Family and financial problems have prevented me from updating this blog, and I also have to prepare from moving from Greece to Australia, so my free time is limited.
However, I just read a couple of articles that caught my eye, and I'd like to share a few quick thoughts on the matter of deficits:
Public sector net borrowing soared to £8.6 billion
($A13.28 billion) last month, the Office for National Statistics said
in a statement on Wednesday.
That compared with £5.9 billion ($A9.11 billion) in October 2011.
Market expectations had been for public
borrowing of £6.0 billion in October, according to analysts polled by
Dow Jones Newswires.
Everyone knows that almost all Western nations have been running trade deficits for decades know, and
For years, proponents of aggressive monetary policy have offered this
unusual piece of advice as a way to end Japan’s deflationary slump and
invigorate the economy. Print lots of money, they said. Keep interest
rates at zero. Convince the market that Japan will allow inflation for a
while.
Japan’s central bankers long scoffed at such recklessness, which they
feared would ignite runaway inflation. But now, the bank’s hand could be
forced by an unlikely alliance of economists and lawmakers who have
argued for Japan to take more monetary action after more than a decade
of weak growth and depressed prices.
Championing their cause is the former prime minister Shinzo Abe, who is favored to return to the top job after nationwide elections next month.
[...]
Japan’s monetary pump-priming is “like a morphine addiction that is
getting worse,” Ryutaro Kono, chief economist for Japan at BNP Paribas,
said Tuesday. “Fiscal or monetary policy doesn’t have the power to
create new value” for Japan, he said.
Unfortunately, Japan is not the only Western nation that is doing this. It has been doing it for several years now, and it is probably reaching "the end of the road":
More and more people are noticing that Japan, and most Western nations actually, are no longer producing a lot of products that the market actually wants and is willing to buy (i.e. "competitive products") [*].
So, what do these countries do? Well, they can't seem to be able to
innovate their way out of the crisis by creating new, valuable products, so they start printing more and more money: This way, they decrease the wages of the workers, making them more competitive, and thy also use the newly-printed money to recapitalize the banks.
Here's something from one of my previous posts:
1) Capitalism is based on the exploitation of the workers by the capitalists.
2) After the collapse of the former USSR, all the workers of the
Soviet block + the Chinese workers were intergraded into the labor
marker that truly became global.
3) Capitalists off-shored production to Asia, as the workers of
those countries could be exploited much more so than the workers of the
West (as the Western workers had achieved some important victories
through a century of labor struggles, that inhibited the capitalists
ability to exploit them).
4) As the industrial base of the West was diminishing, capitalism
became more "leveraged" and credit-based, as it needed more and more
"banking loans" to keep the system going:
-If a factory was closed down, either because the owner off-shored
production to Asia or because it just couldn't compete against the
cheaper goods that were made in China, the workers of that factory could
still get a job, or start a business themselves, by getting a loan
from the banks.
-The workers wages have stagnated for a long time (
link),
but they could still "afford" a new house, by getting a mortgage. And
they could also afford rising tuition fees for their children's
education, by getting a student loan. And they could even a new plasma
TV set, by getting another "consumer's loan". And the list goes on and
on.
-This meant that the construction workers could find a job (thanks to
all these mortgages), and the companies that produce this plasma TV set
and the merchants who sell this TV would make a profit. So, there would
be a job for those who make these TV sets, or sell them.
5) The problem with all this is that the houses that the people
live in are not "their" houses, they belong to the bank. And if you
can't make your payment on your mortgage, then the bank kicks you out.
Can all these debts be repaid? No, of course not.
6) So, the Western workers earn relatively low wages, and are
deeply in debt, as they had to keep the system going by "overconsuming"
for a very long time. And it's not just the workers, entire states are
heavily indebted and cannot possibly repay their debts.
7) As the people cannot get any more loans, capitalism can't keep
growing. No jobs for the construction workers, factories close down as
noone can consume all the good that they produce, etc.
8) But as these debts cannot be repaid, the banks are also in
trouble, as they have to write down heavy losses. This is a very heavy
blow for them, as they are ALL bankrupt, just like Lehman Brothers.
9) The difference is that, unlike Lehman (and a lot of smaller
banks), the rest of the banks were saves through endless bailouts. Let's
not forget that the banks have become bigger than ever, as capitalism
needed more and more credit. So, the bankers have the politicians in
their pockets, and they managed to get the money they needed (from us).
After all, they are "too big to fail", whereas we are not, we are
"replaceable". So, all the wealth of our societies is being redirected
to the banks, in order to cover their losses, leaving the rest of us to
starve.
10) But the banks need a lot of dollars. Trillions and trillions
of them. So, this "money" is being "created out of thin air"
(quantitative easing - money printing). This process of money printing
has being going on for many decades now, ever since Nixon abolished the
gold standard. The system needed more credit, and so it became more
leveraged. The gold standard was interfering with capitalism's need for
increased leverage, so they abolished it. And now that the banks have
to be bailed out, they are printing even more money than before -
here's a great chart:
11) All this newly created "money" (currency) goes to the banks,
so that they won't have to face another "Lehman-type" moment, or even a
global collapse of the entire banking sector. But this newly created
'money' isn't based on newly created wealth (new products/services), nor
on wealth's"monetary counterpart", gold (gold, as we have already
explained, is the "monetary representation" of wealth, as capitalism has
a tendency to monetize everything, and so all goods and services have a
value that can now be expressed through gold, in order for the people
to be able to exchange them in the market (buying/selling).
12) As all this newly created "money" is not based on new wealth/gold, it is simply a way to
debase the currency and redistribute wealth:
The banks get bailed out, by getting all the newly created "money", and
the workers get paid less (as the value of the currency in which they
are getting paid is being diminished). This is
necessary for the
capitalists, who get to save the banks, and improve the
"competitiveness" of the working class. The destruction the currencies
is a sacrifice that they have to make, in order to save the banking
sector from collapsing, and at the same time to reduce the wages of the
wokers, so that they become "more competitive", thus attracting capital
investments.
13) One of the greatest "side-effects" of this process of "money
printing" is that fewer and fewer people want to own/use the various
currencies, as they can easily understand that these currencies will
lose a lot of their current value in the future. More and more
capitalists turn to gold for protection of their wealth, as they realize
that gold is the one thing that will always remain constant. So,
China, Russia, the oil states (and many other rich "players") are
buying
gold, and they are trying to dump the dollar when they trade with each other.
The
oil states have a "special role" to play in all this, because if and
when they reject the dollar as a means of payment, the world will
experience a great "oil crisis", much bigger than the 1973 oil crisis
(which was the first time the oil states publickly rejected the dollar
and demanded to be paid in gold, as they obviously didn't like America's
decision to abolish the gold standard in order to print as many
dollars as the USA wanted).
13) The West is obviously caught between a rock and a hard place. But saving the banks and impoverishing the workers are the
top priorities,
so this process of "money-printing" will continue, despite the various
obstacles, twists and turns. Money printing is today a "systemic
necessity" for capitalism, and there is not much point in putting the
blame
solely on Bernanke, Obama, Bush, the FED or their
English/Japanese/European counterparts (The Europeans are also printing
money, although Germany does not need the same amounts of
"money-printing" as the rest of Europe, as the German workers are
already very competitive, thanks to their high productivity. But Germany
also accepts the need for money-printing, as it is the only way to
save the banks from their "toxic loan situation". And they are VERY
WELL PREPARED for the coming destruction of the dollar
(hyperinflation), as
the
euro-system has combined the European nation's gold, making it the
"least bad" option in a world of fiat currencies that are being
massively debased).
14) But gold is not just an inflation hedge or a deflation hedge - it is
a measure of trust in the system: The reason why gold was considered to be a "fringe investment", or even "a thing of the past" is because
there was a lot of trust the system's ability to grow.
The capitalists don't really like gold's stability, because capitalism
wants to constantly expand. So, the capitalists prefer investments
that return a profit for them, like starting a business, or investing
in stocks, etc.. If and when the economy is doing well, then businesses
make profits, investing on stocks is also profitable, etc.
So why
buy gold? Why would anyone want to save his capital for another day,
when he can invest his capital today, and make a lot of money?
15) Things change however, and today the capitalists are
not very
confident that the economy will grow in the future (there is no trust
in the system). There is enough capital concentrated in the hands of a
few oligarchs, and there are many cheap workers in Asia - and yet the
capitalists are NOT willing to make a lot of investments (especially in
the West, where the workers are "too expensive"). As the workers lack
the necessary "purchasing power" to buy things, it is obvious that a lot
of products will not be consumed (because the people are too poor to
buy them).
16) But the capitalists prefer to let the workers starve to
death, even if this aggrevates the crisis on the short-term. The more
desperate the workers become, the more inclined they will be to accept
serfdom (or "increased competitiveness", as the capitalists see it). So
even if a few capitalists get killed in the process ("coladeral
damage"), the end result will be great for the rulling class, as
they will have created an "ultra-competitive" world, where a few
oligarchs own almost everything, and the workers work for scraps
(->more profits for the capitalists). It is only then that they will
start investing again (especially in the West). Until thw workers
accept working for scraps, the capitalists will not invest.
17) In order to achieve this goal, the capitalists need
a safe place to store their capital: GOLD.
Once the workers have become "desperate enough" to accept serfdom, the
"business cycle" can start again, and they will invest some of their
gold in productive investments. But until they feel confident that they
will make a profit, they choose to save their capital for the future -
and gold is the only thing that will not lose value when everything
else is collapsing.
[*] Don't get me wrong, the West is still producing a lot of great products, but, with the notable exception of Germany, they are all running trade deficits (i.e. the goods they buy from the market have a greater market
price than they goods they sell on it.
Note: Please notice how I used the term market price instead of market value, because these two things are not the same, unless for example you honestly think that footballs players are worth all these millions of dollars that they get. But that is another discussion, for another time).
