Titanic

Titanic

Media vita in morte sumus

By JM Hamilton (12-30-2016)

Halifax, Nova Scotia - Visiting the 121 graves here, at Fairview Lawn Cemetery, it’s a good time to take stock. 

Looking back at 2016, it was a banner year for JMH.  Unfortunately, many of the things this blog had forecast, over the last several years, have come to pass.  The goal of JMH has always been to share w/ my readers a lifetime of accumulated experience & knowledge, and based upon the facts before us, offer insight into current events and afford the occasional forecast.  Some prognostications are rather easy… historia repetit.  And then there’s the human component, and repetition of same: error hominum.

With a foundation in economics & history, by keeping up on current events – and w/ blessings from the Goddess above – one can divine a great deal about what’s on the horizon.  It may take months or years for future events to come to pass: just as one cannot time markets, one cannot time historical events.  JMH’s piece, Establishment, originally published in 2012, and revived on this blog's present site in 2015, stands out as a singular forecast.  A more recent piece, Elites Gone Wild, outlining the blowback against “experts” (in our current time is there a greater epithet?) also comes to mind. 

Trust me, we all wish it had all turned out differently.  Many wish the elite weren’t so blinded by their own greed & rapaciousness.  And yes, JMH wishes he had been dead wrong, and that the middle class hadn’t been torn asunder by monopolies, free trade agreements, fiscal austerity, central banks & the IMF, and the lords of finance hostile takeover of the global economy.  Moreover, JMH had hoped our mainstream political parties were more interested in the wellbeing of the citizenry & country, than taking orders from plutocrats (here & now, in our Neo-Gilded Age).  When SCOTUS fatuously equates money w/ freedom of speech, all kinds of hell are bound to break loose.

Alas, its going to become a lot nastier for a great many people, including the elite, before the lessons are learned, and enlightenment comes calling.  Enlightenment & Karma – twin sisters – usually arrive when the human condition is at its most distressed and very worst.  Enough of all that, because there is work to do. 

What can we look forward to in 2017 and beyond?  This blog offered up several pieces on the globe’s pernicious debt problems in 2016, read here and here.  Private & public debt ratios around the globe are at all time highs, per the IMF.  The collateralized debt market – moral hazard defined – has been revived, thanks in large part to central bank actions.  And there are hundreds of trillions – notional value – in swaps and derivatives insuring and gambling on global debt & commodities, which had a titanic impact upon the ’08 crash and will likely have a similar impact upon the next economic crisis.  Not only does debt and debt service loads sap private & public sectors; but this tsunami of debt leads to further calls for private & public sector austerity, from institutional investors and politicians owned and operated by the plutocracy, respectively.

The correct and prudent thing  – in an orderly fashion (this, as opposed to disorderly) – is for central banks, globally, to coordinate and write down public sector debt.  Starting small and taking bigger strides with the write down of public debt, central banks could defuse several ticking time bombs: economic calamity, not unlike the ’08 crisis; calls for even greater austerity that have largely been paid for on the backs of the 99%; and, possibly, head off a universal populist revolt against the establishment, both economic & political, before it really turns nasty.  

With public debt written down, in a coordinated fashion by the world’s central banks, the current world order of currencies could be maintained.  With debt written down, governments would be freed up again to engage in social spending; rebuild crumbling, or enhance existing, infrastructure; and increase defense spending as needed.  Increased social spending and a universal guaranteed basic income are particularly important at a time when AI, globalization, automation, and job killing cartels & monopolies are crushing opportunity and wages worldwide.  Those who read JMH w/ any degree of regularity may question why this blog is suddenly supportive of central bank intervention in the global debt market, especially when it has been highly critical of central bank intervention, since ’08.  The answer is simple: up until now, central bank and Fed actions have been focused on bailing out Wall Street, the plutocracy, zombie banking & commercial institutions – in essence trickle down monetary policy – w/ a highly deleterious impact upon the 99%.

All this is to say, if monetary policy is to be utilized in the future, its firepower should be directed at stimulating aggregate demand and bolstering the fortunes of the 99%.

So what is to prevent the write down of public sector debt, and the defusing of several ticking bombs, both economic & political?  As usual, follow the money.  Wall Street banks, and the international banking cartel – largely based in London, make billions annually in selling swaps and derivative products.  These swaps and derivative products are often utilized to insure debt and gamble on same.  In order to defuse a titanic amount of global public debt, this would mean unwinding – and possibly calling for a moratorium  – on debt driven derivatives and swaps products.  Derivatives and swaps have been referred to as weapons of mass destructions by Mr. Warren Buffett, are a ticking time bomb w/in the financial markets, and are a significant cash cow for the international banking cartel.  Wall Street wouldn’t like restricting the revenue flowing off these financial WMD.  This would mean cutting off a key revenue source, and as we know, the banking cartel holds undue influence, if not outright owns, democratically elected governments, globally (witness the invasion of a large number of Goldman alums into PEOTUS Trump’s inner circle/cabinet). 

Therefore owned politicians would not be eager to support the concept of a controlled public debt write down either.

In addition, Banks also earn titanic amounts of money holding and speculating in public and private debt.  If central banks, internationally, were to coordinate and forgive/write down debt, yields on public debt would decline in the short and intermediate run. (The upside for banks and institutional investors however, would be that once global public debt was written down, there should be limited further need for central bank intervention into the market place, barring a black swan event.  End TBTF and decrease the speculative supply of derivatives & swaps, and the likelihood of a future black swan event is diminished even further.) 

So to be clear, Wall St. banks & shadow banking – who brought global calamity down upon the world economy, were bailed out at the expense of nearly every other person on the planet, & who own and operate world governments – have a great deal to lose by an orderly winding down of the world debt crisis.

There’s an ideological component standing in the way of a public debt write down as well.  The plutocracy embraces socialism & crony capitalism on a daily basis, when it enriches them.  But for the 99%, the ownership class advocates rugged individualism and economic Darwinism.  In short, the wealthy believe in every man for themselves, particularly when the ship of state crashes into the economic iceberg of a full-fledged financial crisis. 

Women and children first?  Hardly.  

In the ’08 financial crisis, the plutocracy jumped into the lifeboats (provided by central banks & Western governments), and left everyone else standing on a listing deck.  Witness wage & wealth inequality not seen since the last Gilded Age; witness the declining life spans of white “middle class” Americans & an opioid epidemic.

Hypocrisy aside, the robber barons often don’t want to see government succeed, but rather, they want to see it fail.  Hence, the optics of the wealthy raiding the government for private contracts, engaged in war profiteering, lobbying for a highly accommodative monetary policy, engaged in regulatory capture, pleading for & obtaining bailouts, advocating corporate welfare, pushing government privatization, supporting lax campaign finance laws, hiring a rapacious K Street lobbying army, etc., etc…   

… While – in many cases – flat out at refusing to pay taxes. 

None of this is to suggest that the billionaire class has engaged in a Soprano's style “bust out” of Western governments, tapping out government credit lines, to support tax cuts for themselves, or in the case of the U.S. - war w/out end.  Quite to the contrary, there is no need to suggest anything.  In fact, the economic elite have applied the private equity/Soprano model and have busted out Western democracies: burning government credit lines to pay for their own further enrichment, while refusing to pay for government upkeep/taxes.

Starve the government, and government assistance for the 99% ceases to exist, once the credit line is tapped out by the robber barons.

 

Which leaves the 99% dependent upon the private sector for its very existence; which means that – at a time of shrinking opportunities & jobs, globally – in essence, an employer’s job market – the captains of industry can set the going wage rate, while reaping titanic profits.  In short, many of the wealthy have a vested interest in seeing government, the social safety net, & FDR’s reforms fail.  When government(s) fails, as we have seen in Greece and quite possibly Italy, expect to hear the narrative from the corporate controlled, & owned, MSM that it was the burden of social spending, and the social safety net, that caused the collapse.  Bank bailouts, cronyism, corporate welfare, and a tax code riddled w/ loopholes have nothing to do w/ the collapse of Western Democracy and the social contract.  If you believe that, we can dry it out and fertilize your lawn.

Doubt me?

Consider this, the budget surpluses of the Clinton administration were undone by Bush’s (W) tax cuts for the wealthy and the wars in Iraq and Afghanistan.  Trickle down economics/trickle down tax cuts…. The failed zombie doctrine that refuses to die is about to be adopted all over again by the incoming Trump administration.  The new administration, however, does give us some cause for hope, and that is Mr. Trump knows all about debt and bankruptcy.  Mr. Trump also knows that the U.S. national debt is a threat to the ship of state, national security, the American people, and his second term prospects (particularly w/ some of the economic policies his administration plans on proposing).

In short, national debt must be dealt with, sooner rather than later, as it is a threat to Mr. Trump’s brand.  After all, does Mr. Trump want to be known as the POTUS that saw the U.S. government, quite possibly, fail under his watch? 

Halifax, Nova Scotia

On April 15, 1912, the “indestructible” Titanic sailed into waters, off the coast of Newfoundland, hit an iceberg, and on her maiden voyage sank.  Human error (sailing into dangerous waters at too great a speed), hubris, a lack of proper safety precautions & warning systems cost more than 1,500 people their lives, in the freezing North Atlantic waters.  It was perhaps the 20th century's most infamous shipping disaster. 

In the subsequent investigations, blame was not assigned to the owners and shipbuilders; but some good did come of the disaster, that possibly prevented future occurrences.  Through regulation and government intervention, into the passenger line market place, ships were required to: carry more lifeboats and conduct lifeboat safety drills, passenger ships were designed w/ a greater safety focus, onboard communications systems were required to be manned around the clock, and an international ice patrol was formed to check for unsafe conditions/icebergs in the North Atlantic.

The Titanic is ripe with analogies and metaphors that align perfectly with the 2008 financial crisis, and the world debt crisis that exists today.

Unlike the Titanic disaster…  in our most recent financial crisis, the elite and the captains of finance did not go down w/ the banks & shadow banking; but rather, in 2008, the elite – by owning and co-opting government & central banks – rescued themselves at the expense of everyone else (especially women, children, the poor, and the disenfranchised).  Unlike the Titanic disaster, proper reforms were not engaged in nor adopted, post-2008 crash: TBTF banks exist to this very day; debt is at dangerously high proportions; the ticking time bomb of disorderly default scenarios - private & public - are very much w/ us; and the WMD of derivatives, repos, & swaps ---- all lying in wait against the ships of state and the global economy, like so many icebergs in the sea.

One would like to think the 121 Titanic victims resting in Halifax, Nova Scotia - a fraction of the total - did not die in vain.  Due to their deaths, the capitalists  - who owned the Titanic – recognized the need for greater regulation and government intervention to insure passenger, and their own financial, safety.  Too bad, the super-predators, the billionaire class, and Wall Street banksters haven’t learned the same lessons from the ’08 crisis.

Copyright JM Hamilton Publishing 2016