The crisis of bourgeois economics

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Re: The crisis of bourgeois economics

Post by blindpig » Mon Sep 05, 2022 1:38 pm

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Controlling inflation at the expense of working class
By Prabhat Patnaik (Posted Sep 03, 2022)

Originally published: Peoples Democracy on September 4, 2022 (more by Peoples Democracy) |

ECONOMISTS distinguish between two kinds of inflation: “demand-pull” and “cost-push”. Demand-pull inflation is said to occur when there is excess demand in a situation where supply cannot be augmented, because full capacity output has been reached in one or more crucial sectors. War-time inflation is a classic example. In India during the pre-neoliberal, dirigiste period, inflation was often the result of insufficient foodgrain output relative to demand, arising from a poor harvest.

Cost-push inflation on the other hand occurs when supplies can be augmented, as the economy is nowhere near full capacity in key sectors, but one of the classes tries to raise its share of output, by demanding a higher price for the input it provides, while other classes are unwilling to lower their shares, giving rise to a tug-of-war, which manifests itself through inflation.

But no matter what kind of inflation we are talking about, it can always be controlled at the expense of the working class; and, what is more, under capitalism it is invariably controlled at the expense of the working class. If it is demand-pull inflation, then the excess demand when supplies cannot be augmented is eliminated by squeezing the consumption demand of the working class, that is, by ensuring that money-wages do not rise in tandem with prices. And if it is cost-push, then reducing the share of wages, by taking steps to reduce the bargaining power of the workers, again provides a means of ending the tug-of-war. Thus, not allowing wages to rise in tandem with prices is capitalism’s cure for any inflationary upsurge.

To be sure, inflation control can be achieved exactly in the same way by squeezing the share of the primary commodity producers, mostly located in the third world; and historically it has been the most commonly used method of inflation-control in the metropolis. But precisely because of its rampant use, by now the share of the primary commodity producers in the global gross value of output has shrunk to such a low level (not because primary commodities have become any less important), that any further shrinking of it will not be particularly effective in controlling inflation. Under mature capitalism therefore inflation control cannot be achieved except at the expense of the working class (apart no doubt from primary commodity producers).

The fact that inflation is sought to be controlled by squeezing the share of the working class, does not mean that the working class was responsible for starting the inflationary process. In fact the two phenomena have nothing to do with one another. Even when the cost-push gets started with an autonomous increase in the profit-margin, as is the case with the current inflation in the US, this process can be, and is sought to be, ended by squeezing the share of wages, that is, by ensuring that money wages do not rise in tandem with prices. In the US the share of wages has clearly gone down because of inflation, as the inflation is profit-margin-push, but everybody from the Federal Reserve Board to even liberal economists, sees a further squeeze in the wage-share as the solution for inflation.

What is called “anti-inflationary policy” under capitalism is simply a way of ensuring that the share of wages goes down appropriately. Take for instance the rise in interest rates. It is supposed to reduce excess demand by discouraging borrowing from banks; but its effects are scarcely confined to reducing demand alone and not reducing capacity utilisation and employment. A rise in interest rates in short has an anti-inflationary effect even in a situation of shortages, including self-inflicted shortages as is the case now because of the sanctions against Russia, substantially through a reduction in the bargaining power of the workers by causing larger unemployment; and when there are no shortages but only cost-push causing inflation, the effect of a rise in interest rates is exclusively through the generation of unemployment and recession.

This however is not an easy process: there is no automaticity about the reduction in workers’ wage-claims as unemployment increases. The resilience of the workers does get adversely affected by unemployment; but it also depends on a host of other factors. This means that their resistance to a reduction in their share may continue even when there is an increase in unemployment. In any case, the point to note here is that inflation invariably generates an upsurge in working class militancy and struggles.

This is exactly what we find today in many of the advanced capitalist countries, especially in Europe. Britain of course is the classic example. The inflation rate in Britain in the month of July reached 10.1 per cent compared to July the previous year, which is a 40-year high; and Britain is currently afflicted by a spate of strikes, by railway workers, postal workers and dock workers, demanding higher wages to offset the erosion of purchasing power because of inflation. Even lawyers and teachers are demanding higher pay as inflation soars and is expected to reach 13 per cent later this year.

Likewise in Spain, Greece, and Belgium, workers are demanding higher wages to offset inflation, which in the Eurozone reached 8.9 per cent in July. Even Germany which has been less afflicted by strike action in the past compared to other European economies, is witnessing strikes demanding higher wages. Workers in the transport sector in both the Netherlands and in Germany have been on strike, the railways in the case of Netherlands and the airlines in Germany. This situation is going to become worse as winter approaches, since sanctions against Russia that reduce the flow of oil and natural gas to Europe will have their most devastating impact then.

Strikes by workers affect supplies of various goods and services, so that even if inflation originally was not caused by supply shortages, such shortages inevitably appear because of the strikes and carry forward the inflationary process.

Strikes on this scale had not appeared in the advanced capitalist world for decades. With the global adoption of the neo-liberal regime, capital had appeared supremely dominant; and even though the share of wages had declined over this period in most countries, workers’ resistance had dwindled because of greater competition among them induced by the free mobility of capital across the world. If European workers for instance went on strike demanding higher wages, then capital which was already relocating to the low-wage Asian economies, simply hastened this process of relocation, which moderated wage demands in the metropolis.

After the financial crisis of 2008, since the recovery in the advanced capitalist countries, especially in Europe, was slow and at best partial, a further constraint was introduced on workers’ militancy; unemployment greatly reduced the bargaining strength of the workers. Likewise, after the collapse of Eastern European socialism, cheaper labour became available in the Western part of the continent because of migration from the east to the west, which acted as a further stimulus to competition among workers and kept down wages in the European Union.

The current inflation therefore marks a sea-change in this scenario. Since inflation affects all workers, whether from the east or the west, whether with permanent jobs or partially-employed, whether belonging to the active army of labour or the reserve army, it tends to mute the contradictions that existed among different segments of workers earlier, and hence also the competition among them. The sheer desperation produced by rising costs of living increases the militancy among workers, whose manifestations are becoming visible in Europe. The process of controlling inflation at the expense of the working class therefore is proving to be a far more difficult job for capitalism.

The irony of the situation however lies in the fact that a good deal of this acceleration of inflation has occurred in the wake of the Ukraine war. Not that inflation was absent earlier, or was not accelerating, but this acceleration has got a strong boost from the war. The monthly inflation rate in the European Union (obtained through a comparison with the price-level of the corresponding month a year earlier), which had increased from 3.2 per cent in August 2021 to 5.6 per cent in January 2022, has reached 9.8 per cent in July 2022. The Ukraine war is not just a conflict between two neighbouring countries; it is the outcome of the desperation of imperialism in the face of its crumbling dominance. Imperialism in short is attempting to shore up its dominance by squeezing the working class in the metropolis; but this will only push the metropolis into greater difficulties.

https://mronline.org/2022/09/03/control ... ing-class/
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Re: The crisis of bourgeois economics

Post by blindpig » Wed Oct 26, 2022 2:26 pm

The Geopolitics of Inequality: Discussing Pathways Towards a More Just World
OCTOBER 21, 2022
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Dossier no. 57

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This dossier is about inequality, or inequalities, between the North and South, between the rich and poor, and between the classes that labour and those that profit. This inequality is also produced by various forces and vectors of global capitalism that divide, exclude, and polarise the world. The collages in this dossier give expression to this inequality and to the extreme asymmetry that is iconic of our times. Contrast is key in these collages: contrast between colours, compositional balance, and content, where everyday activities – eating breakfast, commuting to work, sleeping – become situations where inequality is intimately lived and felt.

Source of images: Wikimedia Commons, British Library, Fotos Públicas, and the documentary Las Fuerzas de la Desigualdad (‘Forces of Inequality’) by Tricontinental: Institute for Social Research, Comuna Audiovisual, 2021.

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Introduction

What are the most characteristic elements of our moment in history? This question has multiple answers. Twenty-first century capitalism reflects an unprecedented pace: rapid international transitions, the shaping of an indisputably multipolar world, significant techno-productive innovations, and new developments in information technology and telecommunications that have changed the ways in which we interact, among many other issues.

At times, this context of rapid change seems to obscure one of the most obvious and at the same time outrageous issues of our contemporary existence: the abysmal difference between the living standards of the rich and the poor the world over. Evidently, we are living in an era in which global capitalism has managed to sweep under the rug some of the most detrimental results of the process of social exclusion produced by the emergence of neoliberalism and its successive crises. Discourses that time and again reinforce the hegemonic view of concentrated global capital lead us to normalise the production and reproduction of inequality in contemporary societies, as if they were the result of individual decisions by people who do not try hard enough or of bad governments. Even when the World Bank and the various think tanks of neoliberal globalisation try to present themselves ‘with a human face’, they continue to reproduce these analyses, according to which the solution to reduce the extreme inequality in our world is to grant the same opportunities to all.

However, the data does not seem to support this simplistic reading. The richest 1% of the world population today holds more than 70% of global wealth. This means that, as of January 2022, the world’s 10 richest men ‘own more than the bottom 3.1 billion people’, according to an OXFAM report.1 The world’s richest, a kind of plutocracy according to some analysts, have incomes that are unthinkable for 80% of the world population. Among the 2,668 billionaires, many of the top earners are familiar names: Elon Musk (the founder and CEO of Tesla, worth $219 billion), Jeff Bezos (the former CEO of Amazon, with a fortune of $171 billion), Bernard Arnault (the CEO of LVMH, with $158 billion to his name), Bill Gates (the former CEO of Microsoft Corp, worth $129 billion), and Warren Buffett (the CEO of Berkshire Hathaway, worth $118 billion).2

How can we understand inequality other than this approach of blaming the poor for being poor? It is worth keeping in mind that the enormous income and wealth gaps we are experiencing do not only have national origins, but that the reason for these gaps lies largely in the logic of polarisation brought about by capitalism as a world system. Therefore, we must differentiate between the global and the national scales to understand why these processes constantly produce an abyss between rich and poor in contemporary capitalism.

That is why Tricontinental: Institute for Social Research’s dossier no. 57 is dedicated to discussing the geopolitics of inequality, the conditions of exclusion that the North imposes on the South and that attempt, by all means, to present the idea that this inequality is temporary and that we must make a greater effort to reduce the gaps.

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The Deep Asymmetry between the North and South

Contemporary capitalist trends, especially since 2008, have enormously deepened the dynamics that produce inequality and that have been present since the very origin of capitalism. After a period of relative improvement in working-class incomes, the definitive rupture of the Fordist regimes in the North and of the national-popular systems in the South significantly widened the gap in living conditions between the two extremes. By definition, under this capitalist system, the opulence of the few is the product of the hunger and misery of the millions.

The accelerated dynamics of Western financial power; the flexibilisation of forms of contracting, work processes, and working hours; and the relocation of the production of goods and services, among other issues, have been the main driving forces of the increasingly unequal global order since the 1973 oil crisis. Ultimately, as the geographer David Harvey points out, neoliberalism is a project of the ruling class to restore its power and profits on a global scale.3

In the twenty-first century, three global financial crises have led to new processes of income and wealth redistribution in favour of the wealthy minority. The aftermath of the 2008 crisis – the moment when the real estate bubble burst in the United States – was nothing more than an intense process of the concentration of capital and income, or, in other words, of the social power of big business. The growing prominence of the leading global financial companies, Industry 4.0, and the gig economy simultaneously created new means of capital accumulation. The recovery, therefore, created a new bubble, this time based on high-tech companies, especially digital platforms such as the monopoly known as GAMA (Google, Apple, Meta, and Amazon). This combination of financial capital and platform capitalism driven by the Global North has only deepened instability and crisis. The celebratory discourse of technology and productivity gains that the World Bank has been advancing since 2016 – which would supposedly produce a leap forward in well-being in the West – has proven to be false time and again. This process of technological incorporation only resulted in the acceleration of the monopolisation and the appropriation of income by the financial and high-tech conglomerates. The flip side was not technological unemployment, but billions of impoverished working people, even if they had a salaried job.4

CoronaShock, which we at Tricontinental: Institute for Social Research have previously addressed in its different dimensions, resulted in a doubling of the wealth of the richest 1% of the world’s population.5 From 2020–2021, a new billionaire appeared every 26 hours, while the incomes of 99% of the population declined. Meanwhile, of the total wealth generated in the world in 2022, 76% is pocketed by the richest 10% of the global population, while the poorest 50% receives only 2%.6

The geopolitical and geoeconomic dimensions of this data are crucial, as this unequal distribution differs substantially across countries and regions. If we look at inequality in different regions of the world, we can see that the Global South has higher income and wealth inequality rates than the Global North. In terms of incomes, we find that in North America and Western Europe, the richest 1% of the population received around 35% of the wealth in 2020, while the poorest 50% received 19% of total income. In contrast, we find that in Latin America, the Middle East and North Africa, South Asia, and sub-Saharan Africa, the poorest 50% of the population receives between 9% and 12% of national income, while the richest 10% receives between 45% and 58%.7

These indicators, compiled by international organisations, clearly show the different levels of inequality in each country and region. A number of authors argue that the only alternative to our current reality – one plagued by inequality and poverty – is a capitalist world with a human face. They have suggested that North-South inequality is gradually disappearing, as if to indicate that we are on the path towards resolving this vast inequality. Burbach and Robinson highlight a significant reduction in the difference in incomes between different countries since the fall of the Berlin Wall.8 On the other hand, Hoogvelt claims that the core-periphery relationship is nothing more than geographical, which downplays the organic link between the processes of income seizure in the North and South.9 These authors base their analysis on the idea that the North-South divide refers to the dynamic between the industrialised North versus the non-industrialised South. With the industrial growth of several regions, especially Asia, and its implications in terms of accelerating Gross Domestic Product (GDP) growth, their interpretation is that income gaps are narrowing.

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These analyses seem to respond more to a political/ideological premise than to the evidence offered by the modern capitalist world. As Arrighi, Silver, and Brewer demonstrate, ‘the North-South divide remains a fundamental dimension of contemporary global dynamics’.10 It is important to highlight this point, as most analyses of inequality start from a national scale and omit the uneven nature of global power over oppressed regions and peoples.11

Gaps in the Gross Industrial Production of different regions of the world compared to the countries of the North have narrowed. In contrast, inequality in per capita income of different peripheral regions as compared to the Global North has remained very high. A paradigmatic case is that of the region of North Africa and the Middle East, which represents 185% of the manufacturing output of the North but only accounts for 15% of the per capita income of rich countries. Of course, as mentioned, South Asia and sub-Saharan Africa have high shares of manufacturing output alongside extreme inequality as compared to the rich North (their per capita income is only 2.8% and 3.4% of the North’s, respectively).12

In short, while the periphery is the world’s factory, services, finance, and the manufacturing of complex products remain in the core. The Global South produces 26% more manufactured goods than the North but accounts for 80% less income per capita.13 The assertion that inequality is due to the lack of development of productive forces in the South thus becomes nonsensical. This is an important point. Following Rostow’s analysis, all liberal/neoliberal approaches to development expect that a sustained process of industrialisation in the periphery will result in these countries reaching the same standard of living as the core.14 These approaches seem to ignore the fact that, while manufacturing has shifted to the periphery, where the output share has accelerated relative to the North since 1960, this has not substantially altered income distribution patterns.

In other words, even though the industrial divide that existed in the twentieth century between core and peripheral countries has almost completely disappeared, the centres of global capitalism still control the productive process and the monetary capital that allow the initiation of cycles of productive accumulation. Herein lies the key to understanding that the asymmetric power of the Global North over the Global South is expressed through a new logic of subordination and peripheralisation, one that is not exclusively a question of the unequal exchange of manufactured goods versus primary goods. To the contrary, it is the control over the very process of offshoring and the asymmetrical integration of different regions into global production networks (GPNs) that gives rise to substantial distributive differences, even in the context of accelerated industrialisation processes in the periphery.

It is worth asking whether the difference in per capita income between countries is a good indicator of inequality. For example, from Milanovic’s point of view, this comparison indicates lower levels of inequality than actually exist. He therefore proposes that we compare individuals’ incomes. For example, if we include people across the world in a comparable unit of measurement, we find that for the years 1970–2010, the Gini coefficients of the Nordic countries were below 30%, while countries such as Brazil reached an inequality rate of close to 60%.15

In 2019, the individual income inequality rate of the Global South as a whole was 33% higher than that of the North.16 This is because the process of neoliberal globalisation has resulted in an extreme widening of the income gap between the world’s super-rich and the world’s poorest, with a middle-income sector that has improved its position. The more than 60% increase in the incomes of the richest 1% between 1988 and 2008 was accompanied by stagnant growth in the incomes of the poorest sectors.17 If we look at who makes up this small group of the super-rich, most of them are in the Global North, while some are citizens of the major emerging countries of the South, mainly China, India, South Africa, Russia, and even some Latin American countries.

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The ranking published by Forbes business magazine, summarised in figure 1, illustrates this distribution of global income. In concrete numbers, we can see that, as of 2022, 37 of the 100 richest people in the world are based in the United States, the leading representative of the geopolitics of inequality. Between them, they account for $2.3 trillion, i.e., more than 51% of the wealth of the world’s 100 richest people.

Some important problems arise here that are not usually taken into account by this kind of analysis of inequality between individuals. Looking exclusively at individual income inequality rates across populations only obscures a major problem: countries with low individual income inequality may have real incomes that are completely unrepresentative of the current levels of development of the productive forces of labour. For example, Algeria has a Gini index similar to those of Norway or Finland. However, the average daily income of a household in Norway is $19,000 per year, while that of a household in Algeria is $2,600 per year. Another significant example is the difference between the United States and the Democratic Republic of the Congo. The two countries have a Gini coefficient of 42, but the difference in average annual income is stark: $19,300 in the United States and a mere $892 in the Democratic Republic of the Congo.18

These examples clearly reveal the gross injustice in the varying purchasing power of different countries, even though the overall inequality indices are similar. One interpretation commonly upheld by international organisations is that middle-income countries will be more unequal than rich countries and poor countries. The problem with this interpretation is that it downplays the organic link between the North and the South, between development and underdevelopment, between the core and the periphery, and, finally, between sovereignty and dependence. As we shall see, the productive and distributive capacities of the North are built on the subordination of the South. While individuals at the bottom of the income ladder in the North have access to a basket of consumer goods that is greater than the poverty-line basket, in many countries of the South, poverty and destitution are commonplace for large percentages of the population.

Class Inequality in the Global North and South

How do individuals in different regions of the world earn their incomes? That is, what are the social relations that give rise to sustained income inequality between rich and poor people? Only by revisiting the class system that lies behind inequality can we explain its origins. We believe that the root cause of inequality at national and global levels must firstly be traced to increases in inequality between the different classes. Wage earners have received a dwindling share of the gross product generated on a global scale since the 1970s. This decline has continued in the twenty-first century, from 54% of the gross world product in 2004 to 51% in 2021. This downwards trend in the incomes of working people during the twenty-first century was only temporarily reversed in the context of the 2008–2009 global crisis, as the fall in working-class wages is always slower during recessions.19

The global decline in labour share in the twenty-first century is led by the core countries, in particular those in Western Europe and the United States, where the wage share of national income has fallen by more than 2 and 3 percentage points respectively since 2004. However, as we can see in figure 2, the gaps between countries are so wide that even though Latin America (until 2014) and China were able to increase their wage shares for some years, they by no means match the levels of the North. Other regions in the periphery, such as Southeast Asia, have even seen their already very low wage share of national income fall. The countries in which workers have a national income share of more than 50% are the United States, Canada, and those of Western Europe, with the exception of three Latin American countries: Argentina, Chile, and Brazil.20

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This has led some authors, such as Milanovic, to argue that inequality in the twenty-first century is better explained by location rather than class.21

What happens if we view inequality as each country’s difference in income relative to the global average? In the world’s 163 countries, only 32% of households have incomes above the global average. Of this total, only a few countries in the periphery have above average incomes, while 100% of the core countries are above the average. Moreover, we see that the difference between incomes in the core countries and the world average is very high; cases where incomes are more than 200% higher stand out, such as Luxembourg, Norway, the United States, and Canada.22 At the same time, it is precisely the countries of the South, the world’s periphery, that have the highest levels of class inequality, as we can see from the labour share of wage earners (figure 3). Furthermore, if we take the income of capitalists as compared to the income of wage earners, we again find that most of the world’s periphery has above average class inequality, while all the countries of the core have lower levels of labour exploitation relative to the average.

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In addition, and perhaps more importantly, there is a direct relationship between class inequality and location. Historical patterns of dependency have been exacerbated by highly interdependent, globalised, and financialised contemporary capitalism, with high levels of offshore manufacturing. On the one hand, the North has been strengthened as the geographical space that controls global wealth accumulation processes and, in tandem, societies in the periphery have been regressively restructured. Therefore, we see that with the emergence of neoliberalism and successive contemporary crises, there are at least four processes which have strengthened the power of the ruling class on a global scale: the transnationalisation of capital and the offshoring of manufacturing; financialisation; the hyper-concentration of capital; and the revolution in transport, telecommunications, and information technology. These associated processes were underpinned by the resurgence of ruling class power and income, only to be countered by the re-emergence of other poles of global power with outlooks differing from Western development dynamics.23

The Challenge of Swimming against the Tide

Present-day capitalism tends to multiply the inequalities between the North and the South, between capital and labour, and between the rich and the poor. One of the key determinants of the impoverishment of the vast majority of the world’s population is the deepening structural dependence of the countries of the Global South. An unprecedented concentration of wealth, which has as its backdrop a unique concentration of power, is nothing more than an indicator of a structural dynamic of peripheralisation of the South vis-à-vis the North through its subordinate inclusion in global production networks. These networks have resulted in a new international division of labour, which reserves the direction and control of production processes for the North and decentralises production to other regions to take advantage of lower costs and access to natural resources.

Thus, the geopolitics of inequality reinforce the dynamics of differential income distribution between labour and capital, between different groups of workers, between individuals, and between those who obtain income from the ownership of different assets (land, technology, etc.) and those who do not.

Faced with these trends, what alternatives are available to the people of the South? Even if the battle appears to be set in terms of David versus Goliath, upon considering some key points, we can see that another pathway is possible through the adoption of several policies:

1) The partial disconnection of global chains

Global value chains promised to enable the development of modern poles that would boost the economies of the entire periphery. However, they have had the exact opposite result to that expected: the inequalities between internationalised sectors and other sectors have grown. These widening inequality gaps must be combated through state mediation. This means greater participation in South-South trade networks based on complementarity as opposed to participation in global chains. This partial disconnection from global chains implies a distancing from the North’s control of global production processes and the resulting exploitation of workers in the South to satisfy the needs of the Global North.

2) The appropriation of revenue by the state

One quintessential form of class inequality in the South is the oligarchic appropriation of land rents, mining and technological revenues, and other forms of revenue. The state’s concrete intervention in appropriating revenue is key to reducing the ruling class’s income growth. This growth has nothing to do with increased investment; rather, it almost exclusively derives from the ownership of a fixed factor of production and the possibility of patenting it for exclusive use.

3) The taxation of speculative capital

The celebrated mobility of global capital has only increased speculative income in the countries of the South, leading to attacks on national currencies, financialisation processes, and constant capital flight. Imposing high taxes on speculative capital and mixed private-public ownership can significantly improve the control of national production processes and cushion crises which usually result in massive capital outflow, deepening unemployment and poverty.

4) The nationalisation of strategic goods and services

A more equal national and regional development process requires further nationalisation of strategic assets, which is key to reducing the degree of foreign ownership in the economies of the South. To a large extent, rolling back the privatisation measures of the Washington Consensus can allow for greater national sovereignty, as can strategic guidelines on how to use the resources that belong to the people to benefit the majority.

5) The taxation of corporate and individual windfall profits

Even within the capitalist framework, a major issue is to differentiate between normal or average profit sectors and those producing windfall profits. It is clear from what we have discussed in this dossier that the most dynamic sectors of the global economy are those linked to finance and platforms. In the countries of the periphery, transnationalised sectors or those with strong market penetration achieve the highest levels of revenue. These increases in profits generally do not result in higher levels of employment, better wages, and so on. Therefore, it is imperative to design taxes to be levied on those sectors that are hyper-profitable.

Of course, these points are only partial aspects of the debate. We must study them in greater depth in order to coordinate our national struggles with global perspectives and with demands on states to abandon austerity policies, which only widen the gap between the rich and poor and between the North and South. These gaps are already intolerable from a humane point of view.

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Endnotes
1 OXFAM, Inequality Kills, 10.

2 Dolan and Peterson-Withorn, eds., ‘World’s Billionaires List’.

3 Harvey, Espacios del capital.

4 Benanav, La automatización y el futuro del trabajo.

5 Tricontinental, CoronaShock.

6 OXFAM, Inequality Kills; Chancel et al., World Inequality Report 2022.

7 Our own calculations based on data from Chancel et al., World Inequality Report 2022.

8 Burbach and Robinson, ‘The Fin de Siecle Debate’, 10–39.

9 Hoogvelt, ‘The History of Capitalist Expansion’.

10 Arrighi et al., ‘Industrial Convergence, Globalisation, and the Persistence of the North-South Divide’, 4.

11 Amin, ‘La economía política del siglo XX’.

12 Our own calculations based on data from the World Bank; UC (Davis) and Groningen Growth Development Centre, Penn World Table.

13 Data from the World Bank; UC (Davis) and Groningen Growth Development Centre, Penn World Table.

14 Rostow, ‘The United States in the World Arena’, 7.

15 Milanovic, ‘Global Income Inequality in Numbers’, 198–208.

16 Our own calculations based on data from Milanovic, ‘Global Inequalities in Numbers’, 2013.

17 Milanovic, ‘Global Income Inequality in Numbers’, 202.

18 Our own calculations based on data from ILOSTAT.

19 Our own calculations based on data from ILO, AMECO, and CEPALSTAT.

20 Our own calculations based on data from López and Noguera, ‘Crecimiento, distribución, y condiciones dependientes’.

21 Milanovic, ‘Global Income Inequality in Numbers’, 198–208.

22 Our own calculations based on World Bank data.

23 Arrighi, ‘La economía social y política de la turbulencia global’.



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Milanovic, Branko. ‘Global Income Inequality in Numbers: In History and Now’. Global Policy 4, no. 2 (2013): 198–208.

Milanovic, Branko. Desigualdad mundial. Un nuevo enfoque para la era de la globalización [Global Inequality: A New Approach for the Age of Globalisation]. Madrid: Fondo de Cultura Económica, 2017.

OXFAM. Inequality Kills: The Unparalleled Action Needed to Combat Unprecedented Inequality in the Wake of COVID-19. 17 January 2022. https://oxfamilibrary.openrepository.co ... 122-en.pdf.

Rostow, Walt W. ‘The United States in the World Arena’. Naval War College Review 13, no. 6 (1960): 7.

Tricontinental: Institute for Social Research. CoronaShock: A Virus and the World. Dossier no. 28, May 2020. https://thetricontinental.org/dossier-28-coronavirus/.

University of California (Davis) and Groningen Growth Development Centre of the University of Groningen. Penn World Table (1950–2019). https://febpwt.webhosting.rug.nl/.

World Bank. ‘World Bank Open Data’. https://data.worldbank.org/.

https://thetricontinental.org/dossier-5 ... nequality/
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Re: The crisis of bourgeois economics

Post by blindpig » Mon Jan 16, 2023 3:03 pm

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The impending world recession
By Prabhat Patnaik (Posted Jan 16, 2023)

Originally published: Peoples Democracy on January 15, 2023 (more by Peoples Democracy) |

The IMF managing director Kristalina Georgieva has now openly admitted that the year 2023 will witness the slowing down of the world economy to a point where as much as one-third of it will see an actual contraction in gross domestic product. This is because all the three major economic powers in the world, the U.S., the European Union, and China, will witness slowdowns, the last of these because of the renewed Covid upsurge. Of the three, Georgieva believes, the U.S. will perform relatively better than the other two because of the resilience of its labour market; indeed the greater resilience of the U.S. labour market provides some hope for the world economy as a whole.

There are two ironical elements in Georgieva’s remarks. The first is that the best prospects for the world economy today, even the IMF concedes if only implicitly, lie in workers’ incomes in the U.S. not falling greatly. For an institution that has systematically advocated cuts in wages, whether in the form of remunerations or of social wages, as an essential part of its stabilisation-cum-structural adjustment policies, this is a surprising, though welcome, admission. Of course Georgieva, many would argue, is seeing U.S. labour market resilience only as the result of US’s economic performance and not as its cause. But her considering it a “blessing” (though not an unmixed one for reasons we shall soon see) leaves one in no doubt that the demand-sustaining role of workers’ incomes is also being recognised by her.

Some may contend that stabilisation-cum-structural adjustment policies of the IMF are typically meant for economies that are in crisis, as a means of overcoming such a crisis, not as a panacea for growth, so that seeing a change in IMF’s understanding in this regard may be unwarranted. But what the IMF is now saying is certainly out of line with what it usually says; it is in effect conceding that a resilient labour market in the U.S. is beneficial for its growth, which begs the question: why should other economies too not attempt to have resilient labour markets even when they are in crisis, and tackle their crises through other, more direct, means like import controls and price controls? Conceding that the resilience of the U.S. labour market can be beneficial for its economy, and hence for the world economy as a whole, thus fundamentally runs counter to what the IMF generally stands for, at least in the current neoliberal times.

The second ironic element in her remarks is her recognition that such a resilient labour market, while being beneficial for U.S. growth, will simultaneously keep up the inflation rate in the U.S., forcing the Federal Reserve Board to raise interest rates further. This has two clear implications. First, it means that the U.S. growth rate, while being less affected for the time being, will inevitably be constricted in the months to come as the Fed raises the interest rate. The U.S. performing relatively better in 2023 is thus not a phenomenon that will last long. Since any poor performance by the U.S. will have an adverse effect on the world economy as a whole, this amounts to saying that the world recession will worsen in the months to come, unless China’s Covid situation improves substantially. It amounts to saying in other words, that even if 2023 will only see a third of the world economy facing recession, a much larger swathe of it will fall victim to recession later. This is certainly the most dire prediction made about the prospects of world capitalism at the present juncture by any major spokesperson of it.

The World Bank too has been warning of a serious recession looming over the capitalist world and discussing in particular its implications for third world economies. In September 2022 it put out a paper in which it expected a 1.9 per cent growth of the world economy in the year 2023. But both the IMF and the World Bank attribute the looming recession primarily to the Ukraine war and the inflation it has given rise to (and also in passing to the pandemic); the response to that inflation in the form of an all-round increase in interest rates is what underlies the current threat of recession. There is no recognition by these institutions of any problem arising from the neoliberal economy that could be underlying the looming crisis.

This analysis first of all is erroneous. Long before the Ukraine war, inflation had reared its head as the world economy had started recovering from the pandemic. At that time such inflation had been attributed to the disruption in supply chains caused by the pandemic, though many had differed from this analysis even then. They had pointed out that, more than any actual disruption, the inflationary upsurge owed much to the jacking up of profit-margins by large corporations in anticipation of shortages. The Ukraine war occurred against this backdrop of an ongoing inflation, and added to it quite gratuitously as the western powers imposed sanctions against Russia.

A look at the movement of crude oil prices confirms this conclusion that the Ukraine war is not the genesis of the inflationary upsurge. The rise in brent crude prices occurred primarily in 2021 as the world economy started recovering from the pandemic: the rise between the beginning of 2021 and the end of that year was by more than 50 per cent, from 50.37 dollars per barrel to 77.24 dollars per barrel; the corresponding rise in 2022, during which the Ukraine war occurred, was from 78.25 to 82.82, i.e. by 5.8 per cent, which is less than the current inflation rate in most advanced capitalist countries, even though inflation is generally claimed to have been driven by oil prices. True, immediately after the imposition of sanctions against Russia, world oil prices shot up, reaching a high of 133.18 dollars per barrel during 2022, but then they came down quite sharply as we have seen, so that simply blaming the Ukraine war for the price-rise is not only misleading (as it is not the war per se but the sanctions that were responsible) but also erroneous (as prices should have come down when the price-rise induced by the sanctions abated).

It is not just the analysis of the Bretton Woods institutions that is flawed. Even more noteworthy is the fact that they have no perception whatsoever, even within the terms of their own analysis, of how this world recession is going to end. If, as they believe, it is the Ukraine war that is responsible for the looming recessionary crisis, then they should, at the very least, have hoped for an early end to it. That however is unacceptable to western imperialism which wants the war to drag on so that Russia is “bled” into submission; this is why the twin institutions express no opinions on the need for ending the war. But even if they chose to remain silent on the question of ending the war, they could have expressed some opinion about tackling the inflationary crisis in some other way than by raising interest rates and unleashing a recession. The IMF and the World Bank however are so committed to free markets that they cannot contemplate any other inflation-control measure (such as direct price-control), even as they lament the recessionary effects of interest rate hikes.

Likewise, even as the World Bank president David Malpass commiserates with debt-encumbered third world countries which are going to be badly hit in the coming months, and even says that a large chunk of their debt-burden has arisen because of the high interest rates themselves, there is not a word in his speech in favour of lowering interest rates. Both the Bretton Woods institutions in other words are long on commiserations but short on concrete measures to help the world’s poor.

This is not just a symptom of timidity. It points to something deeper, namely the genuine impasse in which world capitalism finds itself today. If the structure of western imperialism as it has evolved over the years is to be kept intact, then the metropolitan countries have to keep the Ukraine war going, in which case inflation at the current pace becomes unavoidable in the absence of an engineered recession, and the consequent unemployment. World capitalism’s taking this route therefore should not cause any surprise; the point is to resist it.

https://mronline.org/2023/01/16/the-imp ... recession/
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Re: The crisis of bourgeois economics

Post by blindpig » Fri Jan 20, 2023 4:48 pm

Global South: Gold-Backed Currencies to Replace the US Dollar
Posted by INTERNATIONALIST 360° on JANUARY 19, 2023
Pepe Escobar

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The adoption of commodity-backed currencies by the Global South could upend the US dollar’s dominance and level the playing field in international trade.

Let’s start with three interconnected multipolar-driven facts.

First: One of the key take aways from the World Economic Forum annual shindig in Davos, Switzerland is when Saudi Finance Minister Mohammed al-Jadaan, on a panel on “Saudi Arabia’s Transformation,” made it clear that Riyadh “will consider trading in currencies other than the US dollar.”

So is the petroyuan finally at hand? Possibly, but Al-Jadaan wisely opted for careful hedging: “We enjoy a very strategic relationship with China and we enjoy that same strategic relationship with other nations including the US and we want to develop that with Europe and other countries.”

Second: The Central Banks of Iran and Russia are studying the adoption of a “stable coin” for foreign trade settlements, replacing the US dollar, the ruble and the rial. The crypto crowd is already up in arms, mulling the pros and cons of a gold-backed central bank digital currency (CBDC) for trade that will be in fact impervious to the weaponized US dollar.

A gold-backed digital currency

The really attractive issue here is that this gold-backed digital currency would be particularly effective in the Special Economic Zone (SEZ) of Astrakhan, in the Caspian Sea.

Astrakhan is the key Russian port participating in the International North South Transportation Corridor (INTSC), with Russia processing cargo travelling across Iran in merchant ships all the way to West Asia, Africa, the Indian Ocean and South Asia.

The success of the INSTC – progressively tied to a gold-backed CBDC – will largely hinge on whether scores of Asian, West Asian and African nations refuse to apply US-dictated sanctions on both Russia and Iran.

As it stands, exports are mostly energy and agricultural products; Iranian companies are the third largest importer of Russian grain. Next will be turbines, polymers, medical equipment, and car parts. Only the Russia-Iran section of the INSTC represents a $25 billion business.

And then there’s the crucial energy angle of INSTC – whose main players are the Russia-Iran-India triad.

India’s purchases of Russian crude have increased year-by-year by a whopping factor of 33. India is the world’s third largest importer of oil; in December, it received 1.2 million barrels from Russia, which for several months now is positioned ahead of Iraq and Saudi Arabia as Delhi’s top supplier.

‘A fairer payment system’

Third: South Africa holds this year’s rotating BRICS presidency. And this year will mark the start of BRICS+ expansion, with candidates ranging from Algeria, Iran and Argentina to Turkey, Saudi Arabia and the UAE.

South African Foreign Minister Naledi Pandor has just confirmed that the BRICS do want to find a way to bypass the US dollar and thus create “a fairer payment system not skewed toward wealthier countries.”

For years now, Yaroslav Lissovolik, head of the analytical department of Russian Sberbank’s corporate and investment business has been a proponent of closer BRICS integration and the adoption of a BRICS reserve currency.

Lissovolik reminds us that the first proposal “to create a new reserve currency based on a basket of currencies of BRICS countries was formulated by the Valdai Club back in 2018.”

Are you ready for the R5?

The original idea revolved around a currency basket similar to the Special Drawing Rights (SDR) model, composed of the national currencies of BRICS members – and then, further on down the road, other currencies of the expanded BRICS+ circle.

Lissovolik explains that choosing BRICS national currencies made sense because “these were among the most liquid currencies across emerging markets. The name for the new reserve currency — R5 or R5+ — was based on the first letters of the BRICS currencies all of which begin with the letter R (real, ruble, rupee, renminbi, rand).”

So BRICS already have a platform for their in-depth deliberations in 2023. As Lissovolik notes, “in the longer run, the R5 BRICS currency could start to perform the role of settlements/payments as well as the store of value/reserves for the central banks of emerging market economies.”

It is virtually certain that the Chinese yuan will be prominent right from the start, taking advantage of its “already advanced reserve status.”

Potential candidates that could become part of the R5+ currency basket include the Singapore dollar and the UAE’s dirham.

Quite diplomatically, Lissovolik maintains that, “the R5 project can thus become one of the most important contributions of emerging markets to building a more secure international financial system.”

The R5, or R5+ project does intersect with what is being designed at the Eurasia Economic Union (EAEU), led by the Macro-Economics Minister of the Eurasia Economic Commission, Sergey Glazyev.

A new gold standard

In Golden Ruble 3.0 , his most recent paper, Glazyev makes a direct reference to two by now notorious reports by Credit Suisse strategist Zoltan Pozsar, formerly of the IMF, US Department of Treasury, and New York Federal Reserve: War and Commodity Encumbrance (December 27) and War and Currency Statecraft (December 29).

Pozsar is a staunch supporter of a Bretton Woods III – an idea that has been getting enormous traction among the Fed-skeptical crowd.

What’s quite intriguing is that the American Pozsar now directly quotes Russia’s Glazyev, and vice-versa, implying a fascinating convergence of their ideas.

Let’s start with Glazyev’s emphasis on the importance of gold. He notes the current accumulation of multibillion-dollar cash balances on the accounts of Russian exporters in “soft” currencies in the banks of Russia’s main foreign economic partners: EAEU nations, China, India, Iran, Turkey, and the UAE.

He then proceeds to explain how gold can be a unique tool to fight western sanctions if prices of oil and gas, food and fertilizers, metals and solid minerals are recalculated:

“Fixing the price of oil in gold at the level of 2 barrels per 1g will give a second increase in the price of gold in dollars, calculated Credit Suisse strategist Zoltan Pozsar. This would be an adequate response to the ‘price ceilings’ introduced by the west – a kind of ‘floor,’ a solid foundation. And India and China can take the place of global commodity traders instead of Glencore or Trafigura.”

So here we see Glazyev and Pozsar converging. Quite a few major players in New York will be amazed.

Glazyev then lays down the road toward Gold Ruble 3.0. The first gold standard was lobbied by the Rothschilds in the 19th century, which “gave them the opportunity to subordinate continental Europe to the British financial system through gold loans.” Golden Ruble 1.0, writes Glazyev, “provided the process of capitalist accumulation.”

Golden Ruble 2.0, after Bretton Woods, “ensured a rapid economic recovery after the war.” But then the “reformer Khrushchev canceled the peg of the ruble to gold, carrying out monetary reform in 1961 with the actual devaluation of the ruble by 2.5 times, forming conditions for the subsequent transformation of the country [Russia] into a “raw material appendage of the Western financial system.”

What Glazyev proposes now is for Russia to boost gold mining to as much as 3 percent of GDP: the basis for fast growth of the entire commodity sector (30 percent of Russian GDP). With the country becoming a world leader in gold production, it gets “a strong ruble, a strong budget and a strong economy.”

All Global South eggs in one basket

Meanwhile, at the heart of the EAEU discussions, Glazyev seems to be designing a new currency not only based on gold, but partly based on the oil and natural gas reserves of participating countries.

Pozsar seems to consider this potentially inflationary: it could be if it results in some excesses, considering the new currency would be linked to such a large base.

Off the record, New York banking sources admit the US dollar would be “wiped out, since it is a valueless fiat currency, should Sergey Glazyev link the new currency to gold. The reason is that the Bretton Woods system no longer has a gold base and has no intrinsic value, like the FTX crypto currency. Sergey’s plan also linking the currency to oil and natural gas seems to be a winner.”

So in fact Glazyev may be creating the whole currency structure for what Pozsar called, half in jest, the “G7 of the East”: the current 5 BRICS plus the next 2 which will be the first new members of BRICS+.

Both Glazyev and Pozsar know better than anyone that when Bretton Woods was created the US possessed most of Central Bank gold and controlled half the world’s GDP. This was the basis for the US to take over the whole global financial system.

Now vast swathes of the non-western world are paying close attention to Glazyev and the drive towards a new non-US dollar currency, complete with a new gold standard which would in time totally replace the US dollar.

Pozsar completely understood how Glazyev is pursuing a formula featuring a basket of currencies (as Lissovolik suggested). As much as he understood the groundbreaking drive towards the petroyuan. He describes the industrial ramifications thus:

“Since as we have just said Russia, Iran, and Venezuela account for about 40 percent of the world’s proven oil reserves, and each of them are currently selling oil to China for renminbi at a steep discount, we find BASF’s decision to permanently downsize its operations at its main plant in Ludwigshafen and instead shift its chemical operations to China was motivated by the fact that China is securing energy at discounts, not markups like Europe.”

The race to replace the dollar

One key takeaway is that energy-intensive major industries are going to be moving to China. Beijing has become a big exporter of Russian liquified natural gas (LNG) to Europe, while India has become a big exporter of Russian oil and refined products such as diesel – also to Europe. Both China and India – BRICS members – buy below market price from fellow BRICS member Russia and resell to Europe with a hefty profit. Sanctions? What sanctions?

Meanwhile, the race to constitute the new currency basket for a new monetary unit is on. This long-distance dialogue between Glazyev and Pozsar will become even more fascinating, as Glazyev will be trying to find a solution to what Pozsar has stated: tapping of natural resources for the creation of the new currency could be inflationary if money supply is increased too quickly.

All that is happening as Ukraine – a huge chasm at a critical junction of the New Silk Road blocking off Europe from Russia/China – slowly but surely disappears into a black void. The Empire may have gobbled up Europe for now, but what really matters geoeconomically, is how the absolute majority of the Global South is deciding to commit to the Russia/China-led block.

Economic dominance of BRICS+ may be no more than 7 years away – whatever toxicities may be concocted by that large, dysfunctional nuclear rogue state on the other side of the Atlantic. But first, let’s get that new currency going.

https://libya360.wordpress.com/2023/01/ ... us-dollar/

***************

China trims US Treasury bond holdings
By SHI JING in Shanghai | CHINA DAILY | Updated: 2023-01-20 06:47

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The US Treasury building is reflected in the window of a souvenir shop in Washington, US, January 19, 2023. [Photo/Agencies]

$870b figure in Nov lowest since June 2010, shows financial management

China continued to lower its holdings of US Treasury bonds as the US Federal Reserve is expected to maintain its hawkish stance over the following months, market observers said on Thursday.

According to Treasury International Capital data released by the US Department of Treasury on Wednesday, China decreased its holdings of US Treasury bonds by $7.8 billion in November, marking the third consecutive month of selling. With this, China holds about $870 billion worth of US Treasury bonds, the lowest amount since June 2010.

In October, China cut its holdings of US Treasury bonds by $24 billion, according to TIC data.

Yu Yongding, a member of the Academic Divisions of the Chinese Academy of Social Sciences, said China's reduction in its holdings of US Treasury bonds is a measure to adjust the country's balance sheet of overseas assets, which can enhance the security of its overseas assets and increase the net returns on overseas investment.

In November, foreign official institutions sold $12.2 billion of medium-and long-term US securities like Treasury notes and bonds, according to the latest TIC numbers.

Past TIC data show that several central banks sold US Treasury bonds for 49 months since October 2017. Analysts from China International Capital Corp interpreted such selling as a worldwide trend of "de-dollarization".

While the US dollar used to be a global safe haven, economies have been reducing their US Treasury bond holdings over the past few years to lower their over-reliance on the greenback. Such risks of over-reliance became apparent last year during the geopolitical tensions in Europe that were followed by Western financial sanctions on Russia. Diversification of foreign exchange reserves has been more widely adopted by central banks, said CICC experts.

Some economies have sold US Treasury bonds to maintain the stability of their own currencies when the US dollar was soaring over the past few months, they said.

However, Japan, the largest creditor of the United States, stopped its four-month selling that started in July 2022 and increased its US Treasury bond holdings by $17.8 billion in November, making the total sum exceed $1.08 trillion.

Cao Yubo, a financial market researcher from China Construction Bank, said investors tend to decrease their US Treasury bond holdings at a time of rising yields to lower their losses in asset value.They will increase such exposure when yields rise.

Data in the public domain showed the 10-year US Treasury bond yield came in at 3.366 percent on Thursday, the lowest since September 2022. The 2-year US Treasury note yield touched 4.07 percent, the lowest level since October 2022.

Hawkish expressions have been made by Fed officials recently.James Bullard, St. Louis Fed president, said the Fed should not "stall" on raising its benchmark rates until they are above 5 percent.

While admitting signs of easing inflation thanks to the Fed's sharp interest rate hikes, Loretta Mester, president of the Federal Reserve Bank of Cleveland, said that further rate hikes are still needed to decisively crush the worst inflation in four decades.

Steve Blitz, chief US economist of TS Lombard, a global economic and investment strategy research firm, said the market will start to assimilate the negative impact of economic recession in the US later this year, which will exert downward pressure on US Treasury yields.

The next TIC release, which will disclose data for December 2022, is scheduled for Feb 15.

http://global.chinadaily.com.cn/a/20230 ... aab84.html

To quote Saint Jimi:

"… And so castles made of sand fall in the sea, eventually"
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Re: The crisis of bourgeois economics

Post by blindpig » Sat Jan 21, 2023 4:55 pm

The impending world recession
January 21, 2023 Prabhat Patnaik

Image
World Economic Forum in Davos, Switzerland, secured?.

The IMF managing director Kristalina Georgieva has now openly admitted that the year 2023 will witness the slowing down of the world economy to a point where as much as one-third of it will see an actual contraction in gross domestic product. This is because all three major economic powers in the world, the U.S., the European Union, and China, will witness slowdowns, the last of these because of the renewed COVID upsurge. Of the three, Georgieva believes the U.S. will perform relatively better than the other two because of the resilience of the labor market; indeed. the greater resilience of the U.S. labor market provides some hope for the world economy as a whole.

There are two ironical elements in Georgieva’s remarks. The first is that the best prospects for the world economy today, even the IMF concedes if only implicitly, lie in workers’ incomes in the U.S. not falling greatly. For an institution that has systematically advocated cuts in wages, whether in the form of remunerations or social wages, as an essential part of its stabilisation-cum-structural adjustment policies, this is a surprising, though welcome, admission. Of course Georgieva, many would argue, is seeing U.S. labor market resilience only as the result of U.S. economic performance and not as its cause. But her considering it a “blessing” (though not an unmixed one for reasons we shall soon see) leaves one in no doubt that the demand-sustaining role of workers’ incomes is also being recognized by her.

Some may contend that stabilisation-cum-structural adjustment policies of the IMF are typically meant for economies that are in crisis as a means of overcoming such a crisis, not as a panacea for growth, so seeing a change in IMF’s understanding in this regard may be unwarranted. But what the IMF is now saying is certainly out of line with what it usually says; it is, in effect, conceding that a resilient labor market in the U.S. is beneficial for its growth, which begs the question: why should other economies, too, not attempt to have resilient labor markets even when they are in crisis, and tackle their crises through other, more direct, means like import controls and price controls? Conceding that the resilience of the U.S. labor market can be beneficial for its economy, and hence for the world economy as a whole, thus fundamentally runs counter to what the IMF generally stands for, at least in the current neoliberal times.

The second ironic element in her remarks is her recognition that such a resilient labor market, while being beneficial for U.S. growth, will simultaneously keep up the inflation rate in the U.S., forcing the Federal Reserve Board to raise interest rates further. This has two clear implications. First, it means that the U.S. growth rate, while being less affected for the time being, will inevitably be constricted in the months to come as the Fed raises the interest rate. The U.S. performing relatively better in 2023 is thus not a phenomenon that will last long. Since any poor performance by the U.S. will have an adverse effect on the world economy as a whole, this amounts to saying that the world recession will worsen in the months to come unless China’s COVID situation improves substantially. It amounts to saying, in other words, that even if 2023 will only see a third of the world economy facing recession, a much larger swathe of it will fall victim to a recession later. This is certainly the most dire prediction made about the prospects of world capitalism at the present juncture by any major spokesperson of it.

The World Bank, too, has been warning of a serious recession looming over the capitalist world and discussing, in particular, its implications for third-world economies. In September 2022, it put out a paper in which it expected a 1.9% growth of the world economy in the year 2023. But both the IMF and the World Bank attribute the looming recession primarily to the Ukraine war and the inflation it has given rise to (and also in passing to the pandemic); the response to that inflation in the form of an all-round increase in interest rates is what underlies the current threat of recession. There is no recognition by these institutions of any problem arising from the neoliberal economy that could be underlying the looming crisis.

This analysis, first of all, is erroneous. Long before the Ukraine war, inflation had reared its head as the world economy had started recovering from the pandemic. At that time, such inflation had been attributed to the disruption in supply chains caused by the pandemic, though many had differed from this analysis even then. They had pointed out that, more than any actual disruption, the inflationary upsurge owed much to the jacking up of profit margins by large corporations in anticipation of shortages. The Ukraine war occurred against this backdrop of ongoing inflation and added to it quite gratuitously as the Western powers imposed sanctions against Russia.

A look at the movement of crude oil prices confirms this conclusion that the Ukraine war is not the genesis of the inflationary upsurge. The rise in brent crude prices occurred primarily in 2021 as the world economy started recovering from the pandemic: the rise between the beginning of 2021 and the end of that year was by more than 50%, from $50.37 per barrel to $77.24 per barrel; the corresponding rise in 2022, during which the Ukraine war occurred, was from $78.25 to $82.82, i.e., by 5.8%, which is less than the current inflation rate in most advanced capitalist countries, even though inflation is generally claimed to have been driven by oil prices. True, immediately after the imposition of sanctions against Russia, world oil prices shot up, reaching a high of 133.18 dollars per barrel during 2022, but then they came down quite sharply, as we have seen, so that simply blaming the Ukraine war for the price-rise is not only misleading (as it is not the war per se but the sanctions that were responsible) but also erroneous (as prices should have come down when the price-rise induced by the sanctions abated).

It is not just the analysis of the Bretton Woods institutions that is flawed. Even more noteworthy is the fact that they have no perception whatsoever, even in the terms of their own analysis, of how this world recession is going to end. If, as they believe, it is the Ukraine war that is responsible for the looming recessionary crisis, then they should, at the very least, have hoped for an early end to it. That, however, is unacceptable to Western imperialism, which wants the war to drag on so that Russia is “bled” into submission; this is why the twin institutions express no opinions on the need for ending the war. But even if they chose to remain silent on the question of ending the war, they could have expressed some opinion about tackling the inflationary crisis in some other way than by raising interest rates and unleashing a recession. The IMF and the World Bank, however, are so committed to free markets that they cannot contemplate any other inflation-control measure (such as direct price control), even as they lament the recessionary effects of interest rate hikes.

Likewise, even as the World Bank president David Malpass commiserates with debt-encumbered third world countries which are going to be badly hit in the coming months, and even says that a large chunk of their debt burden has arisen because of the high interest rates themselves, there is not a word in his speech in favor of lowering interest rates. Both the Bretton Woods institutions, in other words, are long on commiserations but short on concrete measures to help the world’s poor.

This is not just a symptom of timidity. It points to something deeper, namely the genuine impasse in which world capitalism finds itself today. If the structure of Western imperialism as it has evolved over the years is to be kept intact, then the metropolitan countries have to keep the Ukraine war going, in which case inflation at the current pace becomes unavoidable in the absence of an engineered recession, and the consequent unemployment. World capitalism’s taking this route, therefore, should not cause any surprise; the point is to resist it.

Source: Peoples Democracy

https://www.struggle-la-lucha.org/2023/ ... recession/

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All Quiet (Panic) On the Western Front
JANUARY 20, 2023

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By Pepe Escobar – Jan 16, 2023

Shadows are falling / And I’ve been here all day / It’s too hot to sleep / And time is running away / Feel like my soul / has turned into steel /I’ve still got the scars / That the sun didn’t heal / There’s not even room enough / To be anywhere / Lord it’s not dark yet, / but it’s getting there

Bob Dylan, Not Dark Yet


Lights! Action! Reset!

The World Economic Forum (WEF)’s Davos Freak Show is back in business on Monday.

The mainstream media of the collective West, in unison, will be spinning non-stop, for a week, all the “news” that are fit to print to extol new declinations of The Great Reset, re-baptized The Great Narrative, but actually framed as a benign offer by “stakeholder capitalism”. These are the main planks of the shady platform of a shady NGO registered in Cologny, a tony Geneva suburb.

The list of Davos attendees was duly leaked. Proverbially, it’s an Anglo-American Exceptionalist fun fest, complete with intel honchos such as the US Director of National Intelligence, Avril “Madam Torture” Haines; the head of MI6 Richard Moore; and FBI director Christopher Wray.

Remixed Diderot and D’Alembert Encyclopedias could be written about the Davos pathology – where a hefty list of multibillionaires, heads of state and corporate darlings (owned by BlackRock, Vanguard, State Street and co.) “engage” in selling Demented Dystopia packages to the unsuspecting masses.

But let’s cut to the chase and focus on a few panels next week – which could easily be mistaken for Straight to Hell sessions.

The Tuesday, January 17 list is particularly engaging. It features a “De-Globalization or Re-Globalization?” panel with speakers Ian Bremmer, Adam Tooze, Niall Ferguson, Péter Szijjártó and Ngaire Woods. Three Atlanticists/Exceptionalists stand out, especially the ultra-toxic Ferguson.

After “In Defense of Europe”, featuring a bunch of nullities including Poland’s Andrjez Duda, attendees will be greeted with a Special Season in Hell (sorry, Rimbaud) featuring none other than EC dominatrix Ursula von der Leyen, known by a vast majority of Germans as Ursula von der Leichen (“Ursula of Cadavers”) in a tag team with WEF mastermind, Third Reich emulator Klaus “Nosferatu” Schwab.

Rumors are that Lucifer, in his privileged underground abode, is green with envy.

There’s also “Ukraine: What Next?” with another bunch of nullities, and “War in Europe: Year 2” featuring Moldova woke chick Maia Sandu and Finnish party girl Sanna Marin.

In the War Criminal section, pride of place goes to “A Conversation with Henry Kissinger: Historical Perspectives on War”, where Dr. K. will sell all his trademark Divide and Rule permutations. Added sulphur will be provided by Thucydides strangler Graham Allison.

In his Special Address, “Liver Sausage” Chancellor Olaf Scholz will be side by side with Nosferatu, hoping he won’t be – literally – grilled.

Then, on Wednesday, January 18, comes the apotheosis: “Restoring Security and Peace” with speakers Fareed Zakaria – the US establishment’s pet brown man; NATO’s Jens “War is Peace” Stoltenberg; Andrzej Duda – again; and Canadian warmonger Chrystia Freeland – widely rumored to become the next NATO Secretary-General.

And it gets juicier: the coke comedian posing as warlord may join via zoom from Kiev.

The notion that this panel is entitled to emit judgments about “peace” deserves nothing less than its own Nobel Peace Prize.

How to monetize the whole world
Cynics of all persuasions may be excused for lamenting Mr. Zircon – currently on oceanic patrol encompassing the Atlantic, the Indian Ocean and of course “Mare Nostrum” Mediterranean – won’t be presenting his business card at Davos.

Analyst Peter Koenig has developed a convincing thesis that the WEF, the WHO and NATO may be running some sort of sophisticated death cult. The Great Reset does mingle merrily with NATO’s agenda as agent provocateur, financer and weaponizer of the proxy Empire vs. Russia war in black hole Ukraine. NAKO – an acronym for North Atlantic Killing Organization – would be more appropriate in this case.

As Koenig summarizes it, “NATO enters any territory where the ‘conventional’ media lie-machine, and social engineering are failing or not completing their people-ordaining goals fast enough.”

In parallel, very few people are aware that on June 13, 2019 in New York, a secret deal was clinched between the UN, the WEF, an array of oligarch-weaponized NGOs – with the WHO in the front line – and last but not least, the world’s top corporations, which are all owned by an interlinked maze with Vanguard and BlackRock at the center.

The practical result of the deal is the UN Agenda 2030.

Virtually every government in the NATOstan area and the “Western Hemisphere” (US establishment definition) has been hijacked by Agenda 2030 – which translates, essentially, as hoarding, privatizing and financializing all the earth’s assets, under the pretext of “protecting” them.

Translation: the marketization and monetization of the entire natural world (see, for instance, here, here and here.)

Davos superstar shills such as insufferable bore Niall Ferguson are just well rewarded vassals: western intellectuals of the Harvard, Yale and Princeton mould that would never dare bite the hand that feeds them.

Ferguson just wrote a column on Bloomberg titled “All is Not Quiet on the Eastern Front” – basically to peddle the risk of WWIII, on behalf of his masters, blaming of course “China as the arsenal of autocracy”.

Among serial high-handed inanities, this one stands out. Ferguson writes, “There are two obvious problems with US strategy (…) The first is that if algorithmic weapons systems are the equivalent of tactical nuclear weapons, Putin may eventually be driven to using the latter, as he clearly lacks the former.”

Cluelessness here is a euphemism. Ferguson clearly has no idea “algorithmic weapons” mean; if he’s referring to electronic warfare, the US may have been able to maintain superiority for a while in Ukraine, but that’s over.

Well, that’s typical Ferguson – who wrote a whole Rothschild hagiography just like his column, drinking from the Rothschild archives that appeared to have been sanitized as he knows next to nothing meaningful about their history.

Ferguson has “deduced” that Russia is weak and China is strong. Nonsense. Both are strong – and Russia is more advanced technologically than China in their advanced offensive and defensive missile development, and can beat the US in a nuclear war as Russian air space is sealed by layered defenses such as the S-400 all the way to the already tested S-500s and designed S-600s.

As far as semiconductor chips, the advantage that Taiwan has in chip manufacture is in mass production of the most advanced chips; but China and Russia can fabricate the chips necessary for military use, though not engage in mass commercial production. The US has an important advantage here commercially with Taiwan, but that’s not a military advantage.

Ferguson gives away his game when he carps about the need to “deter a nascent Axis-like combination of Russia, Iran and China from risking simultaneous conflict in three theaters: Eastern Europe, the Middle East and the Far East.”

Here we have trademark Atlanticist demonization of the top three vectors of Eurasia integration mixed with a toxic cocktail of ignorance and arrogance: it’s NATO that is stoking “conflict” in Eastern Europe; and it’s the Empire that is being expelled from the “Far East” (oh, that’s so colonial) and soon from the Middle East (actually West Asia).

An AMGOT tale
Nobody with an IQ over room temperature will expect Davos next week to discuss any aspect of the NATO vs. Eurasia existential war seriously – not to mention propose diplomacy. So I’ll leave you with yet another typical tawdry story about how the Empire – who rules over Davos – deals in practice with its vassals.

While in Sicily earlier this year I learned that an ultra high-value Pentagon asset had landed in Rome, in haste, as part of an unscheduled visit. A few days later the reason for the visit was printed in La Repubblica, one of the papers of the toxic Agnelli clan.

That was a Mafia scam: a face-to-face “suggestion” for the Meloni government to imperatively provide Kiev, as soon as possible, with the costly anti-Samp-T missile system, developed by an European consortium, Eurosam, uniting MBDA Italy, MBDA France and Thales.

Italy possesses only 5 batteries of this system, not exactly brilliant against ballistic missiles but efficient against cruise missiles.

National Security Adviser Jake Sullivan had already called Palazzo Chigi to announce the “offer you can’t refuse”. Apparently that was not enough, thus the hasty envoy trip. Rome will have to toe the line. Or else. After all, never forget the terminology employed by US generals to designate Sicily, and Italy as a whole: AMGOT.

American government occupied territory.

Have fun with the Davos freak show.

https://orinocotribune.com/all-quiet-pa ... ern-front/

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Global South: Gold-Backed Currencies to Replace the US Dollar
Posted by INTERNATIONALIST 360° on JANUARY 19, 2023
Pepe Escobar

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The adoption of commodity-backed currencies by the Global South could upend the US dollar’s dominance and level the playing field in international trade.

Let’s start with three interconnected multipolar-driven facts.

First: One of the key take aways from the World Economic Forum annual shindig in Davos, Switzerland is when Saudi Finance Minister Mohammed al-Jadaan, on a panel on “Saudi Arabia’s Transformation,” made it clear that Riyadh “will consider trading in currencies other than the US dollar.”

So is the petroyuan finally at hand? Possibly, but Al-Jadaan wisely opted for careful hedging: “We enjoy a very strategic relationship with China and we enjoy that same strategic relationship with other nations including the US and we want to develop that with Europe and other countries.”

Second: The Central Banks of Iran and Russia are studying the adoption of a “stable coin” for foreign trade settlements, replacing the US dollar, the ruble and the rial. The crypto crowd is already up in arms, mulling the pros and cons of a gold-backed central bank digital currency (CBDC) for trade that will be in fact impervious to the weaponized US dollar.

A gold-backed digital currency

The really attractive issue here is that this gold-backed digital currency would be particularly effective in the Special Economic Zone (SEZ) of Astrakhan, in the Caspian Sea.

Astrakhan is the key Russian port participating in the International North South Transportation Corridor (INTSC), with Russia processing cargo travelling across Iran in merchant ships all the way to West Asia, Africa, the Indian Ocean and South Asia.

The success of the INSTC – progressively tied to a gold-backed CBDC – will largely hinge on whether scores of Asian, West Asian and African nations refuse to apply US-dictated sanctions on both Russia and Iran.

As it stands, exports are mostly energy and agricultural products; Iranian companies are the third largest importer of Russian grain. Next will be turbines, polymers, medical equipment, and car parts. Only the Russia-Iran section of the INSTC represents a $25 billion business.

And then there’s the crucial energy angle of INSTC – whose main players are the Russia-Iran-India triad.

India’s purchases of Russian crude have increased year-by-year by a whopping factor of 33. India is the world’s third largest importer of oil; in December, it received 1.2 million barrels from Russia, which for several months now is positioned ahead of Iraq and Saudi Arabia as Delhi’s top supplier.

‘A fairer payment system’

Third: South Africa holds this year’s rotating BRICS presidency. And this year will mark the start of BRICS+ expansion, with candidates ranging from Algeria, Iran and Argentina to Turkey, Saudi Arabia and the UAE.

South African Foreign Minister Naledi Pandor has just confirmed that the BRICS do want to find a way to bypass the US dollar and thus create “a fairer payment system not skewed toward wealthier countries.”

For years now, Yaroslav Lissovolik, head of the analytical department of Russian Sberbank’s corporate and investment business has been a proponent of closer BRICS integration and the adoption of a BRICS reserve currency.

Lissovolik reminds us that the first proposal “to create a new reserve currency based on a basket of currencies of BRICS countries was formulated by the Valdai Club back in 2018.”

Are you ready for the R5?

The original idea revolved around a currency basket similar to the Special Drawing Rights (SDR) model, composed of the national currencies of BRICS members – and then, further on down the road, other currencies of the expanded BRICS+ circle.

Lissovolik explains that choosing BRICS national currencies made sense because “these were among the most liquid currencies across emerging markets. The name for the new reserve currency — R5 or R5+ — was based on the first letters of the BRICS currencies all of which begin with the letter R (real, ruble, rupee, renminbi, rand).”

So BRICS already have a platform for their in-depth deliberations in 2023. As Lissovolik notes, “in the longer run, the R5 BRICS currency could start to perform the role of settlements/payments as well as the store of value/reserves for the central banks of emerging market economies.”

It is virtually certain that the Chinese yuan will be prominent right from the start, taking advantage of its “already advanced reserve status.”

Potential candidates that could become part of the R5+ currency basket include the Singapore dollar and the UAE’s dirham.

Quite diplomatically, Lissovolik maintains that, “the R5 project can thus become one of the most important contributions of emerging markets to building a more secure international financial system.”

The R5, or R5+ project does intersect with what is being designed at the Eurasia Economic Union (EAEU), led by the Macro-Economics Minister of the Eurasia Economic Commission, Sergey Glazyev.

A new gold standard

In Golden Ruble 3.0 , his most recent paper, Glazyev makes a direct reference to two by now notorious reports by Credit Suisse strategist Zoltan Pozsar, formerly of the IMF, US Department of Treasury, and New York Federal Reserve: War and Commodity Encumbrance (December 27) and War and Currency Statecraft (December 29).

Pozsar is a staunch supporter of a Bretton Woods III – an idea that has been getting enormous traction among the Fed-skeptical crowd.

What’s quite intriguing is that the American Pozsar now directly quotes Russia’s Glazyev, and vice-versa, implying a fascinating convergence of their ideas.

Let’s start with Glazyev’s emphasis on the importance of gold. He notes the current accumulation of multibillion-dollar cash balances on the accounts of Russian exporters in “soft” currencies in the banks of Russia’s main foreign economic partners: EAEU nations, China, India, Iran, Turkey, and the UAE.

He then proceeds to explain how gold can be a unique tool to fight western sanctions if prices of oil and gas, food and fertilizers, metals and solid minerals are recalculated:

“Fixing the price of oil in gold at the level of 2 barrels per 1g will give a second increase in the price of gold in dollars, calculated Credit Suisse strategist Zoltan Pozsar. This would be an adequate response to the ‘price ceilings’ introduced by the west – a kind of ‘floor,’ a solid foundation. And India and China can take the place of global commodity traders instead of Glencore or Trafigura.”

So here we see Glazyev and Pozsar converging. Quite a few major players in New York will be amazed.

Glazyev then lays down the road toward Gold Ruble 3.0. The first gold standard was lobbied by the Rothschilds in the 19th century, which “gave them the opportunity to subordinate continental Europe to the British financial system through gold loans.” Golden Ruble 1.0, writes Glazyev, “provided the process of capitalist accumulation.”

Golden Ruble 2.0, after Bretton Woods, “ensured a rapid economic recovery after the war.” But then the “reformer Khrushchev canceled the peg of the ruble to gold, carrying out monetary reform in 1961 with the actual devaluation of the ruble by 2.5 times, forming conditions for the subsequent transformation of the country [Russia] into a “raw material appendage of the Western financial system.”

What Glazyev proposes now is for Russia to boost gold mining to as much as 3 percent of GDP: the basis for fast growth of the entire commodity sector (30 percent of Russian GDP). With the country becoming a world leader in gold production, it gets “a strong ruble, a strong budget and a strong economy.”

All Global South eggs in one basket

Meanwhile, at the heart of the EAEU discussions, Glazyev seems to be designing a new currency not only based on gold, but partly based on the oil and natural gas reserves of participating countries.

Pozsar seems to consider this potentially inflationary: it could be if it results in some excesses, considering the new currency would be linked to such a large base.

Off the record, New York banking sources admit the US dollar would be “wiped out, since it is a valueless fiat currency, should Sergey Glazyev link the new currency to gold. The reason is that the Bretton Woods system no longer has a gold base and has no intrinsic value, like the FTX crypto currency. Sergey’s plan also linking the currency to oil and natural gas seems to be a winner.”

So in fact Glazyev may be creating the whole currency structure for what Pozsar called, half in jest, the “G7 of the East”: the current 5 BRICS plus the next 2 which will be the first new members of BRICS+.

Both Glazyev and Pozsar know better than anyone that when Bretton Woods was created the US possessed most of Central Bank gold and controlled half the world’s GDP. This was the basis for the US to take over the whole global financial system.

Now vast swathes of the non-western world are paying close attention to Glazyev and the drive towards a new non-US dollar currency, complete with a new gold standard which would in time totally replace the US dollar.

Pozsar completely understood how Glazyev is pursuing a formula featuring a basket of currencies (as Lissovolik suggested). As much as he understood the groundbreaking drive towards the petroyuan. He describes the industrial ramifications thus:

“Since as we have just said Russia, Iran, and Venezuela account for about 40 percent of the world’s proven oil reserves, and each of them are currently selling oil to China for renminbi at a steep discount, we find BASF’s decision to permanently downsize its operations at its main plant in Ludwigshafen and instead shift its chemical operations to China was motivated by the fact that China is securing energy at discounts, not markups like Europe.”

The race to replace the dollar

One key takeaway is that energy-intensive major industries are going to be moving to China. Beijing has become a big exporter of Russian liquified natural gas (LNG) to Europe, while India has become a big exporter of Russian oil and refined products such as diesel – also to Europe. Both China and India – BRICS members – buy below market price from fellow BRICS member Russia and resell to Europe with a hefty profit. Sanctions? What sanctions?

Meanwhile, the race to constitute the new currency basket for a new monetary unit is on. This long-distance dialogue between Glazyev and Pozsar will become even more fascinating, as Glazyev will be trying to find a solution to what Pozsar has stated: tapping of natural resources for the creation of the new currency could be inflationary if money supply is increased too quickly.

All that is happening as Ukraine – a huge chasm at a critical junction of the New Silk Road blocking off Europe from Russia/China – slowly but surely disappears into a black void. The Empire may have gobbled up Europe for now, but what really matters geoeconomically, is how the absolute majority of the Global South is deciding to commit to the Russia/China-led block.

Economic dominance of BRICS+ may be no more than 7 years away – whatever toxicities may be concocted by that large, dysfunctional nuclear rogue state on the other side of the Atlantic. But first, let’s get that new currency going.

https://libya360.wordpress.com/2023/01/ ... us-dollar/
"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Mon Jan 23, 2023 3:12 pm

Acceleration of de-dollarization
January 23, 6:12 am

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Analyst at the Swiss bank Credit Suisse on accelerating the processes of de-dollarization of the world economy.

Acceleration of de-dollarizatiimg]

The emerging multipolar world is destroying the existing international monetary system, writes Credit Suisse analyst Zoltan Pozhar in an article for the FT. The emergence of central bank digital currencies is fueling an already accelerating de-dollarization.

Since the end of the Cold War, a unipolar system has reigned in the world: the United States has been the undisputed hegemon, globalization has become the basis of the economic order, and the dollar has become the currency of choice. But today, geopolitical realities are again turning into a whole series of formidable challenges for the existing world order. And this means that investors need to take into account new risks.

China is actively writing a new set of rules in an attempt to replicate the "Great Game": it is laying the foundations for a new type of globalization through institutions such as the Belt and Road Initiative, the BRICS+ emerging economies group, and the Shanghai Cooperation Organization, which is an alliance eight countries, designed to ensure collective security.

While still in the conditions of covid lockdowns, Beijing has managed to establish special relations with Moscow and Tehran. Strong ties with Russia – aided unwittingly by global warming – are helping China expand its Belt and Road initiative with new shipping routes through the Arctic. And at the end of last year, we witnessed the first-ever summit between China and the Cooperation Council for the Arab States of the Gulf, that is, the deepening of Beijing's ties with OPEC+. All this may ultimately lead to the formation of the "one world, two systems" model.

If we are moving from a unipolar to a multipolar world andif the G20 splits into several camps - the G7 plus Australia, the BRICS+ countries and countries that have not joined any blocs - these splits will inevitably have a powerful impact on the international monetary system. And these risks are exacerbated by the growing macroeconomic imbalance in the United States.

The dollar-based monetary order is already facing a number of challenges, but among them are the expansion of de-dollarization efforts and central bank digital currencies.
De-dollarization has long ceased to be something new. This process began with the launch of quantitative easing after the financial crisis, ascountries with current account surpluses did not like the idea of ​​negative real returns on their savings. But the pace of de-dollarization seems to have picked up of late.

Throughout the past year, China and India paid for Russian goods in yuan, rupees and UAE dirhams. India has launched a rupee settlement mechanism for its international transactions, and China has asked the Gulf Cooperation Council states to make full use of the Shanghai Oil and Natural Gas Exchange to settle yuan energy transactions over the next three to five years. Given the expansion of the BRICS group beyond Brazil, Russia, India and China, the de-dollarization of trade flows may accelerate.

Central bank digital currencies could spur this transition. China is changing its yuan internationalization strategy. Given that financial sanctions are administered through the balance sheets of Western banks and that these institutions form the backbone of the correspondent banking system that underpins the dollar, using the same system to internationalize the yuan could carry many risks. And to get around this obstacle, a new system is needed.

Currently, central bank digital currencies are spreading around the world and primarily in the global East and South, like a fast-growing kudzu liana plant: according to the IMF, more than half of the world's central banks are either exploring the possibility or already developing digital currencies. Over time, these currencies will become more and more interconnected. Central banks linked to each other through digital currencies will essentially recreate the network of correspondent banks on which the dollar system is based - just imagine correspondent central banks instead of correspondent banks.An emerging network based on digital currencies – bolstered by bilateral currency swap agreements – could allow central banks of the global East and South to act as currency dealers, i.e. intermediaries to ensure the flow of foreign exchange between regional banking systems – all without being tied to the dollar and the Western banking system.

The changes have already begun. The current account surpluses of China, Russia and Saudi Arabia reached record levels. But now these surpluses are not being translated into traditional reserve assets such as Treasuries, which at the current rate of inflation offer only negative real returns. Instead, we are seeing an increase in demand for gold (mainly from China), commodities (note Saudi plans to invest in mining), and geopolitical investments such as funding the Belt and Road Initiative and providing helping allies and neighbors in trouble, such as Turkey, Egypt or Pakistan. The remaining surpluses are increasingly held in bank deposits in liquid form,

In the world of finance, everything depends on margin flows. They matter most to the largest margin borrower, the US Department of the Treasury. If fewer and fewer trades are made in dollars, and if fewer and fewer dollar surpluses are transferred to traditional reserve assets such as Treasury bonds, then the dollar's "exorbitant advantage" as an international reserve currency could be threatened.

Zoltan Pozhar

https://inosmi.ru/20230123/dollar-259896278.html - zinc 2022/11/08/949231-istoriya-padeniya-credit-suisse

and in the autumn it was under the threat of bankruptcy, being a victim of the very processes that the analyst of this bank writes about.

https://colonelcassad.livejournal.com/8119805.html

Google Translator

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“Golden ruble 3.0” – How Russia can change the infrastructure of foreign trade
Originally published: Russia Posts English on December 26, 2022 by Sergey Glazyev and Dmitry Mityaev (more by Russia Posts English) (Posted Jan 21, 2023)

The authors are Academician of the Russian Academy of Sciences Sergey Glazyev and Executive Secretary of the Scientific and Technical Council under the Chairman of the EEC Board Dmitry Mityaev

The tough sanctions blockade created the necessary prerequisites for a 180-degree turn in Russian foreign trade. The main foreign economic partners are the EAEU member countries, China, India, Iran, Turkey, the United Arab Emirates, etc. And with each of these countries, the Russian Federation has a trade surplus. According to preliminary estimates of the Bank of Russia, in January-September 2022, it strengthened to $198.4 billion, which is $123.1 billion more than in the same period last year. This surplus was taken out of the country (at the same time, half went to pay off the external debts of Russian companies with their replacement by domestic ruble lending) and is reflected in the balance of payments item “net capital outflow”.

In friendly countries, the process of de-dollarization is underway, the share of settlements in “soft” currencies is growing. In September, Russia became the third country in the world in terms of the use of the yuan in international payments. According to the Central Bank, in recent months, yuan trading accounts for up to 26% of foreign exchange transactions in the Russian Federation. The yuan/ruble pair on the Moscow Exchange has more than once overtaken the dollar and the euro in terms of daily trading volume. When using yuan, rupee, rial, etc. in foreign trade settlements of the Russian Federation and the presence of a trade surplus, the result is the accumulation of multibillion-dollar cash balances on the accounts of Russian exporters in “soft” currencies in the banks of the above partner countries.

The accumulation of funds in “soft” currencies will increase in the future. But since this money is also subject to exchange rate and possible sanctions risks, it becomes necessary to sterilize their excess mass. The best way is to buy non-sanctioned gold in China, UAE, Turkey, possibly Iran and other countries for local currencies. The “foreign” gold purchased by the Russian Central Bank can be stored in gold and foreign exchange reserves (GFR), within certain limits being in the central banks of friendly countries, can be used for cross-country settlements, currency swaps and clearing operations. Part of the gold may be repatriated to Russia.

Russia’s transition in relations with friendly countries to trade in national currencies is the right tactical decision, but not a strategic one. If pricing continues in dollars on Western exchanges, trade flows are insured by British companies, then there is no real decoupling from the Western “distorting mirror”—derivative pricing systems.

In the face of unprecedented sanctions pressure, Russia’s task is not to learn to play by the “crooked rules” of the West, but to build transparent and mutually beneficial rules of the game with friendly countries, to create their own pricing systems, exchange trading, and investment. And gold can be a unique tool in the fight against Western sanctions, if you count in it the prices of all major international commodities (oil and gas, food and fertilizer, metals and solid minerals). Fixing the price of oil in gold at the level of 2 barrels. for 1 g will increase the price of gold in dollars by 2 times, calculated the strategist of Credit Suisse Zoltan Pozhar. This would be an adequate response to the “price ceilings” introduced by the West—a kind of “floor”, a solid foundation. And India and China could take the place of global commodity traders instead of Glencore or Trafigura.

Gold (along with silver) has been the core of the global financial system for millennia, an equivalent, an honest measure of the value of paper money and assets. Now the gold standard is considered “anachronistic”. It was canceled in its final form half a century ago (the United States announced the “temporary” closure of the “golden window” adopted in 1944 at Bretton Woods), re-pegging the dollar to oil. But the era of the petrodollar is coming to an end: now they are already talking about the petroyuan and other mechanisms to limit the abuse of the status of the world reserve currency issuer. Russia, together with its eastern and southern partners, has a unique chance to “jump off” the sinking ship of the dollar-centric debt economy, ensuring its own development and mutual trade in the accumulated and extracted strategic resources.

This is not the first possible attempt by Russia to introduce a hard ruble based on a gold peg. Gold standard in the 19th century Rothschild lobbied in Europe—this gave him (and Britain) the opportunity, through gold loans, to subordinate continental Europe to the British financial system. Russia joined the “club” under Count Witte. “Golden ruble 1.0” ensured the process of capitalist accumulation, while tying domestic bankers and industrialists to sources of Western capital. There was no large-scale gold mining in Russia at that time—the industry appeared already under Stalin.

Gold played an important role both in industrialization and in the post-war refusal of the USSR to join the dollar standard (at that time the country accumulated record gold reserves). Having signed the Bretton Woods agreements, the USSR did not ratify them, defining the peg of the ruble not to the dollar (which was a condition for participation in the Marshall plan), but to gold and to “the entire wealth of the country.” “Golden Ruble 2.0” ensured the rapid recovery of the economy after the war, made it possible to implement nuclear and missile projects. The reformer Khrushchev abolished the ruble’s peg to gold, having carried out a monetary reform in 1961 with the actual devaluation of the ruble by 2.5 times and its peg to the dollar, creating the conditions for the subsequent transformation of the country into a “raw material appendage” of the Western financial system.

Now the conditions for the “Golden Ruble 3.0” have objectively developed.

The sanctions imposed against Russia have boomeranged the Western economy. The geopolitical instability provoked by them, rising prices for energy carriers and other resources, inflation and other negative factors put strong pressure on the global economy, in particular the global financial market. In 2023, all these circumstances will objectively affect the change in the stereotypes of investment policy in the world—from risky investments in complex financial instruments to investing in traditional assets, primarily gold. According to Saxo Bank analysts, in 2023, increased demand for this metal will lead to the fact that its price will rise from the current $1,800 per ounce to $3,000. As a result, there is a real opportunity in the very near future to significantly increase gold reserves—both by increasing the physical volumes of gold and by revaluing its value.

Large gold reserves allow the country to pursue a sovereign financial policy and minimize dependence on external creditors. The amount of reserves affects the country’s reputation, its credit rating and investment attractiveness. Large reserves make it possible to plan the state budget for a long time, stopping many economic and political risks. In 1998, the lack of sufficient international reserves became one of the causes of the crisis, which ended in default for Russia. Now our country already has large gold and foreign exchange reserves, having the fifth index in the world (after China, Japan, Switzerland and India) and ahead of the United States, but this is not enough.

The volume of annual gold production is estimated at only (at current prices) at $200 billion, the volume of accumulated reserves—at $7 trillion, of which the central banks have no more than a fifth, and in the III quarter they bought a record 400 tons of gold. The People’s Bank of China announced for the first time in many years that it was building up its gold reserves. But the Bank of Russia publicly told the market that buying gold is a bad idea, as it leads to excessive monetization of the economy, and set a discount to the world price of 15%. As a result, gold miners are experiencing double stress: the West has outlawed Russian gold, banning any transactions with it, and the Central Bank of the Russian Federation is pushing gold (as well as currency) abroad, giving companies the right to export everything through intermediaries with remelting or rebranding of the metal in “good jurisdictions” .

In China, which ranks first in the production of gold, there is a legal ban on the export of all mined gold. According to the Shanghai Gold Exchange, over the past 15 years, customers have seized (received in physical form) 23,000 tons of this metal. India is considered the world champion in gold accumulation—more than 50,000 tons (the Reserve Bank of India has almost 2 orders of magnitude less). For the last quarter of a century, there has been a flow of gold from West to East through the main hubs (London, Switzerland, Turkey, UAE, etc.) with a capacity of 2000—3000 tons per year. Has the “despicable metal” remained in the vaults of Western Central Banks, or is it all “demonetized” through swaps and leasing? The West will never say that, and there will be no audit of Fort Knox.

Over the past 20 years, the volume of gold mining in Russia has almost doubled, while in the United States it has almost halved. It’s like with the uranium deal (HEU-LEU): by demonetizing real wealth, the United States has lost competence and interest in the production and processing of these strategic resources (both gold, and uranium, etc.)—the printing press will ensure the purchase of everything we want. The same thing happened, for example, with the extraction of rare earth metals—it almost entirely went to China. It’s time to reap the rewards: the States are frantically buying in Russia (as their customs statistics for recent quarters show) palladium, uranium, and other resources.

Gold mining, which today barely occupies 1% of GDP, may well grow (due to the growth of both production and relative oil prices) to 2-3% of GDP and become the basis for the rapid growth of the entire commodity sector (30% of GDP) and the balancing of foreign trade , which is still based on the tyranny of the issuers of “hard” currencies and the risks of devaluation and insufficient convertibility of “soft” currencies. In this case, Russia, due to a well-organized global “gold rush” (and the population of Russia, following the world central banks, has already increased investment in gold by 4 times compared to last year) will be able to increase gold production (only due to three large, already commissioned deposits ) from 330 tons by 1.5 times to 500 tons, becoming the world leader in this strategic industry as well. As a “bonus” we will get: a strong ruble, a strong budget and—in the implementation of the accelerated development strategy—a strong economy.

https://mronline.org/2023/01/21/golden- ... ign-trade/
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Re: The crisis of bourgeois economics

Post by blindpig » Tue Feb 07, 2023 3:39 pm

DE-DOLLARIZATION ARCHITECTURE
FIVE PROJECTS THAT THREATEN THE HEGEMONY OF THE DOLLAR
Feb 6, 2023 , 5:12 p.m.

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A currency of the BRICS countries could become the most likely rival of the dollar in the coming years (Photo: Shutterstock)

The dominance of the US dollar in world trade began with the creation of the Bretton Woods system after World War II, which established fixed exchange rates against the dollar and an invariable price of the dollar in gold. Even the abandonment of fixed exchange rates in the 1970s did not pose a threat to the dollar's leadership. However, today, due to the growing rivalry between the United States and Western Europe on the one hand, and China, Russia and Iran on the other, as well as the emergence of digital currencies, the prospect of accelerated de-dollarization is bleak. getting bigger.

Next, we will review five projects that are being developed simultaneously in Asia, the Middle East and Latin America, and that are threatening the hegemony of the dollar.

THE SOUTH COIN
In January 2023, the leaders of Argentina and Brazil announced the creation of a regional currency for mutual payments called "Sur". On the eve of the VII Summit of the Community of Latin American and Caribbean States (CELAC), the two heads of state, Alberto Fernández and Lula da Silva, appeared presenting the initiative. The leaders invited other countries in the region to join the project; Lula da Silva, for his part, affirmed that the initiative should be expanded to include the BRICS and Mercosur.

Conversations about a possible monetary unit have been circulating in South America for a few years. In 2007 , President Hugo Chávez proposed the creation of a common Latin American currency, "SUCRE", in order to counteract the hegemony of the dollar in the world financial market and, above all, in the Latin-Caribbean region. At the time, the idea was abandoned. Since then, some things have changed. For example, the US-NATO proxy war in Ukraine against Russia, and the unprecedented illegal sanctions.

All of this has led national and business leaders to question how neutral the dollar is and whether it can be politically credible. With this began the search for alternatives, currencies that could be used in international trade without the risk of unilateral coercive measures.

In the case of Latin America, a monetary union would represent around 5% of world GDP, according to estimates by the Financial Times . The world's largest monetary union, the euro in the eurozone, accounts for around 14% of world GDP in dollars.

It is not just about great GDP, but about control of key resources. Only Brazil and Argentina are among the most important food exporters in the world: their territories are vast and in surplus in terms of agricultural land in relation to their population. Argentina is one of the world's largest sources of lithium, which is becoming the "new oil" of green energy; Brazil is rich in oil and many other resources, from metals to fresh water.

The currency would mean a great advantage for the regional bloc, if certain elements can be included to make it viable .


RUSSIA, IRAN AND THE CREATION OF A STABLECOIN
The Central Bank of Iran is studying the possibility of creating, together with Russia, a gold-backed stablecoin that could be accepted as a means of payment in foreign trade settlements instead of the dollar, ruble and Iranian rial. Alexander Brazhnikov, executive director of the Russian Association of Crypto Industry and Blockchain, was the one who reported the news to Russian media.

Stablecoin is the term for cryptocurrencies whose value is linked to the so-called fiat ("classic" money issued by the central banks of the States) or to precious metals. Stablecoins are not typically used as an investment strategy to earn money from the growth of an asset, but rather for digital settlement.

Russian-Iranian relations have been evolving positively for both countries: from 2023, a special economic zone in Astrakhan (Russian region that serves as a window to the Middle East) will begin to accept shipments from Iran. It is assumed that the stablecoin could also start working on this basis, says an article in the Russian media Vedomosti , cited by Forbes . Also in Iran's long-term plans is a return to a global gold standard, a monetary system in which the value of currencies is expressed in a certain guaranteed amount of gold.

Although the Central Bank of Russia opposes the use of cryptocurrencies as a means of payment within the Eurasian country, it does support their use in import and export transactions. The regulator plans to test the use of cryptocurrencies for international settlements as part of an experimental legal regime, the First Vice President of the Central Bank, Olga Skorobogatova , declared last December.

There is a possibility that stablecoin use could enter into future illegal sanctions packages, but it is more difficult to prohibit such settlements if they do not enter the eurozone or dollar circuit, or if the intermediaries in the European Union or the United States are not involved in the transactions. The stablecoin is a tool that, among other things, could solve certain problems associated with the restrictions on transfers of the SWIFT payment system.

UAE AND INDIA DISCUSS NON-OIL TRADE IN NATIONAL CURRENCIES
The United Arab Emirates (UAE) and India are discussing ways to boost non-oil trade in rupees and dirhams. This was reported by the Minister of Foreign Trade of the United Arab Emirates, Thani Al Seyudi.

"We are still in an early phase of talks with India about trade in dirhams and rupees... We only talk about non-oil trade."

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TITLETEXT: The UAE-India trade deal seeks to increase non-oil trade to the equivalent of $10 billion in rupees over the next five years.
CREDITS:
Global Look Press

Considering that one of the players involved is OPEC's third largest producer, the data has an important impact in terms of countries' progressive actions to move away from the dollar. The UAE has long supported pegging the currency to the dollar, and most trade in the Gulf is conducted in US currency.

The total bilateral trade between the UAE and India was over $88 billion in 2022 . The goal of both countries with the trade deal is to increase non-oil trade to the equivalent of $10 billion rupees in the next five years.

The United Arab Emirates wants to increase its trade with key partners and has already signed several economic pacts with countries such as India, Indonesia, Türkiye, Israel and the United Kingdom.

THE PETROYUAN ABOUT TO BE BORN
China has recently taken a series of steps that speak to its determination to break with the world order that ensures US hegemony. President Xi Jinping has rallied the BRICS by inviting their protégés from Asia and Latin America and has visited the monarchs of the Persian Gulf.

The Chinese leader was in Saudi Arabia from December 7 to 9, where he met with six Persian Gulf oil and gas monarchies: Saudi Arabia, Bahrain, the United Arab Emirates, Kuwait, Oman and Qatar. The meeting was aimed at starting the transition of oil trade to the yuan.

"Towards the end of last year, Beijing began buying crude from Moscow at deep discounts, completing those purchases in yuan instead of dollars, giving rise to the so-called petroyuan," says a Business Insider article .

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TITLETEXT:
China is ready to create a petroyuan CREDITS: TASS

The yuan will be used to boost oil trade. Xi Jinping has claimed that China will increase oil imports from Iran in the next three to five years. But it will also work on comprehensive energy cooperation with other countries in the region. It could include investments in petrochemicals, plastics and joint exploration in the South China Sea. Beijing plans to pay all this in yuan on the Shanghai Oil and Natural Gas Exchange (SOSGEX) as early as 2025.

BRICS TOWARDS THE CREATION OF A COMMON CURRENCY
The aggressive US policy against Russia in the form of blocking foreign exchange reserves has forced other countries not only to talk about de-dollarization and draw up various "road maps", but to act realistically. Currently, the BRICS economic bloc is studying the creation of a BRICS-based currency basket.

President Vladimir Putin made the announcement at the end of June 2022, and at the end of January 2023, Russian Foreign Minister Sergei Lavrov reported that the idea will be discussed at the summit to be held in South Africa in August.

Created in 2006 as an association of four countries, in 2010 the BRICS accepted South Africa as a member, and in recent months, six countries have applied or expressed their intention to join: Iran, Argentina, Egypt, Türkiye, Saudi Arabia and Algeria. The BRICS now make up almost half of the world's population , a quarter of the world's GDP and half of the G7's GDP if counted on face value. The rejection of the dollar by at least some of these countries could hit the United States the most, which buys goods around the world exclusively with its currency.

The main attraction of the proposal made from the BRICS is the lack of dependence on the United States and the EU. The use of the economy as a tool for political pressure has undermined the reputation of these two players as reliable partners in international trade.

A BRICS currency may become the dollar's most likely rival in the coming years, however the process must first overcome the fact that these countries are not yet an integrated association with close economic ties.

The introduction of a collective currency of the BRICS depends to a great extent on the political will and the agreement of the member countries to use such a mechanism as part of the application of monetary policy. As a reserve or payment instrument in foreign economic and commercial activity, it is beneficial for the BRICS countries themselves, since it would increase the stability of their financial systems and strengthen their sovereignties.

https://misionverdad.com/globalistan/ci ... -del-dolar

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Re: The crisis of bourgeois economics

Post by blindpig » Sat Mar 11, 2023 4:01 pm

X-RAY OF THE LAST STAGE OF THE SYSTEM: SENILE CAPITALISM
Mar 10, 2023 , 3:03 p.m.

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https://misionverdad.com/globalistan/ra ... ismo-senil

Senile or senility are terms associated with old age, with the stage of life that precedes death, with recognizable signs that the point of no return has been reached. Gravity is a powerful force that, despite being silent and invisible, pulls inexorably and vertically towards the bottom.

These concepts are used by Fabio Vighi to describe the current state of capitalism, marked by decrepitude and the inevitable fall. Vighi is Professor of Critical Theory and Italian at Cardiff University, UK. His research focuses on continental philosophy, theoretical psychoanalysis and cinema. He is currently conducting research that theorizes on the ideology of "emergency capitalism" and analyzes the global challenges facing the capitalist mode of production.

The theoretician in the work titled " Senile economy: the anthology of the bubble and the pull of gravity " offers a raw x-ray of the terminal phase of capitalism, which symbolically experiences the ailments of the stage: blindness, deafness, rheumatic deformations and even dementia caused by neurological damage.

Debt, bubbles, controlled demolition, emergencies and manipulation are five concomitant factors listed and explained by Vighi that constitute the engines of senile capitalism.

DEBT AS A VENTILATOR
According to the professor, the financial elites exhausted the trick of printing dollars and artificially suppressing interest rates to feed the speculative system based on debt. This demolishes the old myth that money can move autonomously, "as through a perpetual motion machine."

The first symptom of this disease seen as "collateral damage" is inflation, which affects the weakest link in this kind of wheel that grinds everything in its path: the impoverished population that prioritizes its expenses to survive in the midst of the maelstrom.

"It should be clear enough by now that any money creation program - desperately needed to prop up the financial sector - will cause further erosion of purchasing power, so creative new methods of controlling the impoverished masses will be needed. The alternative to this scenario is for the Central Banks to continue raising rates until the market bubbles burst, which would lead us directly to the hard landing scenario," he says.

How does the illusion of financial perpetual motion work? It literally looks like a wheel where the expansion of credit attracts money towards risky assets (activities that imply uncertainty and that, therefore, can cause some negative financial consequence) "whose valuation grows as demand increases; the rise in these assets guarantees more borrowing and a feedback loop is set in motion whereby credit feeds asset valuation which in turn is the collateral that feeds credit.

This cycle is inflating a bubble that risks bursting if interest rates rise and the guarantees lose value. For Vighi it is paradoxical that the speculative money that inflates the bubbles has no real value, but its bursting is catastrophic for the world.

Also, remember that everything is permeated by the systemic crisis and we do not own anything that is not debt. Those managing the disaster understand that they must act quickly if they want to retain power and privilege. To do?

CONTROLLED CHAOS
To continue injecting artificial liquidity into the markets, they must stop the free fall of the real economy and this is only possible through authoritarian measures legitimized by emergencies. Facts of great global impact constitute the necessary justification to apply any measure because "there are no more alternatives". Vighi points out that this reality began with the "pseudo-pandemic" of covid-19.

He also says that the current rise in fuel prices is part of a broader attempt to decompress the world economy. The same happens with the "fight against climate change", they demand a lower standard of living for the middle and working classes and with this they would be providing "solutions" to global warming.

Ukraine can be considered today's tragic symbol of that controlled economic downturn. In this case, the war would be serving to create opportunities for financial expansion. "Here is one reason why the West is sending hundreds of billions of dollars to Ukraine, instead of peace negotiators," he argues.

It is demonstrated that in times of crisis the population will always be asked to make "necessary" sacrifices for the good of all, even to the detriment of their well-being. For example, he says that covid-19 served to beat the impoverished masses into obedience through fear.

On the role of the left in the darkest stage of "crisis capitalism", he criticized its myopia when analyzing reality and denouncing what is really behind screens such as the covid-19 pandemic or the war in Ukraine. "How far to the right has the radical left gone if it fails to acknowledge the criminal sleight of emergency capitalism? By endorsing global discrimination and destruction under false ethical pretenses, most of today's left is doing the job of the radical left." right more effectively than the right itself", he wonders and reflects.

It has been seen in cases in which the left, by not understanding everything that is outside its universe, ends up establishing value judgments that border on that of its historical enemy.

While some have caught on to the macabre plan, the hoax remains massive. He does not do so in a claiming tone, but stresses that it is still crucial to remember that the virus was the invisible shield used to prevent a banking and financial crisis more catastrophic than that of 2008.


SCAPEGOATS AND BUBBLES
Fabio Vighi frames the use of the coronavirus as the beginning of a "total emergency" and apocalyptic strategy for the coordinated management of mass impoverishment, not only on the peripheries of the capitalist world, but also in its center. The fear of death, confinement and the feeling that one is at the end of the world made the ruin of the world look with resignation and submission. From now on it would be easier to endorse everything to the pandemic, the war in Ukraine or climate change, scapegoats of this time, and not to the rotten economic model.

There are too many signs that an economic crisis worse than 2008 is on the way. But the bankers' solution will be more sustained monetary injections without due questioning because they have a protective shield from the next emergency.

Growth will remain artificial and inflation will hit the poor hardest. The bubble has continued to grow and is increasingly susceptible to a puncture. Patches have been applied to contain inflation in the past, but the fictitious capital pool has grown so large that containment mechanisms no longer work.

Since the turn of the millennium, the world has lived from bubble to bubble and its frenetic logic of liquidity creation and bond rate suppression courtesy of Central Banks. They have become so prevalent that they are now the systemic engines that move the world and keep real capitalist production going. In the past, bubbles have burst and given way to new cycles of real accumulation. Now the burst creates another bubble and real production is already part of the speculative process.

Vighi recreates the cycle as follows: the air that inflates the bubble is borrowed liquidity. The system's lung capacity is its bond market, the place where debt securities are traded. If you need to raise capital to invest in assets, bonds are issued, which oblige the issuer to repay their cost on a maturity date and at a negotiable interest rate. The system now depends existentially on lots of bonds, through which investors secure the credit they need to speculate in the financial markets.

The fuse for the next explosion of the bomb is the debt market, and it has already been lit, according to the author. "The current severe turbulence in bond markets around the world suggests that Central Banks are running out of glue to plug the cracks in the credit-doped system," he says, while arguing that the elites are preparing for a war total social.

CAPITALISM YESTERDAY AND TODAY
What comes next? The only option left for a debt-soaked bubble regime appears to be devaluation, so the burden of the astronomical expansion of speculative liquidity is the common citizen.

The current circumstances surpass the narrative with which capitalism was founded centuries ago: labor power as a commodity exchanged in the market. The gap between the massively extended credit chain and the total mass of value derived from labor is widening.

For Vighi it is absurd to continue believing that the mass of fictitious and speculative capital remains trapped in the financial sector. Rather, it has colonized the real world, eroding both the purchasing power and the model of capitalism in which we still believe we live. If the reverse image fits, speculative capitalism would be Saturn devouring his son.

"A bubble system of the current magnitude cannot coexist with real growth, that is, with flourishing mass consumption and production," he points out. It happens that since the gold standard was abandoned, money has lost substance.

Now, how does senile capitalism resist and prolong the implosion? This would not be possible if it did not have a conglomerate of media and information networks that hide the current state of the economy. However, given the obviousness of the disaster, "they have learned to blame it on exogenous events." The projection is that the problem will always be the pandemic, the war and the new excuse to come.

The conditions are not right for society to come out of the lethargy that prevents it from thinking and identifying the nature of the disease that surrounds it, much less from living in a logic other than capitalism. For its part, the innocence of the left does not allow us to understand that the world is not debated between two systems but within the same capitalism, which devours itself as if in concentric circles, devastating the entire world in its self-destructive process.

The author states that the geopolitical tension between the globalized Western model led by the United States and the emerging multipolar world (BRICS+) is, strictly speaking, an effect of the ongoing economic collapse.

Those who drive the economy will continue to try to keep an unburied corpse alive. As? Well, promoting conflicts and divisions of all kinds to hide the systemic collapse. There is no war or conflict that is not crossed by "crisis capitalism". Between the infinite expansion of the debt and the finiteness of the resources is the human being, burdened with debts, impoverished, who endures the pulls from one side and the other until the definitive dissolution of him as the main vector of society.

https://misionverdad.com/globalistan/ra ... ismo-senil

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As I said at the very beginning of the pandemic, just because the Owners could 'weaponize' the pandemic as a weapon in the class war does not mean that it ain't real. Anything can be a weapon under the proper circumstances.
"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Tue Mar 14, 2023 2:57 pm

The latest on the Silicon Valley Bank collapse
By Aditi Sangal, Nicole Goodkind and Lucy Bayly, CNN

Updated 9:18 a.m. ET, March 14, 2023

What's really going on with America's banks
From CNN's David Goldman

The experts say America's banks are healthy. There are no solvency problems, former FDIC Chair Sheila Bair told CNN. There is no systemic banking issue, former Treasury Secretary Larry Summers told Wolf Blitzer. Silicon Valley Bank's collapse won't cause a recession, said Mark Zandi, chief economist of Moody's Analytics.

So ... what is causing problems for America's banks? Fear.

Moody's this morning downgraded six regional banks' credit ratings because customers keep withdrawing money from them and transferring deposits to larger banks. The first bank runs of the smartphone era were created by viral social media posts, text chains and instant access to banking apps that exacerbated both widespread concern and rapid customer withdrawals.

But there's good news: The government's plan to intervene in the banking sector worked. No banks failed Monday. Regional bank stocks, after plummeting over the past several days, are bouncing back sharply.

The banking crisis may be over, at least for now. Tech companies that banked with the failed SVB were rescued, escaping what an industry insider called an "extinction-level event."

Now, it's up to the Federal Reserve to keep the banking sector stable. It has been on a yearlong effort to slow the economy to keep inflation in check. Now it faces a no-win situation: Annual inflation is at 6%, triple what the Fed considers to be healthy. But rate hikes got us into this mess in the first place, collapsing the value of banks' government bond holdings.

The moment to panic is over. But the bank sector and the economy remain on a knife's edge.

https://www.cnn.com/business/live-news/ ... ecaec16216

Un-huh............

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Silicon Valley Bank collapses, the bailout has begun
March 13, 2023 Gary Wilson

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March 11 — Silicon Valley Bank, the 16th largest in the U.S., was shut down on March 10 and put under the control of the California Department of Financial Protection and Innovation.

“The fact that the FDIC took over the bank during the day — rather than Friday evening, which is the normal procedure — shows just how fast-moving and chaotic this situation, including a massive run on the bank, had become,” commented financial journalist Wolf Richter.

SVB had $175BN in deposits as of December 31. About $151.5BN of the deposits are uninsured. The collapse of SVB is the second largest (by assets) bank failure in U.S. history after Washington Mutual, which collapsed in 2008.

As the takeover of SVB was being executed, Treasury Secretary Janet Yellen said at a hearing before the U.S. House Ways & Means Committee that the department is monitoring “a few” banks amid issues at SVB.

“There are recent developments that concern a few banks that I’m monitoring very carefully and when banks experience financial losses, it is and should be a matter of concern,” Yellen said.

“The [SVB] collapse was a byproduct of the Federal Reserve’s hiking of interest rates by 1,700% in less than a year,” reports Business Insider. “Once risk-free Treasurys started generating more attractive returns than what SVB was offering, people began withdrawing their money, and the bank needed a quick way to pay them. They were ultimately forced to sell their loan portfolio at a huge loss.”

Christopher Whaler, Chairman of Whalen Global Advisors in New York, said: “There could be a bloodbath next week as banks are in trouble, the short sellers are out there, and they are going to attack every single bank, especially the smaller ones.

“I think [the fall of crypto bank] Silvergate started it. That one was the first pebble to go off the mountain and now we have a boulder and more are likely to follow.”

The collapse of crypto

Before SVB, two high-profile failures were attributed to the high interest rates.

The first was the collapse of the cryptocurrency market. Since the Fed started raising interest rates in March 2021, Bitcoin has plunged more than 65%. This contributed to the demise of the cryptocurrency exchange FTX, founded by Sam Bankman-Fried.

On March 8, crypto bank Silvergate went into liquidation. There’s also been a double-digit decline in high-growth tech stocks over the same period.

Signature, one of the main crypto banks, was hit hard on March 10, with shares sinking 32% before trading was halted for volatility. CNBC reported that Signature’s losses were almost 50% for the week. First Republic Bank, PacWest Bancorp, and Western Alliance Bancorp were among the other banks whose stock trading was halted for volatility.

[UPDATE: Signature Bank collapsed and was shut down on Sunday, March 12. This is the third-largest bank failure in U.S. history. Federal regulators have taken over.]

A bank run is the capitalist “free market” method of keeping the banking system solvent. During a bank run, many depositors lose confidence in the banking system, and seemingly all the depositors at the same time demand payment in cash.

During a general bank run, the banks scramble for cash. Commercial banks halt new loans to conserve cash, and existing loans are called in. A bank run causes credit to seize up throughout the economy. Businesses also are forced to scramble for cash as the banks and other creditors call in their debts. Forced to raise cash quickly, they dump their unsold commodities at considerable losses causing prices to fall sharply. Production, trade, and, most significantly, employment falls sharply.

The Banking Panic of 1933

The most famous bank run is known as the Banking Panic of 1933. In response, in 1934, the Federal Deposit Insurance Corporation was established, backed by the full credit of the U.S. government. Even if the Federal Deposit Insurance Fund were exhausted, the U.S. government would be charged with coming up with the money to pay off the depositors of failed banks, at least up to the insured limit.

The result, however, is that while the FDIC makes bank runs less likely in the short run, it has made the solvency of the banking system erode over time.

Government-backed bank insurance creates what is called a “moral hazard.” When banks and their depositors fear runs, the managers are under pressure to use caution and avoid risks. But when the government deposit insurance “guarantees” deposits, bank managers figure there is little danger they will ever face a run. Therefore, they will pay less attention to maintaining reserves and take more risks to maximize profits for their shareholders, including the bank managers. That risk is the “moral hazard.”

Today, bank regulators cannot liquidate an insolvent bank as they did in the 1930s. In today’s credit-run world, even petty transactions like purchasing morning coffee are done with debit cards, credit cards, and smartphones.

The FDIC has already announced that “the main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. … Banking activities will [also] resume … including online banking and other services. Silicon Valley Bank’s official checks will continue to clear.”

In the current crisis, the banks hold the government hostage. They demand anything and everything to bail us out, or we will take you down with us. As long as capitalism rules, the bankers are not lying when they say this.

On cue, Rep. Ro Khanna (D-Calif.), whose Silicon Valley district includes both the bank and many of its venture capital and startup clients, called on the White House and Treasury to do “whatever is legally permissible & appropriate to support the Bank which is central to the startup & tech economy,” in a tweet.

[UPDATE: On March 12, the Federal Reserve, Treasury Department and the Federal Deposit Insurance Corporation unveiled a plan to rescue uninsured depositors, Semafor reports.

Only customers with deposits $250,000 and below are insured by the FDIC. But by invoking a “systemic risk exception,” they’ll now be able to cover larger accounts, which make up a much higher percentage of SVB’s deposits than most banks.

The Fed also announced a new “Bank Term Funding Program” with $25 billion from its Exchange Stabilization Fund that would provide temporary loans to financial institutions as needed.

The bailout has begun.]

Interest rates

Unlike stock market price fluctuations that have little effect on the real economy, changes in long-term government bond interest rates have a big impact. This is because mortgage, auto, commercial and industrial loan interest rates are tied to those of long-term government bonds.

The Federal Reserve System and its Open Market Committee appear to be in command of the course of the capitalist economy. If the Fed lowers interest rates, it leads to inflation and a recession. If the Fed raises interest rates, the result is slow growth, bank failures, or outright recession with rising unemployment. A tight monetary policy (higher interest rates) can worsen an inevitable recession. No policy followed by the Federal Reserve can prevent a recession and mass unemployment from developing once capitalist overproduction has gotten to the point where it floods the market with unsold commodities, destroying profitability.

The COVID shutdown in 2020 resulted in capitalist underproduction. The economic boom that rose after the COVID shutdowns ended led to a wave of commodity hoarding, triggering overproduction. The Fed’s easy money policies (low interest rates) drove commodity prices higher in terms of dollars as well as gold.

As a result, overproduction was accelerated as unsold commodities tied up shipping ports. Fearing that the suddenly overheated economy would crash unless promptly reined in, the Fed was forced to reverse course and drive up interest rates to restrain the boom.

The result can be seen in the fall of cryptocurrencies in 2022, the collapse of FTX and the crypto bank Silvergate, and now the collapse of Silicon Valley Banks.

Major corporations, including Amazon, Goldman Sachs, META (parent company of Facebook), and Twitter, among others, have announced major layoffs.

Average hourly earnings growth slowed greatly in February while the unemployment rate increased.

The Fed can’t control the economy like controlling the water level in a bathtub.

Lowering interest rates will not revive business until excess inventories — overproduction — have been liquidated. A period of overproduction must be followed by a period of underproduction. Only the inevitable recession — a period of underproduction and mass unemployment liquidating overproduction — can reverse the capitalist bust.

https://www.struggle-la-lucha.org/2023/ ... ion-looms/

***********

THE US ECONOMY: BETWEEN DEBT AND IMMEDIATE COLLAPSE
Mar 13, 2023 , 4:34 p.m.

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The Republicans demand less military spending and the Democrats fight for the increase in the level of national debt (Photo: File)

The New York Times points out that the US economy is on the verge of collapse and to rescue it, the debt ceiling must be raised. The national debt exceeded the legal limit of $31.4 trillion in January.

According to the media, President Biden will propose policies aimed at cutting the federal budget deficit by almost 3 trillion dollars in the next 10 years, at a time when his administration adopts the debt reduction policy in the midst of a fight with the Republicans on raising the nation's debt limit.

The Republicans, from Congress, demand less spending (especially the military) to further reduce the burden on the budget, while the Democrats, from the White House, fight for an increase in the level of the national debt.

The increase in the national debt would be followed by a suspension of contributions to social and pension funds. And that will be followed by a financial crisis and recession similar to that of 2008, at which time 7 million jobs were lost.

https://misionverdad.com/la-economia-es ... -inmediato

Are the Republicans actually calling for reduced military spending? If so I find it had to believe that they are serious. Although, if Trump gets behind it things could get interesting.

DO THE "BUBBLES" LEFT OVER FROM THE 2008 CRISIS IN THE US BURST?
Mar 13, 2023 , 2:21 p.m.

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Expert economists warn that there may be a new cycle of financial crisis in the United States (Photo: Dado Ruvic / Reuters)

This weekend the state authorities closed the Signature Bank of New York due to "systemic risks", after the announcement of the bankruptcy of Silicon Valley Bank (SVB) and the freezing of its activities by the US government. This is the second closure of a major bank in that country in recent times.

The United States created the National Bank of Santa Clara Deposit Insurance, to which all insured deposits from banks seized by the authorities were transferred.

But Axios posts about a serious threat of crisis in that country if the Joe Biden administration does not come up with a plan to bail out SVB depositors. It should be noted that similar state regulation measures were previously used only during the 2008 crisis and the beginning of the covid-19 pandemic.

The reason for the American financial collapse was the bankruptcy of the large investment bank Lehman Brothers. The debts of the financial giant reached 613 billion dollars. Its collapse led to the fall of transnational banks such as Bear Stearns, Merrill Lynch, Goldman Sachs, Morgan Stanley. Major mortgage companies Fannie Mae, Freddie Mac and AIG also suffered. The bankrupts had the support of the government until the end. The authorities began to inject colossal funds into the economy, but this led to a rapid increase in the foreign debt of the United States.

The expert community claims that if President Joe Biden does not urgently solve the problem now, the US economy will "fall" again in the crisis of 2008. And this, in turn, will affect the reputation of the entire Democratic administration of the House White.

"The current situation in the United States can have a major impact on the entire global economy. The consequences will mainly affect the high-tech sector: The valuations of start-ups will decrease and, as a result, the budget for new developments will be reduced. This it will lead to monopolization as it will be easier for 'giants' to buy young companies," says economist Anton Lyubich, quoted by a Russian media outlet .

“The process of geographic movement of capital will also be launched: American venture capital will settle in other countries. Let me remind you that only on Sunday, Banking Day, Washington transferred around 5 billion dollars to Israel to US national accounts in local banks," the expert emphasizes, adding: "We can say that the US economy is entering another cyclical crisis , as it was in 2008-2009".

The indiscriminate printing of dollars, called a "quantitative easing" policy, "could cause a sharp drop in the standard of living and an explosive increase in prices," Lyubich emphasizes. "Foreigners were invited to invest the proceeds in 'fast-growing sectors of the US economy,' including Silicon Valley technology companies.

"As a result, so-called bubbles appeared on the market: The price of assets became unjustified in terms of income. Companies with huge losses were not only valued in billions of dollars, but also confidently increased in price day day by day," says the expert.

"Actually, the banks that served companies in the high-tech sector were at the center of events. First of all, these are Silicon Valley Bank, Signature Bank and Silvergate. That is, today the problems accumulated by the States since 2008 are 'shooting up'", points out the interlocutor.

"The situation was complicated by the sanctions against Russia. The restrictions imposed stimulated Moscow, Beijing and many Arab countries to reduce the use of the US dollar in international payments. This led to a drop in the value of digital assets," he emphasizes. Lyubich.

“At the same time, Washington allegedly set up channels to pay bribes for US military assistance to Ukraine through the FTX cryptocurrency exchange. The massive withdrawal of funds, combined with the fall in the value of digital currencies, caused the collapse of the organization, which induced the opening of 'holes' in the Silicon Valley banks," says the expert.

"Therefore, the announcement of the cryptocurrency company Silvergate about losses of more than 800 million dollars over the previous year can be considered the starting point of the crisis. It was this news that caused the current fall. I note that it will continue until that all 'inflated', 'paper' debts be canceled during the bankruptcy declaration of failed companies," he clarifies.

"Going back to the 2008 crisis, we can say that all the prerequisites for a major collapse of the financial system are already met," Lyubich said. "In fact, the place of Lehman Brothers this time may be taken by the cryptocurrency exchange FTX, which has already filed for bankruptcy."

https://misionverdad.com/estallan-las-b ... 08-en-eeuu

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"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Wed Mar 15, 2023 2:58 pm

THE US ECONOMY: BETWEEN DEBT AND IMMEDIATE COLLAPSE
Mar 13, 2023 , 4:34 p.m.

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The Republicans demand less military spending and the Democrats fight for the increase in the level of national debt (Photo: File)

The New York Times points out that the US economy is on the verge of collapse and to rescue it it is necessary to raise the debt ceiling, which already exceeded the legal limit of 31.4 trillion dollars in January.

According to the media, President Biden will propose policies aimed at cutting the federal budget deficit by almost 3 trillion dollars in the next 10 years, at a time when his administration adopts the policy of debt reduction while fighting against Republicans on raising the nation's debt limit.

The Republicans, from Congress, demand less spending —especially the military— to further reduce the burden on the budget, while the Democrats, from the White House, fight for an increase in the level of the national debt.

The increase in the national debt would be followed by a suspension of contributions to social and pension funds. And that will be followed by a financial crisis and recession similar to that of 2008, when 7 million jobs were lost.

https://misionverdad.com/la-economia-es ... -inmediato

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Silicon Valley Bank: Canary in the Coal Mine? The Banking Crisis Is a Capitalist Crisis
MARCH 14, 2023

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Silicon Valley Bank. Photo: File photo.

By Eugene Puryear – Mar 13, 2023

Bank stocks took a beating when U.S. financial markets opened in the morning of March 13 after turmoil surrounding the collapse of Silicon Valley Bank and the contagion that spread to Signature Bank and Silvergate Bank. Whether or not this will lead to a greater banking crisis is still to be seen, but events so far have proven that the banking sector is not as safe as advertised and that the federal government is 100% prepared to secure Wall Street’s interests at the expense of everyone else.

The basics of what took place are a reflection of normal market activity, not simply “reckless” behavior by a few “bad apples.” In fact, if anything, the current banking crisis reflects how inherently reckless the entire global financial system is, by design. It proves, yet again, that Marxist economics are correct; crises are a feature, not a bug of capitalism. As Marx notes in the Manifesto of the Communist Party:
“Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells…It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threateningly…And how does the bourgeoisie get over these crises?…by enforced destruction of a mass of productive forces…by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.”

Communist Manifesto
In just a little over two decades the capitalist system has gone into three major crises. The media gives these major economic shocks, with all of their attendant human suffering, particular names. First was the Dot-com crash in 2000; then in 2008 there was the Great Recession following the collapse of Wall Street banks and then the COVID Recession of 2020. Each time we are told that there was a specific villain that caused the problem. But the cause of the problem is really the same. It is the way the capitalist economy is organized. In each crisis it was the federal government that raced to bail out out the capitalists while millions of workers lost their jobs, homes and life savings.

Does the collapse of Silicon Valley Bank and Signature mean we are witnessing the start of the fourth major capitalist catastrophe? The government is racing to bail out the biggest capitalist banks – again!

And as usual the chorus of bourgeois commentators is out to promote this or that solution to the banking crisis, all designed to obfuscate the real cause of the issue: capitalism. However, as can be seen from the basics of our current moment, the crisis arose, not randomly, but from the very fabric of the “free market.” It can also be seen that the government’s response is really about protecting the ruling economic interests, not the welfare of working people, as they claim.

Why did the banks collapse?
The first thing to understand is that banks do not just store your money, they speculate with it. The role of banking in a capitalist economy is to mobilize “idle” money or other assets that can function as equivalents of money based on their value. Banks take the money you, or a corporation, are not using, and lend it to other people and corporations who need to borrow money. So, the financial system is the cornerstone of capitalist dynamism; it makes sure money is where it needs to be, when it needs to be there, to facilitate the growth and operations of various parts of the economy.

This means, however, that banks do not actually have the cash on hand to cover all their deposits. Normally, this is not a big issue because everyone is not asking for their money all at once. Problems arise, as in the SVB case, when a large number of people do ask for their money all at once, and the bank doesn’t actually have it, which is known as a “run on the bank.”

Banks often invest their money in “safe” assets like U.S. Treasury bills, or mortgages backed by the U.S. government because, at the end of the day, people expect the U.S. government to always be able to pay. These assets can rise and fall in value. Most of the time that is fine because, again, as long as there is enough money to manage the normal flow of people or corporations withdrawing their funds, the bank can ride it out.

SVB and the others caught in this scandal, however, got caught flat-footed. As the Federal Reserve aggressively raised interest rates as part of a class warfare agenda, the value of their various government-backed securities fell. Then, Peter Thiel, one of the biggest players in their main area of technology and biopharmaceuticals, called on companies he was invested in to pull out their cash because the bank had issues. Others caught wind of that and started pulling out their money, and then, trouble really hit.

Due to the depressed value of the government-backed T-bills etc, the troubled banks couldn’t sell at a price to be able to cover the demands of their deposits from their customers. Once that became clear, more people wanted out, and that was when the government stepped in to prevent a total collapse. That is important because the financial system is deeply interconnected. If any other bank has similar asset profiles or investments in “troubled” banks or companies, and now they can’t get their money, that then could recreate the whole process of a “run on banks.” People who still have cash-on-hand would stop lending until the chaos subsides which further seizes up the financial system, and the next thing you know, the economy crashes.

Is this a bailout?
After the 2008 economic crash, the federal government ponied up $29 trillion to prop up “too big to fail” Wall Street institutions, while millions of workers lost everything, especially their homes. This, understandably, left the mass of working class people (including the so-called “middle class”) deeply averse to the same thing happening in the future. With that in mind, the government has been at great pains to express that their “resolution” operations at SVB and elsewhere are not a bailout and that taxpayers are not on the hook to avoid a political crisis. No matter what they say, this is a bailout and taxpayers are on the hook.

Starting with the immediate operations at SVB and Signature, the government has reassured us all that, while they are covering even the uninsured deposits, any government money used will be replenished by a “special levy” on other banks. At first glance this sounds reassuring. However, don’t forget, the banks’ money is our money. We all pay an array of fees and interest to banks. So while the “levy” is coming from the banks’ wallets, how did they even get the profits and reserves they can use to pay in the first place? From the money deposited by customers, the fees and interest it collects from them, and the profits it makes from speculating on the money and assets they’ve been entrusted with.

Second, the Federal Reserve has set-up an essentially stealth bailout for banks that are in trouble that has yet to come to light. On March 11 the Fed announced the Bank Term Funding Program. This “facility” as Fed lending programs are known, allows banks to come to the Fed and exchange government-backed securities for a loan based on the face value of the asset. In other words, the Fed is going to loan banks money for these assets at terms better than what they could get on the market so that they can use that loan to cover the outflow of deposits. Further, the Fed noted that the government would initially issue $25 billion from the Treasury Department’s Exchange Stabilization fund to backstop the program.

Ultimately, then, the government is telling banks that know their balance sheet is looking a little dodgy, to come get their bailout money now. The thought is this will reassure investors because they will know they can get their money out, and everything will calm down. That, of course, is a big assumption. Even with government involvement, it’s not inconceivable that further unsavory tales of risky banking, especially at the largest institutions, could cause major problems and financial crises. But, even if it succeeds in the short-term, the government is still on the hook if any banks they lend to understate the scale of their problems and can’t pay the loan back.

So, while it’s wrapped up in all sorts of financial jargon, the bottomline is, the government has pawned off some of the cost of saving insolvent banks onto customers of other banks, and is trying to prevent the crisis from spreading by putting taxpayer money on the line to contain the worst damage. If, of course, it can’t be contained, the government has also set the precedent that, yet again, they will step in to protect the “too big to fail” Wall Street behemoths.

What about the workers?
Of course capitalist propaganda has spent several days reminding the working class that capitalist companies are their employers and if the banks go down, the companies go down, and the biggest losers are really working class people. Bailouts protect “the economy” and so as unsavory as it might be, since we all “need” the “economy” to survive, noses must be held, and cash must be doled out.

This is totally absurd and criminally misleading. It requires one basic assumption, that our capitalist economy, as it currently exists, is the only option. And that without this cycle of boom-bust-and-bailout, no one can have nice things, or anything at all. Even from the perspective of “reform” within the system, this is false. The government could very easily just let the banks fail, and make actual people and workers whole by just cutting them checks directly; we saw during the pandemic they are perfectly capable of doing this. They could nationalize banks and make sure to inflict the most pain on those most able to pay, and use the socialized profits to fund the needs of those most harmed. Ultimately as the huge array of Fed-related acronyms (TARP, TALF, MMLF and on and on) show, when push comes to shove every means of exotic sophistry can be used regardless of statute or precedent. It’s just these powers are only used to help the biggest banks and corporations, which speaks directly to the fact that the Federal Reserve in particular, and the government more broadly, are interested primarily in protecting capitalism and capitalists, not people.

On a deeper level, capitalism is not the only way, or the best way, to organize the human and material resources of society to meet the needs and wants of the people who make up society. Socialism is more logical and more rational, putting people over profits and replacing the boom-bust anarchy of capitalist “investment” (read: gambling) with democratically overseen planning, not leaving the wellbeing of the people to chance.

This current banking crisis is the perfect moment not simply to expose the hypocrisies of the existing system, but to demand an entirely different one that can banish the pain and destruction of economic crises to the trash can of history.

(Liberation News)

https://orinocotribune.com/silicon-vall ... st-crisis/

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A run on American Union Bank in 1932

Why the U.S. banking system is breaking up
By Michael Hudson (Posted Mar 15, 2023)

Originally published: Geopolitical Economy Report on March 12, 2023 (more by Geopolitical Economy Report) |

The California-based, cryptocurrency-focused Silvergate Bank collapsed on March 8. Two days later, Silicon Valley Bank went down as well, in the largest ever bank run. The latter was the second-biggest bank to fail in U.S. history, and the most influential financial institution to crash since the 2008 crisis.

Economist Michael Hudson, co-host of the program Geopolitical Economy Hour, analyzes the disaster:


The breakup of banks that is now occurring in the United States is the inevitable result of the way in which the Obama administration bailed out the banks in 2008.

When real estate prices collapsed, the Federal Reserve flooded the financial system with 15 years of quantitative easing (QE) to re-inflate real estate prices—and with them, stock and bond prices.

What was inflated were asset prices, above all for the packaged mortgages that banks were holding, but also for stocks and bonds across the board. That is what bank credit does.

This made trillions of dollars for holders of financial assets—the One Percent and a bit more.

The economy polarized as stock prices recovered, the cost of home ownership soared (on low-interest mortgages), and the U.S. economy experienced the largest bond-market boom in history, as interest rates fell below 1%.

But in serving the financial sector, the Fed painted itself into a corner. What would happen when interest rates finally rose?

Rising interest rates cause bond prices to fall. And that is what has been happening under the Fed’s fight against “inflation,” by which it means rising wage levels.

Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors.

The result today is similar to the situation that savings and loan associations (S&Ls) found themselves in the 1980s, leading to their demise.

S&Ls had made long-term mortgages at affordable interest rates. But in the wake of the Volcker inflation, the overall level of interest rates rose.

S&Ls could not pay their depositors higher rates, because their revenue from their mortgages was fixed at lower rates. So depositors withdrew their money.

To obtain the money to pay these depositors, S&Ls had to sell their mortgages. But the face value of these debts was lower, as a result of higher rates. The S&Ls (and many banks) owed money to depositors short-term, but were locked into long-term assets at falling prices.

Of course, S&L mortgages were much longer-term than was the case for commercial banks. And presumably, banks can turn over assets for the Fed’s line of credit.

But just as QE was followed to bolster the banks, its unwinding must have the reverse effect. And if it has made a bad derivatives trade, it’s in trouble.


Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy.

Recognition of this problem led the Fed to avoid it for as long as it could. But when employment began to pick up and wages began to recover, the Fed could not resist fighting the usual class war against labor. And it has turned into a war against the banking system as well.

Silvergate was the first to go. It had sought to ride the cryptocurrency wave, by serving as a bank for various brand names.

After vast fraud by Sam Bankman-Fried (SBF) was exposed, there was a run on cryptocurrencies. Their managers paid by withdrawing the deposits they had at the banks—above all, Silvergate. It went under. And with Silvergate went many cryptocurrency deposits.

The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds?

What was crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?

Silvergate was a “special case,” given its specialized deposit base. Silicon Valley Bank also was a specialized case, lending to IT startups. First Republic Bank was specialized, too, lending to wealthy depositors in San Francisco and the northern California area.

All had seen the market price of their financial securities decline as Chairman Jerome Powell raised the Fed’s interest rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss.

Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks.

This is the quandary in which banks—and behind them, the Fed—find themselves.

The obvious question is why the Fed doesn’t simply bail them out. The problem is that the falling prices for long-term bank assets in the face of short-term deposit liabilities now looks like the new normal.

The Fed can lend to banks for their current short-fall, but how can solvency be resolved without sharply reducing interest rates to restore the 15-year, abnormal Zero Interest-Rate Policy (ZIRP)?

Interest yields spiked on March 10. As more workers were being hired than was expected, Mr. Powell announced that the Fed might have to raise interest rates even higher than he had warned. Volatility increased.

And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives.

JP Morgan Chase and other New York banks have tens of trillions of dollars worth of derivatives—that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser.

When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.

There is now a flight to “cash,” to a safe haven—something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders.

It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.

So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015.

So the chickens are coming hope to roost—with the “chickens” being, perhaps, the elephantine overhang of derivatives.

https://mronline.org/2023/03/15/why-the ... eaking-up/

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The second-largest bank failure in US history reveals double standard

Many are outraged after venture capitalist-favored Silicon Valley Bank is bailed out by US government in full, as working people continue to struggle

March 14, 2023 by Peoples Dispatch

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Many expressed outrage after the US government announced that it would pay out all Silicon Valley Bank depositors in full, a pricetag of over USD$100 billion, especially to venture capitalists, while working people remain in dire straits. (Photo: Tony Webster)

On March 10, the Silicon Valley Bank collapsed in the second-largest bank failure in US history, topped only by the 2008 recession-era failure of Washington Mutual. SVB, which was founded in 1983 and was the go-to bank for tech startups and other venture capitalists, was the sixteenth-largest US bank according to assets.

The bank failure has sent the US economy reeling, with many working people concerned about the impact this could have on their paychecks, personal savings, and whether or not a 2008-like crisis could be provoked.

US authorities have attempted to employ a crisis control strategy, with US President Biden addressing the nation in televised remarks on March 13, saying, “every American should feel confident that their deposits will be there if and when they need them.”

The SVB failure was precipitated by the Federal Reserve hiking interest rates which devalued government bonds, which SVB had invested heavily in and are usually safe investments. The Fed had been raising interest rates as a way to combat inflation. Some on the left have argued that the best way to drive down inflation is to fight the true cause, price-gouging, through a price freeze and taxing profits made through gouging.

The US government typically only insures deposits up to USD 250,000, but the vast majority of SVB deposits exceeded that amount, a sum total of USD 151.6 billion beyond the 250,000 limit. However, the government announced on March 12 that it will cover the full uninsured sum to SVB customers, leaving public funds severely depleted in case there is another massive bank failure. On Sunday, March 12, New York-based Signature Bank became the third-largest bank in US history to fail with USD 110 billion in assets, setting off alarms of more failures to come.

Many expressed outrage after the US government announced that it would pay out all SVB depositors in full, a pricetag of over USD$100 billion, especially to venture capitalists, while working people remain in dire straits. Most people in the US have trouble paying weekly expenses. Rents have been skyrocketing with over 40% of tenants paying over 30% of their income towards rent. Food insecurity is also at a record high at 34 million people. Yet, the government cannot agree to pass through a student loan forgiveness program for the working class, which would cost USD 400 billion dollars over the next 30 years (approximately USD 13 billion per year).

Average working people in the US are not bailed out when they make risky investments, whether that be on college loans, housing, or any other expense. Some point out the hypocrisy of former secretary of the treasury Larry Summers, who called student loan forgiveness “unreasonably generous” yet said of the recent SVB debacle, “this is not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts.’”

https://peoplesdispatch.org/2023/03/14/ ... -standard/
"There is great chaos under heaven; the situation is excellent."

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