by Francis Lee for the Saker Blog
It speaks volumes about the gravity of the current political and economic situation that the leading US investment bank Goldman-Sachs has seen fit to issue a sombre warning.
‘’Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning on Tuesday that the dollar is in danger of losing its status as the world’s reserve currency. With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets …
There are many factors pushing the gold price higher, including fear of increasing political uncertainty, rising concerns involving another spike in COVID-19 infections in the country, increasing government debt, rising inflation, and concerns that the US dollar is seeing a new downtrend to the Chinese Yuan.’’ (1)
The fact that gold is being spoken about by the financial cognoscenti is in itself significant. Gold bugs (like me!) have long been regarded by orthodox academic economists and business financiers as being beyond the pale in terms of their relevance to current economic and financial issues. But, as with everything, times change, fashion changes, paradigm shifts take place – such is the way of the world.
At the time of writing gold has, after the 2012 engineered smackdown, been ascending remorselessly toward its present gold price of $1972,00.00 a whisker away from $2000.00 per oz. This latter price has an important psychological significance – a tipping point for both investors and owners of this particular asset. The new economic order established paper assets – representations of wealth, which replaced real wealth – i.e., gold. This was the beginning of the new epoch, a turbulent period now reaching what appears to be a climax. The increasing economic disorder has become chaotic since that date as fundamental and seemingly intractable problems began to manifest themselves.
The Nonage
In order to maintain a semblance of vitality, western capitalism entered into a period of steroid-enforced growth based upon increasingly unorthodox methods. This inflexion point took place in 1971 when in a televised broadcast Richard Nixon took the US off the gold standard and introduced a fiat standard based purely upon the US dollar. This was a little later supplemented by the US-Saudi agreement whereby oil would be fixed to a dollar price. At a stroke, these two events destroyed the Bretton Woods system of a dollar-gold standard with the $ convertible with gold at $35 per oz. The old order was finished; a new ideological economic regimen was rolled out. When and how long it might last is a matter of speculation.
In this Brave New World and following the lead of the US most of the rest of the world economies followed suit. This was a pivotal moment in economic history. But, whisper it softly, there were deep-going structural weaknesses initially hidden from view in the new economy which would eventually become increasingly problematic. The global economy had become increasingly dependent on expanding debt levels and on the expansion of fictitious capital. This was all part of what was to become known as neoliberalism, globalization or increasing financialization, call it what you will, it amounts to the same thing. [2]
Fictitious capital, consists of layers of financial paper assets – but it should be understood that these ‘assets’ are only symbols of value, not real values. For example, company shares which are traded like goods and services do not, in the same way, embody value. They are tokens which represent part ownership of a company and the potential distribution of future profits in the form of dividends. The paper or electronic certificate itself is not a genuine value it is only a claim on value. Real value is the production of goods and services such as cars, haircuts, IPhones, hotels and eating out, aroma therapy, shoes, books … and so forth, in a productive economy. This as opposed to rising share/stock prices which are often presented as a healthy economy, but the amount of money a share/stock changes hand for says nothing definitive about the value of a company’s assets or about its productive capacity.
John Stuart Mill once commented in this respect.
‘’The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies’’ (3)
Capital movements into and out of existing assets was not necessarily productive investment but mainly pure speculation. And speculation itself was driven by increasing levels of cheap debt, both sovereign and private. This process may be observed in the Fed’s force-feeding new monies into the economy at which corporations use this largesse to buy-back their own stock thus enhancing their market price. Insofar as it might be produced it becomes clear that finance led growth is based upon trickle-up economics in which the gains of the wealthy come directly at the expense of ordinary people. Financialization involves the extraction of economic rent from the circulation (of capital) process, as well as patents, copyrights and land/property.
The United States demonstrates these tendencies very clearly and its interest rates remain the dominant influence across the mature economies. This is due to the dollar’s role as a reserve status, i.e., the world money. But there has been a long trajectory of decline in real commercial bank interest rates which averaged 7% during the 1980s, 5.5% during the 1990s 4% during the 2000s for the period leading up to the financial crash of 2008 and have been below 2% and even lower ever since. They are now being held down to zero or even minus interest levels and functioning as free monies for the speculating community or corporations who wish to avail themselves to this monetary largesse to increase their market capitalisation. Demonstrably the US and the rest of the mature economies have been undergoing a secular decline since the 1970s which has eventuated in what seems to be a policy of demented money printing.
Moreover, financialisation has not to any extent been adept at creating more wealth for all, but instead has channelled this wealth to particular favoured groups. This is evidenced with the GDP metric which is only measured in terms of output and not the distribution of and ownership of wealth produced. The result is, in short, that the rich have got considerably richer and the rest have either stagnated or declined. And this has not been an accident.
Maturity and Decline
The present crisis in the global economy has been brought about by the culmination of a number of variables which taken as a whole have been responsible for the present impasse. All the early promises of a new world order of stability, prosperity and peace which were touted in the 80s 90s and 00s never lived up to their billing. The then UK Prime Minister, Gordon Brown, boasted that under ‘New Labour’s’ stewardship the boom-bust cycles of both the domestic and world economies had been banished. University of Chicago’s Professor Robert Lucas claimed that macro-economics had ‘’solved for all practical purposes’’ the problem of economic depressions. In the real world, however, the entire period from 1971 and well into the 21st century was punctuated by a series of rolling bubbles and crises: the 1987 stock market crash, 1990, the collapse of the junk bond market, the 1994 great bond market massacre together with the Tequila crisis in Mexico, the 1997 Asian financial crisis, the 1998 collapse of Long Term Capital Management, the 1998 default in Russia, and the 2000-02 dot-com bubble crash and finally the 2008 blowout. These once in a lifetime events seem to occur every year or so.
But the economic/financial powers that be (PTB) ensconced in the ivory towers of University Economics departments and Editorials in the Washington Post, Financial Times, The Wall Street Journal and Economist were having none of it. As these esteemed ladies and gentlemen saw it the new paradigm was going through a ’tricky’ teething stage and all would be well in the fullness of time, or so we were persuaded. It is difficult to know whether or not these people actually believed what they were articulating or were just plain stupid. But their theories at times actually verged upon a timeless circulation of axioms which are true by definition. It has been noted that,
‘’Academic economics has become a disaster and disgrace … Not only did the academic economists fail to see the great 2008 implosion coming, they weren’t even looking in the right direction. And having been surprised by its arrival, they had little to say about its implications – the greatest event to have befallen the capitalist system since WW2 … although there are shining exceptions, most academic economists, whilst clinging to the idea that their subject is relevant and of interest to the wider world, in fact practice a modern form of medieval scholasticism – of no use to man or beast. The output of this activity consists of articles entombed in ‘scholarly’ journals usually about questions of startling irrelevance, badly thought out and appallingly badly written, littered with jargon and liberally dosed with mathematics, destined to be read by no-one outside of a narrow coterie, and increasingly, not even by them.’’ (5) Agreed!
The Interregnum 2008-2020
The Great Financial Crisis (GFC) of 2008 has shown that perpetual growth and progress is an illusion. Moreover this was the first leg of the mega-crisis of which the second leg is now looming. Recent indicators include structural unemployment which is around 15% in the US – but this figure is almost always understated: See John Williams’ excellent repudiations in Shadow Government Statistics. Additionally there has been the growth of semi-employment in the ‘gig’ economy, short-term contracts, non-unionized labour, and illegal (often foreign) presence in itinerant employment and workers from the EU’s southern and eastern peripheries who are temporarily employed on farms during the summer for lack of UK workers. Many of these workers have no insurance or medical cover and live hand-to-mouth on a daily basis.
Unprecedented debt levels, chronic levels of debt-driven consumption are now common-place and the modern workforce is increasingly stratified. There are well-paid jobs for a small portion of those with requisite skills, but the vast majority of new employment is in the low paid service sector, such as retail, leisure, hospitality, security, aged care, and health care … youth unemployment remains high, even where work can be found starting incomes are around 10 to 12 percent lower than they were in 2007.
This situation was not only present in the UK but on the European continent also.
Millions of Europeans in temporary, part-time or bogus self-employed contracts can only find insecure and badly paid jobs, despite the healthy economic climate. That is the price of deregulating labour markets, Investigate Europe reports. This precarious set of labour conditions was created intentionally.
‘’The misery of bad jobs has many faces. It can take the form of work contracts without health or social insurance; it can be part-time jobs, which don’t pay enough to live on. Or those affected are kept dangling from one temporary contract to the next, or they have to eke out a living as bogus self-employed and contract workers. The methods vary from one country’s national legislation to that of another, but the outcome is always the same: millions of EU citizens have to get by with insecure and badly paid jobs, offering them no prospects.’’ (6)
2020 – the Debacle
Thus the world enters the second decade of the 21st century totally unprepared for what’s coming and with a leadership bereft of any plans or ideas of how to handle the situation. GDP growth is in unprecedented negative territory pretty much everywhere. In the United States, the birthplace of the Washington Consensus, GDP growth rate fell by no less than -32.9% and GDP annual growth rate by -9.5%. In Germany GDP growth rate fell by -10.1% and annual GDP growth rate by -11.7%. In China GDP growth rate was positive 11.5% and annual GDP growth rate was 3.2%. In the euro area GDP growth rate was -12.1% and annual growth rate was -15%. These are quite extraordinary figures which will need to sink in before any reasoned judgements are made. One look at the US situation is hardly comforting however.
‘’On Thursday, the Labor Department reported that 1.43 million new claims for unemployment benefits were filed last week, the 19th straight week that new claims have exceeded one million. After declining for months, new claims have risen over the last two weeks.
The number of workers claiming continuing unemployment benefits also rose from 16.1 million to 17 million for the week ending July 18. In addition, 830,000 new claims were filed for federal Pandemic Unemployment Assistance, which covers self-employed, gig workers and others who do not qualify for traditional jobless benefits.
Under these conditions, the $600-a-week federal supplement to state unemployment benefits is running out today for an estimated 20 million workers. Overnight, millions will see their incomes cut by two-thirds, from an average of $921 a week in May to about $321 a week. In some states, the theft of this lifeline will be even worse. In Oklahoma, jobless aid will be cut by 93 percent to $44 a week.
It is a measure of the precarious situation American workers faced even before the pandemic that the weekly supplemental assistance and the paying out of a one-time $1,200-per-person “stimulus” check led to a 45 percent increase in US personal income in the second quarter. Seventy percent of those who returned to work in June suffered an income loss by doing so.
Last week, the moratorium on evictions expired for about 18 million renters—more than a third of the 44 million total US renter households—who live in buildings with mortgages backed by the federal government. With rent bills accumulated over the last four months now due, housing advocates predict a “tsunami” of evictions, with half a million households in Los Angeles alone threatened.
Millions in the US are also going hungry. According to a US Census Bureau survey, food insecurity last week reached its highest reported level since May, with almost 30 million Americans reporting they had not had enough to eat at some point in the seven days through July 21.’’ (7)
Mindful of the impact of the Corona Virus and not wishing to rush to any rash judgement, the fact still remains that the world economy was already in a parlous and brittle condition, long over-due for a big correction which was going to happen with or without the complication of the Corona Virus. All the sugar-coated promises made at the turn of the century by various politicians, journalists, and world leaders regarding the new economy, a world-wide system of prosperity peace, harmony and growth turned out to be fairy-tales best suited to infants – and infants are precisely what our leaders seem to think we are.
Speculating about future developments is difficult since we are in the early phases of the downturn. What we do know is that it is like most previous downturns but beyond bad and seemingly unprecedented. Events can only be assessed retrospectively. It is now also clear that hegemonic turbo-capitalism and its tendency toward imperialism and war is not congruent for further human development and even perhaps life on this planet. This seems patently obvious to anyone who actually thinks about these issues. We (humanity) is now at a critical juncture in history. But the world has postponed, indefinitely, dealing decisively with the challenges. Anyone who questions the present course is held up to ridicule as a professional permanent pessimist, or worse. Nothing is done, and we ignore reality. Unfortunately as the Russian/American writer Ayn Rand – who is not one of my favourite writers – declared. “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”
Enough said. Francis Lee
NOTES
(1)Bloomburg – 27-July-2020
(2) Phillip Mullan – Creative Destruction – pp57/5 – ’In addition to the direct contribution of the fire sector to raising GDP artificially, the explosive growth in debt and other features of financialization a major, probably a bigger role.
(3) The notion of economic rent – made famous by David Ricardo and his theory of ground-rent – is based upon the extraction of rent from particular income streams or other assets, including land. Monopolistic rents are those which contain price levels which are over and above the costs of production.
(4) J.S.Mill – The Principles of Political Economy – 1848
(5) Roger Bootle – The Trouble with Markets – pp.232-233
(6) Tagesspiegel – Berlin – 25-10-2017
(7) World-Wide Socialist Website – 31-July-2020
Trotskyites and the great trickle down economics. ayn rand? gold investment?
the global (usa based) economy collapsed before, not because of covid. it seems a convenient cover. no mention of the great reset WEF marxist “creative destruction”?
ICYMI: A Record Amount Of Physical Gold Was Just Delivered On COMEX
https://twitter.com/zerohedge/status/1290052950547734528?s=20
This economic situation resulting from the Covid operation strikes me as an echo of the WTC building 7 collapse. A summoned catastrophe that only seems incidental if you give it uncritical attention and don’t ask questions.
This economic ruin so aptly described above is the follow up to 9/11 and is being worked on us by the same people and interests as 9/11. It is nothing less than the coup de grace to American society.
Such a price to pay. God help us all.
Excellent observations and my thoughts as well. 9/11 had come to lose it’s emotional charge over time, as an entire generation has come of age in its wake, so a new boogeyman had to be invented. CV19 is arguably a much better villain, as it’s a largely hollow assertion, mostly invisible and ephemeral, and can be trumped up or down in importance at will through the use of a simple PR/disinformation campaign as required at any given moment. I continue to be amazed by the current mask hysteria. Never could have imagined I’d see so many willingly complicit and gullible people in my lifetime.
”In the United States /…/ GDP growth rate fell by no less than -32.9% and GDP annual growth rate by -9.5%. In Germany GDP growth rate fell by -10.1% and annual GDP growth rate by -11.7%. In China GDP growth rate was positive 11.5% and annual GDP growth rate was 3.2%. In the euro area GDP growth rate was -12.1% and annual growth rate was -15%.”
What these stats show is the performance and resilience of industrial economies versus ”post-industrial” economies and their bogus GDP based upon creative accounting, swindle, and crime at the expense of the Third World.
Seems as if some new funny lawsuits against China are called for. The question is: Will the neoliberals, if successful, share the spoils with the West’s 99% ? Conversely, will the latter be content to see China comply without even asking for any remuneration themselves? As is evident from some commenters on this blog, the successes of China hurts real badly and must be stopped.
One must remember that Goldman Sachs has a stakeholder called Soros who has been behind the chaos not only in US but around the globe. He is not only a financial terrorist but a true terrorist for funding most of the groups behind 2020s riots and protests.
Soros likes to drive currencies down as he did the UK GBP in 1992 and Russia.
So it may well be the plan is to debase the US$ so globalists can destroy the US.
Previously mentioned the spectre of the US breaking up into regions – this was discussed by DEM leaders recently
https://www.infowars.com/globalist-election-integrity-group-war-games-how-biden-could-seize-power-even-if-trump-reelected/
And this may well be the plan.
With the US divided politically due to both political parties going in opposite directions the past 40 years, it may be the end result and not stoppable.
If California Oregon and Washington (Dem strongholds) split (as Podesta in the report speculated) and others like NY then its likely the South would and Wild West States, Prairies would also if the remainder of the Union couldnt prevent it. You could end up with either 2 blocks (Dem & GOP) or up to 5 regions.
The EU is in a similar situation.
But a lower USD would give a boost to exports.
What a mess things have become and this is all the fault of the Reagan Bush Clinton Bush period that led to Obama’s notorious rule.
The financial capitalists are at war with the industrial capitalists, and the public is caught in the crossfire.
https://www.rt.com/op-ed/493295-stop-hate-advertising-extortion-astroturf/
What is the real goal of the ‘Stop Hate for Profit’ campaign against Facebook?
Hint: it has nothing to do with ‘hate speech’
If the financial capitalist were at war with Industrial capitalists with us stuck in the middle that could be viewed as good news. I have some bad news for you. They are one and the same. Rockefeller and Herriman, for example, were both. In any case, the borrower is the slave of the lender, which makes the lender essentially the owner of industry. And the real bad news is this: they are at war with us! They are at war against all the ordinary hard-working people on earth. They want their new world order feudal system and it looks like they have grown tired of waiting. So, the time is now. That is what all this mess is about. They don’t care how many or who they have to kill to get it done and the more the better. Some people think that people like Margaret Sanger of the Birth Control League just wanted to exterminate people of darker skin. No, she had larger plans. She equally disliked the hard-working, poor breeders, regardless of external packaging.
Exterminating the “darkies” first was just a selling point for the times. Such a notion is no longer PC of course, so the message has necessarily mutated accordingly. I guess us poor whites should feel honored to be part of the emerging inclusivity movement in that regard – LOL! It’s always been about wealth and power or lack thereof, of course, although no one dares breathe a word of that in polite company.
>With the US divided politically due to both political parties going in opposite directions the past 40 years,
It seems you did not get the memo or haven’t noticed. You could liken them to two dogs under the control of one master. Or two wings of the same bird. In other words, the agenda of the two parties is the same, which is why the U.S. has continued without stop in the same direction, regardless of who sits in the pretty white house or fills seats at the Capitol Building.
T his J.S. Mills character sounds like a communist.
Neo-feudalism has exited the planning phase and is now being implemented.
John Stuart Mill was in fact a 19th century (genuine) Liberal. Along with David Ricardo and the American land tax reformer Henry George they all believed in a tax on land and landlordism, and the object of their ire was the rentier/landlord class. They were partisans for the bourgeois productive class who were engaged in a struggle with the landed aristocracy.
‘’Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning on Tuesday that the dollar is in danger of losing its status as the world’s reserve currency. With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets …
One assumes that the lion’s share of Goldman’s “growing concern” is reserved for the stimulus components aimed at the US’s hoi polloi; i.e., those of no concern whatsoever to Goldman’s precious investor class. Or, indeed, was Goldman merely trying its hand at economic prognostication (trading on insider information, no doubt), in an effort to soften the blow of what to any reasonably intelligent observer is at this point simply inevitable? Either way, trust that the Investment Bank to the Stars and their elite clientele know full well which way the wind blows with regard to the dollar’s future status and are already executing plans to profit it from it accordingly. That’s just what they do. They’ve definitely seen better days, but the AZ juggernaut’s still got some mileage left on its tires at this point, I’m afraid.
And so the Zionist blow up Beirut with a nuclear bomb.. Lovely times we live in ;)
When all you have is bombs and bullets all the world’s a target. Words to live by.
It is only in the unicorn world of MMT and endless printing machines working 24/7 for 12 years that gold ‘wasn’t in fashion’. It is for those like us who have to live with the cold harshness of reality that gold/precious metals are always in favour for one reason or another. The end of the dollar as default will be a reason to celebrate as will be the basket of currencies including the Yuan that replaces it in the short/medium term, hopefully followed fairly briskly by the demise of the petro dollar mafia scam.
Lost century, if not millennium
Mod: Too short for a comment….
Good article. I agree.
Ayn Rand: “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”
As I like to say, “You can ignore reality, but reality won’t ignore you”.
@Craig Mouldey on August 04, 2020 · at 3:21 pm EST/EDT
If the financial capitalist were at war with Industrial capitalists with us stuck in the middle that could be viewed as good news. I have some bad news for you. They are one and the same.
I think that is roughly true.
And the real bad news is this: they are at war with us!
Actually, I think the elites are primarily at war with each other, in an endless fight for primacy. We the 99% are just collateral damage.
The elites need resources to continue the fight against each other. Guess where they obtain the resources? That’s right, from us. That is why they express so little remorse at impoverishing the lower classes: their first priorty, by far, is to survive their intramural conflict; if the rest of us suffer, that is just too bad. Of course, some elites are greedy, and some may actually enjoy inflicting torment on the helpless (Trump is one of the latter), but I think most of them are trapped in their perpetual fight and they are helpless to stop.
(By the way, what we are currently seeing is not at all the first time something like this has happened. For example, see the Mayans’ “peace through war”, the ceaseless fight between their princes that did so much to end their civilization.)