popular democracy begins in the rural around a rhetoric of renewal. The Greek Golden Dawn party, with seats amounting to about 10% of the European parliament, holds the phoenix as the emblem of their movement.
Popular with past Greek fascist movements, the symbol of the phoenix — which rises reborn from its own ashes — resonates with Trump’s promise to “make america great again.”
After a fascist ideology takes hold, traditional conservative elite adopt the rhetoric of the rural brownshirts to stave off a resurgent progressive movement. Which is to say: Hitler used the brownshirts but did not create them, just like the Republican Tea Party took advantage of American right wing militants.
Once the traditional conservatives are able firmly to re-establish control over resurgent progressives, the brownshirts become emboldened to act on their own. This historically has often taken the form of attacks on farmers. It may seem appealing to suppose — given the current state of race relations in the United States and the animosity suffered between rural and urban areas — that a modern equivalent of this step may consist in right wing militants squaring off with disaffected black inner-city youth (who figure they have nothing to lose, since they’ll be dead or in jail by the time they’re 20 years old). However, for all the problems with policing, it is unlikely that many police would sit by idly while white militants pick off black folks indiscriminately. Moreover, rural folks are often afraid of the city, making such a scenario less likely.
While the rural folks are afraid of the city, however, they’re not afraid of Mexican migrant farmers with no rights. They’ll be the canary in the coal mine, or the sacrificial lamb, for the same reason a john beats up a hooker: she can’t take it to the cops.
Once the traditional conservative elements try to restore order in the face of quasi-sanctioned vigilantism, two general outcomes typically result: entropy, or a police state.
Since Bill Clinton put the wiretaps in place, Bush switched them on, and Obama made it legal to use them, we would seem to have a pretty comprehensive system of repression in place already.
What’s Next?
The panopticon principle makes it pretty clear that surveillance is not some passive proposition, but an active system of control. If you CAN be monitored at any time, but NEVER know exactly when, it is in your interest to behave at ALL times as though you ARE being monitored.
Foucault summarized Bentham’s insight:
“Hence the major effect of the Panopticon: to induce in the inmate a state of conscious and permanent visibility that assures the automatic functioning of power…
“So… that the surveillance is permanent in its effects, even if it is discontinuous in its action; that the perfection of power should tend to render its actual exercise unnecessary; that this architectural apparatus should be a machine for creating and sustaining a power relation independent of the person who exercises it; in short, that the inmates should be caught up in a power situation of which they are themselves the bearers.”
— Michel Foucault, Discipline and Punish, 1975
The surveillance society depicted in George Orwell’s novel 1984 is built along these precise lines:
“There was of course no way of knowing whether you were being watched at any given moment. How often, or on what system, the Thought Police plugged in on any individual wire was guesswork. It was even conceivable that they watched everybody all the time. But at any rate they could plug in your wire whenever they wanted to.”
“You had to live–did live, from habit that became instinct–in the assumption that every sound you made was overheard, and, except in darkness, every movement scrutinized.”
— George Orwell, 1984 (1949)
The social deviance of 1984’s protagonist Winston Smith is eventually arrested through police entrapment, not through the efficacy of the surveillance infrastructure. Smith wanders into a forbidden part of town and rents a room from an undercover cop to use as a love nest.
In our world, these forces are already being brought to bear on the American population. What’s needed first is a sober recognition of these realities.
Those who would organize an opposition should not do so over social media. Use of the element of surprise is a rudimentary component of any strategy — which would-be organizers surrender without fight when organizing on a wiretap.
Those who would organize an opposition should not report their activities on social media. The types of information gained through the elaborate system of hundreds of thousands of spies and informers utilized by the East German state is routinely handed over voluntarily today on FaceBook. The East German state maintain control by exploiting personal information, and our system is not likely to be much different.
Cellphones are tracking devices. Even with GPS off, they are in constant communication with cell towers. The slight time differential between when a phone’s signal is picked up at multiple nearby towers can be used to precisely locate any such mobile device.
The walls have ears. Cellphones speak and understand English now. Past movements — the labor movement, the women’s movement, the civil rights movement — succeeded without social media. An opposition movement that has any chance of success today will be no different in that regard.
Indigo Jones
Tactical Linguistics Research Institute 