The crisis of bourgeois economics

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Trump Versus Biden: The Substantial Fall in Real Wages for Most Workers Under Biden
Posted on May 21, 2024 by Yves Smith

Yves here. We are excerpting the opening section of a very important paper by Thomas Ferguson and Servaas Storm. The paper proper explains, in gory detail, how the regular whinging in Democrat-friendly media outlets, about how workers have gotten real wage gains under Biden and are proving their illiteracy via ingratitude, is false. Most workers are markedly worse off in real wage terms. Increases in consumption come substantially and potentially entirely from unprecedented wealth gains at the top of the income spectrum, which has lead them to spend freely despite falls in their real incomes too. Note further these conclusions rely on CPI as the measure of inflation, which many commentators and reader complain understates actual inflation.

The authors finally point out that the top-heavy and wealth-effect driven spending means that Fed interest rate increases would have to rise to a level that would likely kill the economy stone cold dead to beat inflation. We predicted this early on.

So if Trump wins, you will know why. The Democrats relied on their own flattering and superficial metrics to convince themselves that ordinary Americans were doing better under Biden. In fact most became worse off, as many correctly perceive. And they kept flogging the “voters are stoopid” message, adding insult to injury.


Please circulate this paper widely. We are reposting the opening section below, which contains the gist of the argument, and embedding the full document at the end.

By Thomas Ferguson, Research Director at the Institute for New Economic Thinking, Professor Emeritus, University of Massachusetts, Boston; and Servaas Storm, Senior Lecturer of Economics, Delft University of Technology. Originally published at the Institute for New Economic Thinking website

ABSTRACT

The wafer-thin poll margins separating President Joe Biden and Donald Trump have surprised and
baffled many analysts. This paper attempts no analysis of the election itself. It focuses instead on a clinical assessment of its macroeconomic context. Building on previous work, this paper looks first at inflation’s overall effect on real wages and salaries. It then considers claims advanced by Autor, Dube and McGrew (2023) and others about wages of the lowest paid workers. Real wages for most American workers have declined substantially under inflation. We observe no sign of a radical transformation of the U.S. labor market in favor of the lowest-paid workers. The (modest) increase in real hourly wages of the bottom 10% of U.S. workers during 2021-2023 owed little to any policy change or declining monopsony power: It was a unique case of wages rising to subsistence levels as COVID exponentially multiplied risks of working at what had previously been relatively safe jobs at the bottom of the wage distribution. The paper then analyzes inflation’s persistence in the face of substantial increases in interest rates.

We document the wealth gains made by the richest 10% of U.S. households during 2020-2023. These wealth gains, which have no peacetime precedents, enabled the richest American households to step up consumption, even when their real incomes were falling. Empirically plausible estimations of the wealth effect on the consumption of the super-rich show that the wealth effect can account for all of the increase in aggregate consumption spending above its longer-term trend during 2021Q1-2023Q4. Importantly, the lopsided inequality in wealth makes controlling top heavy consumption spending by raising interest rates much harder for the Federal Reserve, without interest rate increases that would bring the rest of the economy to its knees much earlier. We also show that the persistence of inflation in several key service sectors is heavily influenced by captive regulators – a condition that higher interest rates cannot remedy.

Introduction

First, there was COVID. Then came surging inflation, two major shooting wars, food and climate calamities, and an intractable international debt crisis. Now as drones and missiles streak over the real plains of Armageddon almost every day, another apocalyptic event looms on the horizon – a genuine Second Coming: Despite January 6th, major business reverses, and myriads of court cases, prosecutions, and high-profile litigation, Donald Trump is locked in a tight race for the White House with President Joe Biden.

Just when he needed money the most, a stunning feat of financial engineering vaulted him back into the ranks of the American super-rich (Moore, 2024). Though some major business groups remain aloof (Goldmacher and Haberman, 2024), many billionaires who swore off ever supporting him again are flocking back to his standard, while companies that loudly proclaimed their determination to cut off campaign contributions to Republican legislators who supported the January 6th effort are pouring funds into the coffers of both the legislators and Trump’s campaign (Gold, 2024).1 With a vast network of lavishly funded think tanks drawing up blueprints for drastically revamping government in the event Trump wins, Democratic leaders are plainly distressed (Arnsdorf, et. al., 2023). Already mired in a blazing civil war over policy toward the Middle East, they are now weighing their responses to the United Autoworkers (UAW) electrifying success in organizing the Volkswagen plant in Chattanooga, Tennessee and the wave of unionization efforts its success is engendering as inflation stays stubbornly high.

The wafer-thin poll margin baffles establishment news and political analysts (Wallace Wells 2024; Krugman, 2024a). Wringing their hands in exasperation, they point to macroeconomic indicators indicating that the U.S. economy is humming along. Powering out of the COVID19 recession of 2020, the economy is growing at more than 3% (on an annual basis) in the first quarter of 2024. The official unemployment rate of 3.8% in March 2024 hovers near a fifty-year low; real earnings of U.S. workers have been rising for some months; and consumer price inflation has dropped from 8.6% in the second quarter of 2022 to 3.2% in the first quarter of 2024. The economy’s ability to defy widespread predictions of recession in the face of Federal Reserve monetary tightening had even fed hopes for a “soft landing” that could open the way for another round of interest rate cuts that could spur financial markets to new records – at least before the Chattanooga vote.

Many observers also extol the President’s landmark policy achievements: Not simply the vast aid programs for ordinary Americans that his administration launched as it came to power, but the series of dramatic industrial policy initiatives that startled the rest of the world. These include the Inflation Reduction Act (IRA), which set in motion far-reaching transformative programs of loans, grants, and tax credits to adapt the US to the realities of climate change; the Chips Act, which incentivizes industries to reshore production in strategically important industries; and a separate infrastructure package worth more than a trillion dollars over time. Not to mention the other steps the administration took on behalf of racial justice, student debt relief, unions, and consumer protection.

The perplexity runs so deep that a cottage industry has sprung up generating ingenious explanations of why the election is so close. Their common core is the invocation of clear forms of irrationality – individual and social cognitive failures, mass amnesia about Trump’s actual record, or, inevitably, disinformation spread by any number of bad actors at home or abroad (Glasser, 2024; Krugman, 2024b).2

We view this situation as a trap, especially in the light of the UAW’s stirring victory and mushrooming campus protests. A year ago, as the Fed responded to inflation by abandoning its policy of quantitative easing – ultra low interest rates – and started rapidly raising them, we argued that the economic situation of most Americans was far more tenuous than commonly recognized (Ferguson and Storm 2023a). We contended that relying on central banks and fiscal policy tightening to contain the historically specific form of inflation raging through the economy would not work out well.

It was simply untrue, as Lawrence Summers and many other mainstream economists contended, that the inflation resulted from a US-specific wage/price spiral, set in motion by the President’s stimulus program. The time paths of inflation and the stimulus spending did not at all align; and, decisively, wages clearly lagged well behind prices. Since our paper, evidence against this view has continued piling up and we are not surprised that at a recent Brooking conference no one at all defended the position.

In fact, the inflation was worldwide and shocks to supplies were clearly its primary cause, though of course profit-maximizing firms took advantage of the fear and uncertainty to raise profit margins when they could (“profit inflation”).3

The most immediately disruptive of these supply shocks came from COVID – full stop. But other forces compounded the desperate situation. We pointed to accelerating climate change, with its dramatic effects on storm damages, floods, droughts, temperatures, and food prices, and an increasingly belligerent multipolar world economy that was redefining risks for value chains and national security.

The customary response of central banks to inflation – raising interest rates – would do little to resolve any of the underlying problems. COVID and its supply chain snarls required active large- scale government interventions to increase supplies, reduce bottlenecks, and protect public health. In practical terms, that made inevitable a new round of massive borrowing by governments.

Neither would raising interest rates palliate supply problems. They were certain to discourage investments in climate change mitigation, given that many of the most promising forms of renewable energy require major upfront investments to scale up efficiently. Many renewables also return steady, but not flashy streams of revenue, so that higher interest rates could reduce their appeal to financial markets demanding rates of return at levels comparable to those of, for example, private equity. But slow walking efforts to counter climate change would guarantee further future rounds of price shocks and other adaptation costs as the climate worsened. Higher rates would also inhibit adjustments in value chains and production shifts required for resiliency and enhanced national security amid radically shifting international alliances and conflict threats.

We especially emphasized the potentially fatal implications for controlling spending via interest rates from the dramatic change in the wealth holdings of American’s most affluent citizens. These swelled as a consequence of the Fed’s latest round of quantitative easing after COVID hit. As the central bank’s ultra-low interest rate policy levitated financial markets, wealth concentration quite exceeded levels reached earlier. Most gains went to the rich and super-rich. As COVID eased off in 2022 after vaccines were introduced, spending by the wealthy exploded, even as ordinary Americans struggled as the temporary government programs ran out. The increase in spending out of wealth, we estimated, was roughly the size of the entire Biden stimulus program. Coming online just as total government spending nosedived, it massively increased demands by the affluent for goods in short supply. In the inflation debate, this was the missing elephant in the room.

Our paper contended that upward shifts in wealth of this magnitude – which had no peacetime precedents – were producing dramatic shifts from quantity to quality in the structure of the economy. In the short run, the lopsided inequality in wealth would make controlling consumption spending by raising interest rates much more difficult. Consumption by the affluent would be far harder to slow, without interest rate increases that would bring the rest of the economy to its knees much earlier. The shift in wealth would also fuel illusions that high volumes of aggregate spending were reliable indicators of broad social welfare.

Which they were anything but. We showed that claims of broad wage gains under Bidenomics were specious. The opposite, in fact, was the rule: The U.S. was plainly in the throes not of a wage-price spiral but a price-wage merry go round, with real wages for most workers falling steadily behind prices. For one set of workers only this pattern did not hold true: workers at the very bottom of the wage distribution were indeed seeing pay raises in real terms. This owed little to any policy change: It was a unique case of wages rising to subsistence levels as COVID exponentially multiplied risks of working at what had previously been relatively safe jobs and workers at the bottom of the wage distribution left their jobs.

The increasing economic heft of the superrich exercised a magnetic attraction on the American economic structure, transforming parts of it quickly. In many instances, the result was plainly socially irrational: jobs in high-end restaurants were flourishing, while low-paid work in nursing homes, childcare, or education dried up. Long-COVID and related health problems continued to disorganize labor markets, leading many workers to withdraw in whole or in part from them and confusing analysts who judged according to older rules of thumb.

A year later, some of the points we made, especially concerning climate change, have been taken up, if not exactly taken to heart (Ferguson and Storm, 2023b). But the central parts of our macroeconomic message mostly have not, though recently some bank analysts and media accounts
have begun to recognize the importance of the wealth effect that we pointed out already in January 2023 (Rugaber, 2024). But the issues of wealth effects and real wages, unfortunately, are crucial for understanding why an incumbent president presiding over a growing economy is scrambling to hold on. Or why, five years after COVID and four years after a Democratic President who pledged to be the most pro-union president in American history, the prospect of a real wage/price spiral (or “Kaleckian Moment”)4 might at last be a real possibility as the presidential race heads into its home stretch.

This paper is not directly a venture in election analysis. That would require attention to many issues we have no space for here, such as foreign policy, abortion, or immigration and border issues. We have a sinking feeling that the outcome of the 2024 election may now be in the lap of the gods – or, as statisticians might say, some Poisson distribution. With age an issue for both candidates, a public stumble by either could tip the outcome. So could any number of foreign policy surprises, including the course of several wars. OPEC+ is clearly trying to raise oil prices, which will certainly affect inflation. Whatever happens, Federal Reserve policy will surely be important. If the Fed responds, as so often in American history, to a belated wave of efforts by workers to catch up with inflation by tightening policy or holding rates up too long, it could indeed shorten the odds of a Second Coming.

Instead, this study is one of several papers that we are writing to illuminate the real macroeconomics of the Second Coming, which we emphasize that we do not consider inevitable. Our hope in this one is to explain how the macroeconomic problems in our earlier paper have blinded many participants and observers to the actual state of the American economy as the election approaches.

The current paper returns to the key questions of wages and incomes and how wealth effects cripple reliance on interest rates to control inflation. British studies (e.g., Alexandri et al. 2024), have drawn attention to COVID’s continuing impact and related medical issues on labor markets. In the United States, comparable discussions can be found only in specialized, public health-oriented circles. Most of the press, both political parties, the Biden administration, and the Fed, emphasize how well labor markets have rebounded. The importance of recent work identifying biomarkers associated with Long COVID or the ramifying hazards of reinfection (Alvelda, 2024; (Strulik and Grossman, 2024) has yet to be broadly recognized. We believe COVID and related public health problems continue to roil labor markets; the epidemic is not over, though its effects have become more subtle and complex. The present study treats COVID only as much as necessary to understand debates about low wages; we leave its broader effects on labor markets for a subsequent paper.

Our exposition divides, like Caesar’s Gaul, into three parts. Part I analyzes the course of wages. It begins by surveying economy-wide evidence. The conclusion is inescapable that real wages for most Americans have dropped substantially during the Biden presidency. The cumulative losses for most are substantial. We then consider in more detail claims advanced by Autor, Dube and McGrew (2023) and others about wages of the lowest paid workers. Stressing the rebound in labor markets since COVID, they argue that these workers, at least, have enjoyed substantial gains – characterized at times as “unprecedented in a generation.” They also argue that differences between the highest and lowest wage levels have compressed significantly, concluding that “disproportionate wage growth at the bottom of the distribution […] reversed almost 40% of the rise in 90-10 log wage inequality since 1980, as measured by the 90-10 ratio” (Autor et al. 2023, pp. 33-34).

These claims were not correct when they were put forward and they remain wide of the mark now. They draw mostly on evidence from hourly wage data, which have severe limitations. We will show that most gains by the lowest paid workers occurred in a few months in 2020. They largely
reflect, as we argued before, rising premia for safety when low paid, but safe, jobs suddenly became low paid and deadly once COVID hit. Most definitely these wage gains do not reflect sudden changes in monopsony – the local domination of labor markets by one or a few employers.

We buttress our conclusions by tracing how fitfully data for personal income, life expectancy and median household incomes have rebounded from their disastrous nadirs at the height of COVID. We are thus not surprised by the new wave of unionization efforts, though their success is hardly guaranteed.

Part II of our paper looks again at the evidence about wealth effects. Despite the sharp rises in interest rates, stock markets have surged again. The latest climb arguably reflects hopes for early interest rate cuts (now mostly dashed) but also the advent of epoch-making technological advancements. Whatever its causes, the surge has brought the wealth of affluent Americans back to record levels. And just as they did after Omicron waned, affluent Americans are again spending at prodigious levels. As before, interest rate checks on their consumption are feeble.

Our Conclusion shows how continuing demand, (mostly) by the affluent for services whose
production conditions are controlled by captive public regulators, helps fuel inflation in the service sector. Raising interest rates to control inflation in such cases is pointless; policy has to address the underlying problem, not squeeze the rest of the economy to no end.

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1 Partial inventories of major companies that promised not to fund election deniers are widely available on the internet. See, e.g., Piper and Montallero (2023). Fundraising for 2024 is massive and reporting lags behind the reality. We have checked enough to support our paper’s claims here.

2 It is not news that partisans of each party tend to misperceive the state of the economy. The 2024 case quite clearly goes well beyond such effects. It obviously affects many Democrats, for example. The obvious insufficiency of this chestnut inspires the present flood of ruminations.

3The literature is vast, but see Storm (2023); the question cannot be reduced to simple mark-up maintenance. Note that with so much inflation coming from the supply side, profit inflation can hardly drive the entire process. In this respect, a recent paper by the San Francisco Fed (Leduc, Li, and Liu, 2024) creates something of a straw man. They do not show detailed data, but it is interesting that “salient industries” show clear evidence that markup rose over time and that over the entire economy, their lowest estimate remains in positive territory, unlike the other recoveries they plot.

4 See, e.g., Ratner and Sim (2022), but also the acute critique in Seccareccia and Romero (2022).

(The entire paper(105pp) can be viewed at link.)

https://www.nakedcapitalism.com/2024/05 ... biden.html

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Yellen’s visit to Beijing: penny lectures from economic ignoramuses

The USA is outraged to find it no longer calls all the shots on its much-promoted world market.


It turns out that the imperialists are only in favour of a free market if that ‘freedom’ is rigged in their favour. The sight of the USA of all countries complaining about ’unfair competition’ has all the absurdity of a Monthy Python sketch.

Proletarian writers

Monday 20 May 2024

With the USA’s national debt topping an eye-watering $31tn, inflation running rampant and the accelerating deindustrialisation of the economy, treasury secretary Janet Yellen clearly has her work cut out.

But instead of facing up to the reality of the situation at home, Yellen used the occasion of her week-long April visit to Beijing to lecture her hosts on how best to run their economy.

Through the tunnel vision of her unipolar lens, Yellen could plainly see that the origin of all the USA’s woes lay in the unreasonable insistence of China on her right to continue the dynamic industrial expansion that has raised so many millions of Chinese citizens from poverty and looks set fair to help the independent development of many more millions globally via the Belt and Road initiative and other partnerships.

Yellen’s real complaint about China is that it is “simply too large”. “The Treasury has called on China to stop over-subsidising [!] its green-tech industry — a situation that US officials say risks [!] flooding global markets with cheap solar panels, electric vehicles and lithium-ion batteries. ‘China is now simply too large for the rest of the world to absorb this enormous capacity.’” (Janet Yellen says US-China relations on ‘stronger footing’ by Claire Jones and Joe Leahy, Financial Times, 8 April 2024)

Whatever happened to saving the world with green industries and products? Surely the ecowarriors in the White House should be dancing a jig to see that economies of scale in China are rapidly bringing down the costs of solar panels and electric cars?

But apparently solar panels and electric cars only save the world if they bring profits to western corporations!

While the USA belly-aches about the effects of a giant global powerhouse on its remaining industrial base, we can’t help remembering that no such qualms bothered Washington when it was the American colossus that bestrode the world.

But with the balance of forces in the world shifting fast, it seems that those who only yesterday were the most zealous evangelists of capitalism have to be reminded of the basic tenets of their beloved ‘free market’.

“Supply and demand balance is relative, with imbalance often being the norm,” Chinese vice-finance minister Liao Min said on Monday, dismissing Yellen’s concerns. “This can occur in any economy operating under a market economy system, including historical instances in the US and other western countries.”

Meanwhile, Chinese commerce minister Wang Wentao pointed out: “The country’s renewable energy and EV industries were not the product of subsidies but the outcome of innovation and market competition.” (How Janet Yellen struggled to move the needle on US-China trade by Claire Jones and Joe Leahy, Financial Times, 10 April 2024)

These hard economic realities will be evaded neither by diplomatic soft-soap nor by ramping up economic aggression (as, for example, the 25 percent levy imposed by the USA on cars and parts imported directly from China).

The plain truth is that the USA has been spending far beyond its means for decades – an unsustainable and ultimately catastrophic model that the Chinese government politely refuses to follow.

While the USA was living on borrowed money, amassing unserviceable debt and printing new dollars on a vast scale to try to escape a looming economic crash, its money-printing had the effect of exporting inflation around the globe, thus forcing the rest of the world to pay the price for US impecunity.

Now US monopolies are livid that Chinese industry is out-competing them, foiling hopes that they might somehow export their way out of the deep economic crisis in which they find themselves.

The problem of overcapacity is central to capitalist commodity production and will only end when that system is replaced with socialist planning. Pending that happy outcome, let Yellen and company save their unsolicited advice on how China should run its economy!

https://thecommunists.org/2024/05/20/ne ... economics/

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Michael Hudson: Some Myths Regarding the Genesis of Enterprise
Posted on May 24, 2024 by Yves Smith

Yves here. This topic, on the origins of enterprise, is more important than it might seem. One of the ways neoliberals justify their policy positions is through various “just so” stories, that commerce and the use of money arose naturally though interactions with individual. They insinuate that this purported evolution means that unfettered transactions are therefore virtuous. This post show that in fact the governments in ancient societies, the palace sector, created money and private property rights.

By Michael Hudson, an American economist, a professor of economics at the University of Missouri–Kansas City, and a researcher at the Levy Economics Institute at Bard College. He is a former Wall Street analyst, political consultant, commentator, and journalist. You can read more of Hudson’s economic history on the Observatory. Produced by Human Bridges

If a colloquium on early entrepreneurs had been convened in the early 20th century, most participants would have viewed traders as operating on their own, bartering at prices that settled at a market equilibrium established spontaneously in response to fluctuating supply and demand. According to the Austrian economist Carl Menger, money emerged as individuals and merchants involved in barter came to prefer silver and copper as convenient means of payment, stores of value, and standards by which to measure other prices. History does not support this individualistic scenario for how commercial practices developed in the spheres of trade, money and credit, interest, and pricing. Rather than emerging spontaneously among individuals “trucking and bartering,” money, credit, pricing, and investment for the purpose of creating profits, charging interest, creating a property market and even a proto-bond market (for temple prebends) first emerged in the temples and palaces of Sumer and Babylonia.

The First Mints Were Temples

From third-millennium Mesopotamia through classical antiquity the minting of precious metal of specified purity was carried out by temples, not private suppliers. The word money derives from Rome’s temple of Juno Moneta, where the city’s coinage was minted in early times. Monetized silver was part of the Near Eastern pricing system developed by large institutions to establish stable ratios for their fiscal account-keeping and forward planning. Major price ratios (including the rate of interest) were administered in round numbers for ease of calculation[1].

The Palace Forgave Excessive Debt

Instead of deterring enterprise, these administered prices provided a stable context for it to flourish. The palace estimated a normal return for the fields and other properties it leased out, and left managers to make a profit—or to suffer a loss when the weather was bad or other risks materialized. In such cases shortfalls became debts. However, when the losses became so great as to threaten this system, the palace let the agrarian arrears go, enabling entrepreneurial contractors with the palatial economy (including ale women) to start again with a clean slate. The aim was to keep them in business, not to destroy them.

Flexible Pricing Beyond the Palace

Rather than a conflict existing between the large public institutions administering prices and mercantile enterprise, there was a symbiotic relationship. Mario Liverani[2] points out that administered pricing by the temples and palaces vis-à-vis tamkarum merchants engaged in foreign trade “was limited to the starting move and the closing move: trade agents got silver and/or processed materials (that is, mainly metals and textiles) from the central agency and had to bring back after six months or a year the equivalent in exotic products or raw materials. The economic balance between central agency and trade agents could not but be regulated by fixed exchange values. But the merchants’ activity once they left the palace was completely different: They could freely trade, playing on the different prices of the various items in various countries, even using their money in financial activities (such as loans) in the time at their disposal, and making the maximum possible personal profit.”

Mesopotamian Institutions Boosted the Commercial Takeoff

A century ago it was assumed that the state’s economic role could only have taken the form of oppressive taxation and overregulation of markets, and hence would have thwarted commercial enterprise. That is how Michael Rostovtzeff[3] depicted the imperial Roman economy stifling the middle class. But A.H.M. Jones[4] pointed out that this was how antiquity ended, not how it began. Merchants and entrepreneurs first emerged in conjunction with the temples and palaces of Mesopotamia. Rather than being despotic and economically oppressive, Mesopotamian institutions and religious values sanctioned the commercial takeoff that ended up being thwarted in Greece and Rome. Archaeology has confirmed that “modern” elements of enterprise were present and even dominant already in Mesopotamia in the third millennium BC, and that the institutional context was conducive to long-term growth. Commerce expanded and fortunes were made as populations grew and the material conditions of life rose. But what has surprised many observers is how much more successful, fluid, and more stable economic organization was as we move back in time.

Ex Oriente Lux

Growing awareness that the character of gain-seeking became economically predatory has prompted a more sociological view of exchange and property in Greece and Rome (e.g., the French structuralists, Leslie Kurke[5] and Sitta von Reden,[6] and also a more “economic” post-Polanyian view of earlier Mesopotamia and its Near Eastern neighbors. Morris and Manning[7] survey how the approach that long segregated Near Eastern from Mediterranean development has been replaced by a more integrated view[8] [9] in tandem with a pan-regional approach to myth, religion,[10],[11] and art works.[12] The motto ex oriente lux now is seen to apply to commercial practices as well as to art, culture, and religion.

Individualism Was a Symptom of Westward Decline

For a century, Near Eastern development was deemed to lie outside the Western continuum, which was defined as starting with classical Greece circa 750 BC. But the origins of commercial practices are now seen to date from Mesopotamia’s takeoff two thousand years before classical antiquity. However, what was indeed novel and “fresh” in the Mediterranean lands arose mainly from the fact that the Bronze Age world fell apart in the devastation that occurred circa 1200 BC. The commercial and debt practices that Syrian and Phoenician traders brought to the Aegean and southern Italy around the eighth century BC were adopted in smaller local contexts that lacked the public institutions found throughout the Near East. Trade and usury enriched chieftains much more than occurred in the Near East where temples or other public authority were set corporately apart to mediate the economic surplus, and especially to provide credit. Because the societies of classical antiquity emerged in this non-public and indeed oligarchic context, the idea of Western became synonymous with the private sector and individualism.

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[1] “Das Palastgeschäft in der altbabylonischen Zeit.” In Interdependency of Institutions and Private Entrepreneurs: Proceedings of the Second MOS Symposium (Leiden 1998), ed. A.C.V.M. Bongenaar, 1998, pp.153–83; “Royal Edicts of the Babylonian Period—Structural Background.” In Debt and Economic Renewal in the Ancient Near East, ed. Michael Hudson and Marc Van De Mieroop, 2002, pp. 139–62.

[2] “The Near East: The Bronze Age,” The Ancient Economy: Evidence and Models, ed. J. G. Manning and Ian Morris, 2005, pp. 53-54.

[3] The Social and Economic History of the Roman Empire, 1926.

[4] The Later Roman Empire, 284–610: A Social, Economic, and Administrative Survey, 1964.

[5] Coins, Bodies, Games, and Gold: The Politics of Meaning in Archaic Greece, 1999.

[6] Exchange in Ancient Greece, 1995.

[7] The Ancient Economy: Evidence and Models, ed. J. G. Manning and Ian Morris, 2005.

[8] The Mediterranean and the Mediterranean world in the age of Philip II by Fernand Braudel (author) Sian Reynolds (translator), 1972.

[9] “Did the Phoenicians Introduce the Idea of Interest to Greece and Italy—and If So, When?”, Greece between East and West, ed. Gunter Kopcke and I. Tokumaru, pp. 128–143.

[10] Die orientalisierende Epoche in der griechischen Religion und Literatur by Walter Burkert, 1984.

[11] The East Face of Helicon: West Asiatic Elements in Greek Poetry and Myth by M.L. West, 1997.

[12] Greece between East and West: 10th-8th centuries BC by (G.) Kopcke and (I.) Tokumaru, ed., 1992

https://www.nakedcapitalism.com/2024/05 ... prise.html

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Manila Philippines. (Photo: commons.wikimedia.org)

Neo-liberalism has increased mass poverty
By Utsa Patnaik (Posted May 25, 2024)

Originally published: Peoples Democracy on May 26, 2024 (more by Peoples Democracy) |

THE media has been full of claims by the World Bank and by governments that millions of people in the global South have been lifted out of poverty during the last three decades that saw neo-liberal economic policies. The Niti Aayog in a press release earlier this year claimed near zero poverty for India by 2022-23, affecting only 5 per cent of the population. The hard data on nutritional intake show however that hunger has risen greatly over the last three decades, with more than two-thirds of its rural and urban population unable to spend enough to satisfy minimum needs of calorific and protein intake; India’s very low ranking (111 out of 125 countries in 2023) on the global hunger index continues, and while some health indicators have improved, others have worsened.

Those who believe the official claims say, ‘how can hunger have increased when poverty has declined?’ The question should be the opposite, namely ‘how can poverty have declined when hunger has increased?’ The information on rise in hunger is direct, based on readily available and verifiable statistics, compared to official poverty estimates that are based on illogical and non-transparent calculation methods, rendering quite spurious the claim of massive poverty decline. The illogical method has the blessings of the World Bank which repeats the spurious claim of poverty decline.

Why is the official method illogical, and the conclusion of poverty decline spurious? Because its method has meant repeatedly under-estimating poverty lines over time, leading to a lowering of the nutritional intake that can be accessed at these poverty lines.The poor have been counted below a standard that itself has been allowed to decline; but for any valid comparison over time, the standard must be held constant. If a school claims great success in lowering over a period of 30 years the proportion of failures among students taking examinations, from say initially 55 per cent of all students failing to only 5 per cent failing, we are hardly likely to believe the claim when we find out that over the same period the pass mark has been quietly lowered from 50 out of 100 in the initial year, to 15 out of 100 by the terminal year. Applying a constant 50 out of 100 pass mark, we find the failure percentage has risen.

Similarly official claims of poverty decline carry no conviction when we see that compared to the official nutrition norms of 2,200 calories rural and 2,100 calories urban actually used to obtain poverty lines in the initial year 1973-4, in a large number of states over the next four decades the energy intake accessible at official poverty lines had declined to 1700 calories or less and protein intake which is highly associated with energy intake has also declined. According to the Tendulkar committee poverty lines (being followed at present by the Niti Aayog) in rural Gujarat in 2011-12 the poverty ratio was 21.9 per cent at its per head monthly poverty line of Rs 932. But we find that energy intake at this level was only 1,670 calories, while obtaining 2,200 calories required spending Rs 2,000 or over double the official poverty line, and 87 per cent of persons fell below this level. Official poverty at 21.9 per cent and real poverty at 87 per cent is no mean order of difference. In rural Punjab, the low 7.71 per cent official poverty ratio was at a sum that gave 1,800 calories daily while the true poverty line at which 2,200 calories could be reached was much higher with 38 per cent of persons falling below it. In 2009 in rural Puducherry the official poverty ratio was near-zero at 0.2 per cent solely because the very low poverty line allowed only 1,040 calories per day—a starvation level, whereas the actually poor unable to reach the 2200 calorie norm, comprised 58 per cent. Here the official poverty line was pitched so low that below it there were no observations, since people were dead. Urban poverty similarly shows high and rising poverty compared to decline in official estimates.

The Niti Aayog’s claim of only 5 per cent in poverty in 2023-24, relies on the 2011 Tendulkar poverty lines price-indexed to 2023-24. Taking the highest consumption spending under the Modified Mixed Recall Period, and using the price index data in the official Fact Sheet, the poverty lines when brought forward to 2023-24, are Rs 57/69 daily per head for rural/urban areas. The food part accounts for Rs 26.6/27 and the non-food part for Rs 30.4/42 rural/urban respectively taking the average shares spent on food and non-food. The food part would have bought 1.3 litres of the cheapest bottled water, with nothing left over for food (the poor do not actually buy bottled water, the example is to illustrate how paltry the food sum is).

To think that minimum non-food daily needs of a person however poor on account of rent, transport, utilities, healthcare, and manufactured goods (leave alone education and recreation) could be met by Rs 30.4 rural to Rs.42 urban per day, requires a degree of disconnect from objective reality that no rational individual can display, only the official estimators seem to be capable of it. Their so-called poverty lines are destitution-cum-starvation lines, with 6.6 per cent of rural and 1.6 per cent of the urban population still somehow surviving at sub-human existence levels, producing the 5 per cent overall average claimed to be in poverty. The true poverty lines at which minimum nutrition could be obtained were at least 2.5 to 3 times higher. In another three years at most, officially ‘zero poverty’ is likely to be claimed, because the official poverty lines would have been further lowered to a level where there will be no survivors. If an examination pass mark reaches zero, there are zero failures.

Far from declining, the share of the actually poor in both rural and urban population has risen noticeably over the last three decades. In 1993-4, the poor comprised 58.5/57 per cent in rural/urban areas since they could not reach nutrition norms of 2200/2100 calories per day, while by 2004-5 the respective rural/urban poverty ratios had risen to 69.5/65 per cent. After a large spike in the drought year 2009-10, there was a decline by 2011-12 to 67/62 per cent.

The 2017-18 nutrition intake data were not released but the intakes can be conservatively approximated (by deflating food spending in the later year to 2011-12 and applying the food cost per unit of nutrients) and this shows a sharp rise in rural poverty to over 80 per cent of the population, while urban poverty remained at about the same level as in 2011-12. The full data for 2023-24 are still to be released but in view of the pandemic-induced economic slowdown and rising unemployment, the true poverty levels are likely to have remained high.

The conceptual muddle that governments and the World Bank have created for themselves, and their resulting false claims of declining poverty, is the outcome of a simple logical mistake. They first correctly defined the poverty lines on the basis of nutrition norms in the initial year, and then for every succeeding year improperly changed the definition, de-linking it from nutrition norms; and they have done this for every country. In 1973-4 in India, the monthly spending per head required to access daily 2200 calories in rural and 2100 calories in urban areas, were Rs 49 and Rs 56.6, giving the respective official poverty ratios of 56.4 per cent rural and 49.2 per cent urban. This definition of the poverty line directly using nutrition norms was never again applied even though the needed current data on nutritional intake, has been available every five years.

Instead these particular 1973 poverty lines were simply updated to later years using price indices as has been explained, without ever asking whether nutrition norms continued to be reached or not. To start thus with one definition of poverty line and quietly switch to another completely different definition means committing a logical fallacy, the fallacy of equivocation. This fallacious method meant that the particular basket of goods and services available and consumed in 1973-4 was held fixed—by now it is 50 years in the past—with only its cost being price-indexed to the present.

In reality however the actually available basket of goods and services has been changing especially rapidly over the last three decades of neo-liberal market-oriented reforms (much more rapidly than the weights assigned to different items in price indices can be changed) because of increased privatisation and market pricing of goods and services. A basket being fixed for 50 years assumes away real trends in poverty, for whether people remain at the same level of poverty, get worse off or get better off, depends crucially on whether and in what ways the initial basket of goods and services is changed. Historically, poverty was reduced greatly or eliminated entirely by State policies in those countries where healthcare, education, and to a large extent housing and utilities were removed from the sphere of market pricing and were instead treated as public goods, using the budget to provide entirely free health care and compulsory free education for children, or only nominal charges were imposed. State-financed construction of affordable low-cost housing with low rents, and nominal charges for public transport and for utilities (water, energy for lighting and cooking), freed up a larger share of the family budget for buying food, manufactured necessities and spending on recreation. Such provision of public goods was not only typical in the socialist countries in Asia and Europe; it was also undertaken in the post-WWII period in almost all the West European capitalist countries.

The converse happened, the available basket of goods and services changed drastically to the detriment of consumers, with the introduction of market-oriented economic reforms in the countries of the global South because these measures substantially or entirely removed healthcare, education and utilities from the category of public goods and into that of market pricing. The resulting spike in these charges impacted adversely the income available to the majority of the population for spending on food and manufactured necessities, pushing more people into nutritional stress. Unwise specific policy measures like the 2016 currency de-monetisation, or the impact of the 2021-22 pandemic-induced recession, have aggravated the poverty problem no doubt but are not the basic causes of rising poverty, which long predates these events.

It is not a difficult proposition to substantially reduce poverty through redistributive measures. About one tenth of India’s GDP would need to be devoted to providing adequate food for the population, basic and comprehensive healthcare, compulsory free education, employment guarantee and old age pension; for which additional taxation of 7 per cent of GDP that the rich and super-rich can easily bear, would be needed. Combined with vigorous implementation of the existing National Food Security Act 2013 and the MG National Rural Employment Guarantee Act, genuine large-scale reduction of poverty would result. But an essential precondition for this lies in the realm of concepts that guide empirical work and the inferences based on them: the incorrect measurement of poverty that has been prevalent not only nationally but internationally has to be abjured, and the false claims of poverty reduction replaced by factually and logically correct estimates.

https://mronline.org/2024/05/25/neo-lib ... s-poverty/

I'm about tired of these suffixes. What is 'neoliberal' but the inevitable progression of the development of capitalism? Why should it be implied, by creating a sub-category, that there is an alternative? The Ds & Rs say they are liberals or conservatives but these are intramural teams of capitalism whose only purpose is to give the illusion of democracy. Nancy and Mitch, Joe and Donnie, the differences are superficial. So just say 'capitalism', let us be perfectly clear.

[blindpig]

What went wrong with capitalism?
May 27, 2024

Did big government, monopoly power, and easy money end competitive capitalism’s golden age?


Ruchir Sharma
WHAT WENT WRONG WITH CAPITALISM?
Simon & Schuster, 2024

reviewed by Michael Roberts

Ruchir Sharma has a book out called What went wrong with capitalism? Ruchir Sharma is an investor, author, fund manager and columnist for the Financial Times. He is the head of Rockefeller Capital Management‘s international business, and was an emerging markets investor at Morgan Stanley Investment Management.

With those credentials of being ‘inside the beast’ or even ‘one of the beasts’, he ought to know the answer to his question. In a review of his book in the Financial Times, Sharma outlines his argument. First, he tells us that “I worry about where the US is leading the world now. Faith in American capitalism, which was built on limited government that leaves room for individual freedom and initiative, has plummeted.” He notes that now most Americans don’t expect to be “better off in five years” — a record low since the Edelman Trust Barometer first asked this question more than two decades ago. Four in five doubt that life will be better for their children’s generation than it has been for theirs, also a new low. And according to the latest Pew polls, support for capitalism has fallen among all Americans, particularly Democrats and the young. In fact, among Democrats under 30, 58 per cent now have a “positive impression” of socialism; only 29 per cent say the same thing of capitalism.

This is bad news for Sharma as a strong supporter of capitalism. What has gone wrong? Sharma says that it’s the rise of big government, monopoly power and easy money to bail out the big boys. This has led to stagnation, low productivity growth and rising inequality.

Sharma argues that the so-called neoliberal revolution of the 1980s that supposedly replaced Keynesian-style macro management, reduced the size of the state and deregulated markets was really a myth. Sharma: “the era of small government never happened.” Sharma points out that in the US, government spending has risen eight-fold since 1930 from under 4 per cent to 24 per cent of GDP — and 36 per cent including state and local spending. Alongside tax cuts, government deficits rose and public debt rocketed.

As for deregulation, the result was actually “more complex and costly rules, which the rich and powerful were best equipped to navigate.” Regulatory rules actually increased. As for easy money, “fearful that mounting debts could end in another 1930s-style depression, central banks started working alongside governments to prop up big corporations, banks, even foreign countries, every time the financial markets wobbled.” So there was no neoliberal transformation freeing up capitalism to expand, on the contrary.

But is Sharma’s economic history of the period after the 1980s really right? Sharma tries to portray the post-1980s period as one of bailouts for banks and companies during crises in contrast to the 1930s when central banks and governments followed the policy of ‘liquidation’ of those in trouble. Actually, this is not correct, saving corporate capital and the banks was the driving force of the Roosevelt New Deal; liquidation was never adopted as government policy. Moreover, the 1980s were mostly a decade of high interest rates and tight monetary policy imposed by central bankers like Volcker, seeking to drive down the inflation of the 1970s. Indeed, Sharma has nothing to say about the ‘stagflation’ of the 1970s – a decade, according to him, where capitalism had small government and low regulation.

Sharma makes much of the rise in government spending including ‘welfare spending’ in the last 40 years. But he does not really explain why. After the rise in spending and debt during the war, much of the increased spending since has been due to a rise in population, particularly a rise in the elderly, leading to an increase in (unproductive for capitalism) spending on social security and pensions. But the rise in government spending was also a response to the weakening of economic growth and investment in productive capital from the 1970s. As GDP grew more slowly and welfare spending grew faster, then government spending to GDP rose.

Sharma says nothing about other aspects of the neo-liberal period. Privatization was a key policy of the Reagan and Thatcher years. State assets were sold off to boost profitability in the private sector. In this sense, there was a reduction in the ‘big state’, contrary to Sharma’s argument. Indeed, starting as early as the mid-1970s, public sector capital stock was sold off. In the US, it has been halved as a share of GDP.


Source: IMF investment and capital stock database, 2021

Similarly, post the 1980s, public sector investment as a share of GDP has been nearly halved while the private sector share has risen 70%.



It’s not the ‘big state’ that is in control of investment and output decisions, it is the capitalist sector. This hints at the reason for reducing the role of the public sector. The problem for capitalism in the late 1960s and 1970s was the drastic fall in the profitability of capital in the major advanced capitalist economies. That fall had to be reversed. One policy was privatization. Another policy was the crushing of the trade unions through laws and regulations designed to make it difficult if not impossible to set up unions or take industrial action. Then there was the move of manufacturing capacity out of the ‘Global North’ to the cheap labor regions of the Global South, so-called ‘globalization’. Combined with weakening trade unions at home, the result was a sharp drop in the share of GDP going to labor along with cheap labor abroad; and a (modest) rise in profitability of capital.



Sharma admits that “globalization brought more competition, keeping a lid on inflation in consumer prices” against his thesis of monopoly stagnation, but then argues that globalization and low imported goods prices “solidified a conviction that government deficits and debt don’t matter.” Really? Throughout the 1990s onwards, governments tried to impose ‘austerity’ in the name of balancing budgets and reducing government debt. They failed, not because they thought that ‘deficits and debt don’t matter’ but because economic growth and productive investment slowed. Public sector spending cuts were significant, but the ratio to GDP did not fall.

Sharma reckons that ‘recessions were fewer and farther between’ in the post-1980s period. Hmm. Leaving out the huge double slump of the early 1980s (another key factor in driving down labor power), there were recessions in 1990-1, 2001 and then the Great Recession of 2008-9, culminating in the pandemic slump of 2020, the worst slump in the history of capitalism. Maybe fewer and farther between, but increasingly damaging.

Sharma notes that after each slump since the 1980s, economic expansion has been weaker and weaker. This appears as a mystery for proponents of capitalism. “Behind the slowing recoveries was the central mystery of modern capitalism: a collapse in the rate of growth in productivity, or output per worker. By the outset of the pandemic, it had fallen by more than half since the 1960s.”

Sharma presents his explanation: “a growing body of evidence points the finger of blame at a business environment thick with government regulation and debt, in which mega-companies thrive and more corporate deadwood survives each crisis.” The bailouts of the big monopolies (‘three of every four US industries have ossified into oligopolies’) and ‘easy money’ have kept a stagnating capitalism crawling along, breeding ‘zombie’ companies that only survive by borrowing.

Sharma puts the horse before the cart here. Productivity growth slowed across the board because productive investment growth dropped. And in capitalist economies, productive investment is driven by profitability. The neo-liberal attempt to raise profitability after the profitability crisis of the 1970s was only partially successful and came to an end as the new century began. The stagnation and ‘long depression’ of the 21st century is exhibited in rising private and public debt as governments and corporations try to overcome stagnant and low profitability by increasing borrowing.



Sharma proclaims that social “immobility is stifling the American dream.” Whereas, in the rosy past of ‘competitive capitalism’, through dint of hard work and entrepreneurial drive, you could go from rags to riches, now that is not possible. But the ‘American dream’ was always a myth. The majority of billionaires and rich people in the US and elsewhere inherited their wealth and those that did become billionaires in their lifetime did not do so without sizeable start-up funds from parents etc.

And let me add, Sharma’s thesis is entirely based on the advanced capitalist economies of the Global North. He has little to say about the rest of the world where most people live. Has social mobility been stymied or never existed? Is there a big state with massive welfare spending in these countries? Is there easy money for companies to borrow? Are there domestic monopolies squeezing out competition? Are there bailouts galore?

That brings us to Sharma’s main message about what is wrong with capitalism. You see, for Sharma, capitalism as he envisages it no longer exists. Instead, competitive capitalism has morphed into monopolies bolstered by a big state. “Capitalism’s premise, that limited government is a necessary condition for individual liberty and opportunity, has not been put into practice for decades.”

The myth of a competitive capitalism that Sharma projects sounds similar to the thesis of Grace Blakeley in her recent book, Vulture Capitalism, where she argues that capitalism has never really been a brutal battle between competing capitalists for a share of the profits extracted from labor, but instead a nicely agreed and planned economy controlled by big monopolies and backed by the state.

In effect, both Sharma and Blakeley agree on the rise of ‘state monopoly capitalism’ (SMC) as the reason for what went wrong with capitalism. Of course, they differ on the solution. Blakeley, being a socialist, wants to replace SMC with democratic planning and workers coops. Sharma, being ‘one of the beasts,’ wants to end monopolies, reduce the state and restore ‘competitive capitalism’ to follow its ‘natural path’ to provide prosperity for all. Sharma: “capitalism needs a playing field on which the small and new have a chance to challenge — creatively destroy — old concentrations of wealth and power.”

You see, capitalists, if left alone to exploit the labor force, and freed of the burden of regulations and for having to pay for welfare spending, will naturally flourish. “The real sciences explain life as a cycle of transformation, ashes to ashes, yet political leaders still listen to advisers claiming they know how to generate constant growth. Their overconfidence needs to be contained before it does more damage.” So, according to Sharma, capitalism will be fine again, if we let the capitalist cycles of boom and slump play out naturally and not try to manage them.

“Capitalism is still the best hope for human progress, but only if it has enough room to work.” Well, capitalism has had plenty of room to work for over 250 years with its booms and slumps; its rising inequalities globally; and now its environmental threat to the planet; and the increasing risk of geopolitical conflict. No wonder 58% of young Democrats in the US would prefer socialism.

https://climateandcapitalism.com/2024/0 ... apitalism/

[blindpig]

Petrodollar Dead? Rumors Swirl as Moneyed Powers Go All in for the Final Roll

SIMPLICIUS
JUN 14, 2024

Some really interesting developments are happening apropos the banking and financial situation in Russia and the world.

Firstly, to set the stage: there’s the rumor going around that Saudi Arabia has allegedly declined to renew its purported “50-year Petrodollar deal”, signed—again, allegedly—on June 9th, 1974.


https://www.thegatewaypundit.com/2024/0 ... -ends-joe/

The problem is, there is no actual valid source reporting this: if you trace it down to its roots, it is originating from a bunch of fake obscure websites, like the old Sorcha Faal whatdoesitmean dot com types.

Sure, some fairly legitimate sites like Gateway Pundit are reporting it, but they are merely echo-chambering the story without a valid source. So, unfortunately, this story appears to be mostly fake. However, I think it’s mainly riffing on real events that have already been taking place. There doesn’t seem to be any precise 50 year deadline that just happened to expire days ago, but rather Saudi Arabia has already signaled that the deal is in effect null and void over the course of the last few years.

But the reason the story is actually extremely relevant either way, despite being a somewhat phony formulation of real ongoing events, is because of the other huge developments that are now breaking ground as we speak, and how the Saudi Petrodollar critically plays into it.

Now the big story revolves around the G7 meeting and the sudden new sanctions package levied on Russian stock markets with the intent to crash them:







A new round of US sanctions targeting Russia's Moscow Exchange (MOEX), National Clearing Centre and National Settlement Depository will further undermine the dollar's role

But instead, Russia took the USD and Euro completely out of trading, and a large storm now appears to be brewing in the global financial markets.

In the wake of the US Treasury move, the Russian Central Bank announced that exchange trading and settlements of deliverable instruments in US dollars and euros were to be suspended, adding that these operations would be continued "over-the-counter (OTC)," i.e. directly between Russian banks and their customers. The bank clarified to Russians that their foreign currency deposits remain secure despite sanctions.

Coupled is the fact that at this key moment the G7 attendants decided to begin utilizing Russia’s stolen sovereign funds to give to Ukraine. But, firstly, there’s a catch: they’re not using the funds themselves, but rather the “interest accrued” from holding those funds, which amounts to $50B for now. And on top of that, the money is apparently comprised mostly of loans, for which the funds are used as collateral.

Ursula proudly announced the sovereign fund theft:



According to senior Biden administration officials, the loan will become active later this year, and will effectively make Russia pay for it vs. US taxpayers and G7 countries.

"Russia pays," said one official. "The income comes from the interest stream on the immobilized assets, and that’s the only fair way to be repaid. The principal is untouched for now. But we have full optionality to seize the principal later if the political will is there."
As you can see, they’re not actually touching the principal—but rather creating a loan instrument; standard trick-o-the-trade from the loathsome usury cabal’s occult magic bag.

But even this effort is already facing roadblocks:



Here’s where it starts getting interesting. As I said, Russia immediately retaliated by pulling the Euro and USD, which had a number of repercussions. Firstly, the Ruble for now has risen dramatically to 87 against the Dollar. Next, Russia announced another initiative for the Yuan to replace the Dollar entirely:


https://www.rt.com/business/599225-yuan ... e-trading/

Here’s one analyst’s long but very detailed summary:

The Bank of Russia and the Moscow Exchange have been preparing for sanctions since March 2022, response protocols were formalized in September 22, implemented in October 22, and adapted throughout 2023. Revisions have been taking place since 2024, so there are no surprises and everything should go relatively painlessly.

The main adaptation involved the establishment of correspondent accounts with Chinese banks, the deployment of infrastructure for Yuan trading and the expansion of the over-the-counter market.

The share of the yuan in May reached another historical maximum in the structure of the foreign exchange market, reaching 53.6% vs. 1% at the beginning of 2022. Over 99% of the trading turnover is occupied by the yuan, dollar and euro.

The share of the over-the-counter market in the total volume of foreign exchange trading was 58.1% in May (in April – 56.4%). In the over-the-counter market, the yuan's share rose to 39.2%.

There will be no paralysis of the foreign exchange market, because turnover will move to the shadow circuit of the over-the-counter market - transparency will decrease, spreads will widen, commissions will increase, and liquidity will worsen. There is nothing good and there is not a single positive aspect, but from the point of view of the survival of the system, the fundamental risks are covered.

In the short term, panic may increase demand for dollars and euros, but in the medium term, demand will likely decline.

The most significant part of the analysis:

In 1Q24, exports in the currencies of unfriendly countries accounted for 21.5% vs. 86% at the beginning of 2022, and for imports – 27.8% vs. 66% at the beginning of 2022. In the next 6 months, the demand for the currencies of unfriendly countries in foreign trade activities may decrease further, but not to zero, because The principled position of many counterparties is to settle exclusively in “hard currency”.

So the usage of unfriendly currencies has already plummeted from 86% to 21.5% since 2022, and now will plummet even further with the latest actions.

But before we move on to converging developments, the short to medium term risks are real:

What consequences may arise from the cessation of trading in dollars and euros in Russia?

The risk of a collapse in exports and imports will increase by 10-25% in the next six months due to the inability to pay for foreign trade transactions in dollars and euros , which could lead to a shortage of critical imports, slowing down investment activity. Export revenues may fall. Scenario of Iran in the first years after tough sanctions.

A shortage of imports can exacerbate inflationary processes within the Russian Federation due to a surplus of the ruble money supply and the absence of points of distribution of the money supply.

Theoretically, settlements under foreign trade contracts can be carried out outside the Moscow Exchange through various mechanisms of the over-the-counter market, but everything depends on the specifics of the contracts. Large counterparties will avoid such schemes.

There is no understanding regarding the functioning of the National Welfare Fund, the fiscal rule and the mechanisms of foreign exchange interventions - we are waiting for clarification from the Bank of Russia.

There is a risk of degradation of foreign exchange transactions with China due to fears of secondary sanctions . There is a non-zero probability that large Chinese banks will avoid any interaction with the Moscow Exchange, NCC and NSD, having experience of limited participation in currency integration in the absence of sanctions. It is likely that special representative offices will be allocated in individual small Chinese banks for financial communications with Russia.

The United States is strengthening extraterritorial control over compliance with sanctions, which includes counterparties from the CIS countries, the UAE, Turkey and Hong Kong, which, unlike China, comply with the sanctions regime more carefully.

There is a risk of establishing a dictatorship on the part of China, as the only counterparty through which Russia will have contact with the outside world, which will limit Russia’s sovereignty within the framework of determining foreign trade and foreign economic activity. Such a disposition imposes restrictions on both trade and investment operations of Russia in the outside world, when almost any external transaction can take place with the direct approval of Chinese functionaries.

Foreign exchange costs will increase, and the timing of transactions will lengthen - this will directly affect through significant lags in deliveries and settlements (accumulation of receivables from Russian counterparties).

Shortages of Dollars and Euros may affect the ability to fulfill external obligations to creditors and investors, which are slightly less than fully denominated in the currencies of unfriendly countries (external debt). Although external debt has decreased by more than 40% since the beginning of 2022 (353 -> 208 billion), this factor cannot be written off. Before the sanctions, Dollars and Euros were hard to find during the day, and even more so now.

There is already experience of blocking sanctions on a large country (Iran) and nothing good can be seen: barter transactions and direct exchange of goods, shadow financial schemes and intermediaries, which increases costs, smuggling, but still the use of cryptocurrency is increasing. In any case, the consequences are obvious: slowdown in trade turnover, smuggling, rising costs.

The growth of foreign trade in the national currency (Rubles) is inevitable, but with its own specifics - there are quite a few people willing to accept rubles and in a limited volume - the CIS countries, China, partly India, Iran, some countries in Africa and Latin America (the latter have an insignificant trade turnover).

There is a risk of the emergence of a “two-level” foreign exchange market – the official exchange rate and the “black” exchange rate.

The BRICS payment system will certainly lead to the improvement when its up and running.

As can be seen from the above, there are a slew of medium term worries. However, the golden opportunity lies in the fact that we stand at a grand pivot point of history, the 4th turning as some call it. Russia has the BRICS chairmanship and is expected to push the initiative for a BRICS currency and a new reformatting of the entire global system.



The BRICS ministers met in Nizhny Novgorod on June 10th and issued the following key points to give us a taste of what’s to come, summarized by Arnaud Bertrand:

1.Comprehensive reform of the UN: They "support a comprehensive reform of the United Nations, including its Security Council" with a view to making it more democratic and "increase the representation of developing countries in the Council’s memberships"

2.0Comprehensive reform of financial system: They "recognize the need for a comprehensive reform of the global financial architecture to enhance the voice of the developing countries and their representation in the international financial institutions." Crucially they also "underscored the importance of the enhanced use of local currencies in trade and financial transactions between the BRICS countries."

3.Calling out Israel and backing Palestinian statehood: "The Ministers expressed serious concern at Israel’s continued blatant disregard of international law, the UN Charter, UN resolutions and Court orders." They also "support Palestine’s full membership in the United Nations" as well as "the establishment of a sovereign, independent and viable State of Palestine in line with internationally recognized borders of June 1967 with East Jerusalem as its capital".

4.Condemning "unilateral coercive measures" and protectionism: They didn't name the US, but this section leaves no doubt as to who they were referring to: "[The ministers] expressed concern about the use of unilateral coercive measures, which are incompatible with the principles of the Charter of the UN and produce negative effects on economic growth, trade, energy, health and food security notably in the developing world." In the same vein they also "opposed unilateral protectionist measures, which deliberately disrupt the global supply and production chains and distort competition."

Number 1 and 2 in particular jibed with other points about reforming the WTO and the G20—which will be chaired by BRICS nations from now until 2025—as well as focus on the usage of native currencies:

The Ministers underscored the importance of the enhanced use of local currencies in trade and financial transactions between the BRICS countries. They recalled the paragraph 45 of the Johannesburg II Declaration tasking the Finance Ministers and Central Bank Governors of the BRICS countries to consider the issue of local currencies, payment instruments and platforms and to report back to the BRICS Leaders.

Thus, the focus is being increasingly put on dedollarization at this pivotal moment just as the world bears witness to the financial criminality and unethical conduct of the ‘Rules Based Order’. This also happens at a time when dozens of new nations are applying to join the BRICS and at the 16th BRICS summit in October of this year, it is expected that another slew of countries will be accepted as members.

As we can see, BRICS is currently holding its own version of the Olympic games in Russia—the largest ever thus far—in parallel, and as alternative to, the Paris summer games set to begin soon. Little by little, BRICS is creating an alternate fairer vision of the world where coercion, cancellation/deplatformization, and theft of sovereign funds is not a viable weapon. The pace is starting to pick up rapidly, and within a few years the Western model may be in dire straits as the entire world flocks to the positive vision that the Chinese and Russian-led order offers.

Now FT reports due to the West’s precarious financial weaponization, countries have cut their Euro assets by 5%:


https://www.ft.com/content/7e7bcb76-2d4 ... bebf74724b

The euro’s share of global foreign exchange holdings fell last year amid concerns that plans to use frozen Russian assets to finance Ukraine could further erode the appeal of Europe’s single currency.

Other countries cut euro assets in their central bank reserves by about €100bn last year, a drop of nearly 5 per cent, the European Central Bank said in a report published on Wednesday. The Euro is has fallen to a 3 year low of 20% and down from 25%. With it's share of trade falling 0.7%

The ECB warns that “weaponising” currencies only makes them less attractive, endangers the ability of the EU to issue debt cheaply. With EU members holding €13.8 trillion ($14.7 trillion). Half a % (50bps) is nearly €70B more EU countries would spend on interest payments in a year.

And in a bombshell, House rep Thomas Massie reports that Trump is floating the complete abolition of the income tax if he takes office:







Suddenly the old kook Nesara/Gesara theories aren’t sounding so crazy after all.

In short, all the current snowballing events are gearing up to potentially effect a massive black swan moment in 2025, which may shake the foundations of the entire Western financial system off its rails. And that’s where the Saudi situation comes in: KSA now sports full BRICS membership and has previously signaled willingness to accept Yuan for oil sales to China, so we know—at the least—the suggestion of Petrodollar demise is not conspiracy theory:



The big question is not where things will go, but how fast: their trajectory is nearly certain, it only remains to be seen how quickly the BRICS-adjacent countries can agree on mechanisms and muster the initiative to implement them into actual practice.

For decades the idea of abandoning the Dollar seemed ludicrous, particularly to smaller, less powerful nations who do not possess as much agency as a superpower like Russia. But now that Russia is showing them the way, pioneering the path forward and demonstrating there is nothing scary about breaking through that mental barrier of imposed colonial slavery and financial hegemony, we can expect the remainder of the world to quickly follow Russia’s lead; once the specter is shattered, it is akin to breaking through a psychological support floor or resistance ceiling in the stock market, after which things can plummet or skyrocket with an unpredictable runaway velocity.

In essence, the idea being conveyed is that we’re coming upon a time where it seems everyone is doubling down, going all in with their trump cards and ‘showing their hand’ in the parallel financial shadow war raging beneath the surface of the kinetic one. Russia clearly isn’t begging forgiveness and has instead doubled down on the dedollarization acceleration drive. It’s only a matter of time before things begin to unravel for the side left holding the skimpy cards, or whose bluff is called. Given that Russia and China’s fundamentals are sterling compared to that of the West—and in particular the U.S. with its outrageously swelling 126% debt-to-gdp—when it comes to debt structure, economic growth, unemployment, inflation, and all other key metrics, it’s clear to see who will be left with their pants down in the near future. That’s not to mention the bloodbaths we’re witnessing in global politics, with the deepstate-controlled factions taking a hiding, which will only be culminated by the Democrat’s presidential loss in 2024. In almost every way conceivable, 2025 stands to be a historic turning point year.

As a final great summation of the utter absurdity of the decaying West’s terminal folly as they desperately subvert the most fundamental strictures of their own poisoned financial regime in the most egregiously illogical and nonsensical way while drowning in the self-created toxicity of their criminal insanity—from SwanEconomy on TG:

The financial scam of the century is on its way: the EU is ready to become the main culprit at the behest of the US

The world will soon see the largest theft of money in history. Before our eyes, the main customer (the US) together with the executor (the EU) are now trying to disguise the theft of the "frozen" part of Russia's sovereign assets as much as possible as a legal transaction.

There is already a preliminary consent of all members of the G7 countries.

What is going on? The US intends to provide a $50 billion loan to the Kiev regime. The task of the Europeans is to transfer the "frozen" assets of the Russian Federation in the amount of about 260 billion dollars to the status of financial collateral (pledge) under the American loan.

The reasoning that only income from the $260 billion in assets will be used to secure the U.S. loan cannot be taken seriously: the amount of collateral must be at least as large as the size of the loan. It is obvious that the income from the assets is much less than 50 billion dollars.

At the same time, Washington does not intend to transfer any money to Kiev. They will be given to the American military-industrial complex for the production of weapons.

In this case, the Europeans will have to take on the dirtiest job: it is essentially to steal the assets of the Russian Federation, and then transfer them to the United States, but within the framework of a supposedly "legal" scheme. All the risks involved, as well as prosecution, as they believe in Washington, will concern only Europeans, but not Americans.

After all, what do we see from the point of view of financial market specialists? The U.S. intends to give a loan to a country whose sovereign debt rating is below the plinth. That is, it is knowingly giving a loan to a debtor who will not pay it back. This is either insanity or some kind of money laundering scam.

However, the times higher collateral should, from Washington's point of view, make such a loan as if not questionable. But for this to happen, the U.S. authorities need the Europeans to change the status of Russia's "frozen" assets to having the nature of collateral.

In the situation of the country's failing credit capacity, no one, unless it is a criminal scheme, will give a loan only against "income from assets" if there is no guarantee that the creditor can get the assets in case the debtor fails to repay the loan.

The world remembers very well that after 2014 the Ukrainian authorities did not give Russia a $3 billion sovereign loan with interest. Of course, Kiev then did it by Washington's decision by the hands of the Supreme Court in the UK. But when debts have to be returned to Washington, here - different "rules", or rather - bandit arrangements.

Now the U.S. authorities' handmaidens in Europe have to "drag" the assets from Russia to the necessary legal "point" from which they will be put into the pocket of the U.S. authorities.

European politicians are made a laughingstock, because the decision for the same Belgian Euroclear, where the largest amount of Russian money is located, is made not even by the Belgian authorities, and not by the EU leadership.

The decision is made by the G7, which does not include Belgium and has no right to decide on issues that affect the reputation of the entire EU. The U.S. continues to humiliate its vassals, but it is already taking them over the edge, further displeasing the Europeans. And the beginning of political change is dawning in Europe.

Do you think the US and EU will lose the trust of the entire non-western world after the scam?

In short: the U.S. wants Europe to take on all the risk and liability in proportion to the amount of sovereign Russian funds they hold, while this is used as collateral to transfer the loan to U.S. defense contractors, who will enrich themselves on the behalf of impoverished Europeans—what a swell plan:



(Much more at link.)

https://simplicius76.substack.com/p/pet ... s-swirl-as

[blindpig]

JUNE 14, 2024 BY M. K. BHADRAKUMAR
Death of petrodollar is a Biden legacy


US President Joe Biden fist bumps Saudi Crown Prince Mohammed bin Salman upon arrival for a high-stakes visit, July 15, 2022

The Deep State should have been alert five years ago when Candidate Joe Biden announced that he, if elected as president, was determined to make the Saudi rulers “pay the price, and make them in fact the pariah that they are.”

Biden was blunt to the point of being brutal about the Saudi royal family, saying there was “very little social redeeming value in the present government in Saudi Arabia” under King Salman’s rule.

But, instead, the Deep State felt delighted that Biden was just the man to succeed Donald Trump and reverse the Trump-era practice of forgiving Saudi human rights violations in order to preserve jobs in the American arms industry.

Biden probably knew by then that the American intelligence had concluded about the role of Mohammed bin Salman, the Saudi crown prince and the de facto leader of the country, in the killing of the dissident-journalist Jamal Khashoggi, who was a ‘strategic asset’ of the CIA for navigating the next Saudi succession and the ensuing regime change to a happy ending. Khashoggi’s decapitation crippled Washington’s game plan to instal a pliable ruler in Riyadh.

Today, all that is history. But unlike the Bourbons, the Saudi royals never forget or forgive. They also have infinite patience and their own concept of time and space. And last Sunday, June 9, they struck.

In great royal style, last Sunday, Riyadh simply let the 50-year-old petrodollar agreement between the US and Saudi Arabia to expire.

To recap, the term “petrodollar” refers to the US dollar’s pivotal role as the currency used for crude oil transactions on the world market per the US-Saudi deal dating back to 1974 shortly after the US went off the gold standard.

In the history of global finance, few agreements have wielded as many benefits as the petrodollar pact did for the US economy. At its core, the agreement stipulated that Saudi Arabia would price its oil exports exclusively in US dollars and invest its surplus oil revenues in US Treasury bonds — and, in a quid pro quo, the US would provide military support and protection to the kingdom.

The ‘win-win’ deal ensured that the US gained a stable source of oil and a captive market for its debt, while Saudi Arabia secured its economic and overall security. In turn, the denomination of oil in dollar elevated the dollar’s status as the world’s ‘reserve currency’.

Since then, the global demand for dollars to purchase oil has helped to keep the currency strong, not only made imports relatively cheap for American consumers but in systemic terms, the influx of foreign capital into US Treasury bonds supported low interest rates and a robust bond market.

Suffice to say, the expiration of the 1974 US-Saudi ‘oil-for-security’ deal has far-reaching implications. At the most obvious level, it highlights the shifting power dynamics in the oil market with the emergence of alternative energy sources (eg., renewables and natural gas) and new oil-producing countries (eg., Brazil and Canada) challenging the traditional dominance of West Asia. But this is more the optics of it.

Crucially, the petrodollar’s expiration could weaken the US dollar and, by extension, the US financial markets. If oil were to be priced in a currency other than the dollar, it could lead to a decline in global demand for the greenback, which, in turn, could result in higher inflation, higher interest rates, and a weaker bond market in the US.

Suffice to say, going forward we may expect a significant shift in global power dynamics with the growing influence of emerging economies, the changing energy landscape and a tectonic shift in the global financial order as it enters a “post-American” era. The bottom line is that the US dollar’s dominance is no longer guaranteed.

There is no question that Saudi Arabia has a roadmap worked out. Four days before the expiration of the oil-for-security deal, Reuters reported that Saudi Arabia has joined a China-dominated central bank digital currency cross-border trial, “in what could be another step towards less of the world’s oil trade being done in U.S. dollars.”

The announcement on June 4 came from the Switzerland-based Bank for International Settlements [BIS], an international financial institution owned by member central banks. It means that Saudi central bank has become a “full participant” of Project mBridge, a collaboration launched in 2021 between the central banks of China, Hong Kong, Thailand and the United Arab Emirates.

The BIS announcement took note that mBridge had reached “minimum viable product” stage — that is, it is ready to move beyond the prototype phase. By the way, 135 countries and currency unions, representing 98% of global GDP, are currently exploring central bank digital currencies, or CBDCs.

The entry of Saudi Arabia, a major G20 economy and the largest oil exporter in the world, signals a scaling up of commodity settlement on a platform outside of dollars in a near term scenario, with a new technology behind it. Interestingly, the mBridge transactions can use the code China’s e-yuan is built on!

The intention is to modernise payments with new functionality and provide an alternative to physical cash, which seems in terminal decline anyway. China dominates the mBridge project and is carrying out the world’s largest domestic CBDC pilot which now reaches 260 million people and covers 200 scenarios from e-commerce to government stimulus payments.

Indeed, other big emerging economies, including India, Brazil and Russia, also plan to launch digital currencies in the next 1-2 years while the European Central Bank has begun work on a digital euro pilot ahead of a possible launch in 2028.

Now, add to this Russia’s master plan to create a new BRICS payments system bypassing the dollar altogether. Moscow stock exchange announced on Wednesday that it will stop trading dollars and euros from Thursday, June 13.

Thus, the expiration of the US-Saudi deal last weekend is emblematic of a cascading challenge from various quarters to the dollar’s pre-eminence as ‘reserve currency.’ In particular, the end is nearing for the unfettered freedom America enjoyed to print dollar currency at will and living it up far beyond its means and imposing the US’ global hegemony.

There is growing unease among US elites that good life may be ending as the crushing debt burden sinks the American economy. In a CNBC interview yesterday, Treasury Secretary Janet Yellen warned that high interest rates are also adding to the burden as the US manages its massive $34.7 trillion debt load.

Of course, there are no clear alternatives yet to the US dollar as the world’s leading reserve currency but the writing on the wall is that global trade strains and increased use of tariffs or sanctions could undermine its role sooner than later, as foreign investors’ concerns are rising about America’s public debt sustainability.

The FitchRatings noted yesterday that “Large primary deficits and higher interest service costs will keep the U.S. sovereign debt burden increasing after November’s elections, regardless of who wins.”

In sum, what seemed hitherto a geopolitical rivalry over NATO expansion and Taiwan — or setting trade/technology standards in the Fourth Industrial Revolution — is taking on an existential dimension for Washington as the future of dollar is at stake. There are enough hints testifying to coordinated moves by Moscow and Beijing to accelerate the “de-dollarisation” process.

On the one hand, Russia is pulling all stops to present to the world at the forthcoming BRICS summit in October a non-dollar payment system to settle trade, while, on the other hand, China is systematically dumping its holdings of US treasury bonds that will give it a freer hand when the crunch time comes.

https://www.indianpunchline.com/death-o ... en-legacy/