Davos

Davos

“Motto:  Committed to improving the state of the world.”

By J.M. Hamilton (1-15-2017)

Happy New Year!

It’s that time of year again.  Time for the elites of banking, multinationals, & the billionaire class to all come together at Davos, Switzerland, for its annual World Economic Forum confab.  This is where the globalist, Robber Barons, Ayn Rand devotees – and assorted hanger-ons & wannabees – come to offer up self-congratulatory praise, sound assurances, and more praise for the economic system they have developed around the globe, crony capitalism.  

Why it's a regular Superpredator's Ball.

One senses that this year the neoliberal fanfare, that is Davos, may be a little different.  Perhaps the elite haven’t been so shrewd after all?

A populist backlash - against laissez faire economics, multinationals, the international banking cartel, and the Western governments the billionaire class own and operate for their sole benefit – has grown beyond festering, but has metastasized into open revolt.

Seems that the billionaires have created a system that rewards: rent seekers; monopolist; crony capitalist; looters of countries & their economies, who then swoop in and buy private and public assets at fire sale prices; and assorted financial engineering practitioners.  This is as opposed to the global elite’s professed values (the standards they want everyone else to live by) of: innovation; industry & efficiency; competitiveness; entrepreneurial spirit; and recognition of capitalism’s moral supremacy, as the primary economic engine for the world’s economy.

To use a colloquial phrase: The chickens appear to be coming home to roost, at Davos 2017. 

To be sure, the multinationals & banksters not only own Western governments, but they play nation states off one another in a race to the bottom.  In short, many of the globe’s citizens are waking up to the fact that their true masters are not the democratic governments, they thought they elected, but rather, the billionaires & multinationals, who own the political parties, the vetting process, and the politicians.  If a local or national government dares get out of line, said plutocrat merely goes global, seeking to arbitrage: labor, rules & regulations, taxes, and free government lucre. 

Hell, why earn money the old fashioned way, when governments will give it to plutocrats for free?  The aforementioned arbitrage is also referred to as free trade.

And therein lies the problem.  Multinationals & billionaires have one overriding goal, stockholder and their personal enrichment (not necessarily in that order).  Having gone global in that pursuit - there is no planetary governmental authority to hold these behemoths in check.  And given that governments are easily corrupted by humans, who in their right mind would want to surrender national sovereignty to an international body? 

For further clarification see the European Union, and the European Central Bank.

Hence, the populist avalanche that is beginning to crash down upon the Davos’ playground, and is killing the plutocracy’s buzz.

Perhaps the most illustrative company, w/in the present world order, is Apple or Apple Inc.  Apple manufactures very fine products, possesses the world's largest market cap, and I’d be a liar & a hypocrite if I did not acknowledge up front my use of these products.   There are far worse multinationals out there, but the fact that Apple is held in such high regard by many acolytes & fans, makes the following example all the more revealing.

Apple is a notorious tax dodger, and uses legal loopholes in Europe & the US to avoid taxation.  As noted in a recent Bloomberg piece: 

In one of the more notable examples that’s drawn particular scrutiny, companies will book a disproportionate amount of revenue as “offshore” by claiming the underlying technologies are owned by their Irish units—even if the intellectual property originated in the U.S.

JMH has written extensively about how corporations, like Apple, leave a heavier tax burden on what remains of the American middle class, who cannot dodge taxes.  And what Americans cannot fund through taxation is a paid for with an ever growing debt & debt service load, and the diminution of government services.   In fact, the debt and debt service load has grown so large, that the Federal Reserve has engaged in all sorts of machinations – not the least of which is interest rate suppression and debt monetization, arguably both at the expense of the American public – so that Apple and other US multinationals can continue to avoid taxation.

Even in Europe, the E.U. recently called out Apple for its special tax arrangement with the Irish government: 

The company (Apple) is already in hot water with the European Union. Regulators ordered Apple to pay $14.5 billion in back taxes in August after concluding it paid an effective tax rate of 0.005 percent in 2014 because of preferential Irish treatment. Last week, Apple called the EU decision “seriously flawed.”

Adding insult to egregious behavior, Apple’s and other multinational’s “offshore earnings” really aren’t sitting offshore after all, but rather, are located w/in Wall Street banks in Manhattan, earning interest income courtesy of the U.S. Treasury and the American taxpayer. 

Dodging taxes is one thing, but instead of employing Americans and expanding the US tax base, Apple exploits Chinese labor, outsourced to a notorious company called Foxconn.  Foxconn, a Taiwanese company, and the largest private employer in China, is known for highly abusive labor practices.  Let’s let Forbes take it from here:

These deaths once again shine a light on Foxconn's harsh working conditions, in which poor factory workers are paid measly wages and forced to work overtime -- sometimes 14 hours a day, seven days a week -- to build Apple products that are then sold at high prices to consumers (like I've written before, the bargain value of Xiaomis and OnePluses makes it very hard to justify paying US$800 plus for Apple or Samsung phones).

Working conditions are so poor at Foxconn facilities that suicides and unexplained worker deaths are not uncommon.  Apple could never get away with these labor practices in the U.S., so Foxconn provides a convenient barrier between Apple’s squeaky clean image, and poorly paid/ill abused Chinese labor.

Sadly, a study done by an economist a few years back, and published in VOXEU.org, showed that Apple’s profit margins are extraordinary, due in part to Chinese labor exploitation (Apple’s profit margins are also a testament to how well their products are engineered, and to the inelasticity of demand for same); this same write up also pointed out that Apple assembly line jobs could return to the U.S. with little diminishment to Apple’s profits or bottom line.  My guess is that Apple's profit margins have only grown.

Due to lack of time, it is important that we bring up one more salient point about Apple and multinational behavior: Apple, and others, are in bed with - and do business with - some of the most repugnant/totalitarian/authoritarian regimes on the planet. 

China’s human rights record is abysmal, democracy is nonexistent, and China crushes free speech and communications from the outside world, daily.  On the heals of the NY Times writing a piece on how Apple, via Foxconn, receives billions in Chinese state aid, the NY Times app was pulled in China.

Both Salon and the NY Times, unless I missed something, assumed China’s government was behind Apple being forced to remove the NY Times app from their China app store.  But another thought crossed my mind…. Apple was not exactly portrayed in a favorable light in the NY Times story either.  Could have Apple approached their partner, The People’s Republic of China, and asked the government to order Apple to remove the NY Times app from their China app store (in an act of retaliation against the Times)?

Mr. Cook & Apple have become high-handed in recent years: in their dealings with the E.U. – and the United States – in regards Apple’s tax avoidance; in the exploitation of the developing world’s labor force, at the expense of the American workforce & the U.S. tax base; and in toadying up to one of the nastiest dictatorships on the planet, Communist China.

As such, Apple is not exceptional.  It’s just another member in the soulless pantheon of multinationals, who know no allegiance to anyone but to themselves.  Apple’s business practices are very much in sync w/ private equity, hedge funds, the very same business practices advocated by McKinsey, and the free trade practices lobbied for by the U.S. Chamber of Commerce.  That is to say, Apple’s business practices are employed by the Davos elite, daily.

Put another way, free trade, arbitrage, and crony capitalism advocated by the Davos elite - w/ a myopic view limited to the next quarter’s financial statements - has led to a growing populist revolt in many Western democracies.  Which raises the question: if billionaires and multinationals are running the planet, could CEOs and corporations - ultimately - be held accountable for crimes against humanity?  

If the almighty multinationals, and the billionaire class, want this degree of control over Western governments, and the lives of the 99%, they are going to have to begin to advocate and push for the very people that, up until now, have been an afterthought, if not outright collateral damage.

Ironically, the motto of the World Economic Forum is, “Committed to improving the state of the world.”   The Davos elite have a long ways to go before they can even come close to achieving their stated aim.  In fact, presently, the elite and billionaire class have only improved upon their own lot in life.

The Davos elite like to say that free trade has made products and services inexpensive and ubiquitous; but that’s hardly true given the number of cartels and monopolies that dominate Western economies, and the human misery surrounding a great deal of the emerging market's, and first world's, labor force.  

Moreover, when one is unemployed, one cannot dine upon iPhones - manufactured within China’s slave labor colonies.

P.S.  China is in deep.  They have a debt to GDP ratio, including the private sector (remember China’s private sector often consists of state owned enterprises), that is out of control.  They suffer massive capital outflows.  The per capita income of the average Chinese worker is less than $13,000.  China has failed to create a consumer economy, because to do so would require a state funded social safety next, and social services, such as Social Security and Medicare equivalents.  Instead, the Communist Party kills off its citizens/workers with heavily contaminated air, from coal burning power plants, and by the Sino government being one of the largest tobacco purveyors on the planet.

If Mr. Trump, and some European business/government leaders, are successful in bringing back a substantial number of jobs to the U.S. and Europe (or raise taxes/tariffs on China’s manufacturing exports), the affect and social upheaval w/in China could be very real.  Wars have been started for a lot less. 

Copyright JM Hamilton Publishing 2017

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