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“Some of the biggest cases of mistaken identity are among intellectuals who have trouble remembering that they are not God.”

                                                      Thomas Sowell

Commentary & Analysis

Jamie Dimon’s Smug Mug!

I am not sure where or how Jamie Dimon grew up, but he carries himself like yet another prep-school brat who needs his smart-aleck mug readjusted. Had he hung out where I did as a kid, I am sure many of my friends would have been standing in line for an opportunity to help Jamie with plenty of adjustments. But of course, we can’t suggest such things in civilized circles; we have to play along with these “effete elite” Masters of the Universe who have more power than they ever deserve thanks to a very corrupt system that protects and nurtures the financial “industry.”

As I observe the financial press fawn all over poor Jamie as if he is some kind of “victim,” I consider this passage from Michael Hudson’s excellent book, The Bubble and Beyond, and then reach for my “effete elite” sickness bag:

So the world finds itself drawn into a new form of economic warfare. Waged by finance against industry as well as labor, it also is against government–at least, democratic government, which is turned into a vehicle to extract revenue and sell off assets to pay a creditor oligarchy. The trick is to convince voters to support a policy that shrinks the economy and throws the government budgets into deficit, adding a fiscal crisis on top of the debt crisis–which the financial sector sees as an opportunity to turn nations into a grab bag for assets and further control.

The effect is to make financialized economies higher-cost and hence less competitive–and less able to pull themselves out of depression by exporting more. Competitive advantage shifts to less debt-ridden economies, especially those where real estate is less debt leveraged and public infrastructure provides basic services at costs or subsidized rates. Politically, this means economies whose financial sectors have not gained enough power to capture the state, its central bank and regulatory agencies–or the academic economics curriculum, for that matter.

But financialized globalization seeks to widen the web of debt throughout the world, achieving what formerly was won by military force. In the name of “wealth creation” the financial sector has euphemized and transformed political ideology to such a degree that most countries are applauding the most predatory grabs of the public domain (government enterprises, land and mineral rights) since the Enclosure Movements of the 16th through 18th century in England, and earlier military conquests of the New World and most of Europe.

What is not recognized is that the effect of financializing an economy is much the same as levying tribute following armed conquest. Property ownership is transferred, on terms that block governments from taxing revenue that is “expensed” as interest or escapes through tax-avoidance transactions with offshore banking centers. Sell-offs of public monopolies such as roads and other infrastructure are turned into opportunities for rent extraction. This turns the economy into a set of tollbooths as user-fees raised on labor, industry, and other non-financial ‘real’ activity. Revenue is ‘freed’ of anti-monopoly rules and price regulation, and even taxation as property taxes are cut to leave more revenue ‘free’ to be paid as debt service.

The Progressive Era did not envision that campaign financing would make politics part of the ‘market economy’ by enabling the financial, insurance and real estate (FIRE) sector to buy political support for its debt leveraging. Government was supposed to regulate high finance, not cater to it. But the financial sector’s influence has become dominant by appropriating the central bank, Treasury and other agencies capable of remunerating it (or blocking public attempts to tax or regulate it). These financialized arms of government are filling the vacuum created by limiting government’s social welfare role. Rather than investing in infrastructure, central bank money creation and borrowing are limited to bailouts, subsidies and tax cuts for banks and their major customers.

…Internationally, bankers demand that governments pay creditors by privatizing whatever assets can be sold. Buyers borrow the purchase price from the banks, expensing their revenue as tax-deductible interest payments. These privatization policies together cause a fiscal squeeze that forces governments even further into dependency on bankers and bondholders.

…What is deemed ‘efficient’ is to shift planning out of public hands to those of bankers. Yet public policy aims (or is supposed to aim) at raising output, employment, capital formation and living standards. Financialized planning is short-term, and aims to capitalize the economic surplus into debt service at the going rate of interest. The business plan of finance capital is to expand interest and amortize charges to the point where they absorb all disposable consumer income over and above essentials, all business cash flow and real estate rent over and above break-even costs, and government revenue over basic police and other necessary functions.

And then the economy collapses! How else can matters end when debt obligations grow exponentially as interest charges mount up? Debts grow at compound interest, swollen by penalties on arrears. Unpaid bills are added onto debt balance, until foreclosure time arrives, transferring property to creditors under distress conditions. Vulture funds clean up.

The dynamic has happened before, most notoriously in the Roman Empire after 133 BC when creditors used violence against the Gracchi and other reformers. Violence and corruption are essential tactics to impoverish the economy while creating billionaires at public expense.

So, I guess it was no surprise Ben Bernanke and friends decided to continue to supply what their masters demanded recently. What has all this central bank largesse brought us?

A good friend recently shared some research with me from a brilliant man named Criton Zoakos of Leto Research. Mr. Zoakos sums it up quite well:

… after five full years from its inception, the “exceptional” monetary accommodation appears to be putting down roots for the long haul – both in the United States and among the other major central bank jurisdictions.

…The evidence now available from five years of “exceptional” monetary accommodation suggests that there is no “returning” to “solid recovery” because the downturn is not cyclical. It is structural, and the structure in question is global. The trade, production and investment structures that have emerged from a quarter century of globalization are no longer compatible with the financial and debt structure.

During the five years of “exceptional” monetary policies, central bank balance sheets exploded by $10 trillion (150%), global government debt by $20 trillion (65%) and global total stock market capitalization by $26 trillion (84%). During the same five years, however, real global GDP grew by only $8 trillion (11.5%).

Global unemployment as measured by the International Labor Organization (ILO) increased by over 32 million people to 201.4 million, from 169 million (to 6.1% from 5.4%) to 200 million. Moreover, this rising unemployment rate is calculated against a declining rate of labor participation: according to the ILO, the global ratio of employment to population declined from the pre-crisis level of 61.3% to 60.2%. In many parts of the world, including the United States and the European Union, the reduction of employment was accompanied by reductions in real wages and salaries.

On the whole, the five years of “exceptional” monetary policies have been to the great benefit of owners of capital and to the loss of labor, employed and unemployed. This widening socio-economic gap and the stagnation of economic activity were the defining features of the previous five years of QE and have triggered rising social and political conflicts in virtually every part of the world.

Take this information and do with it what you will. Call me a socialist (which couldn’t be further from the truth). Call your local congressman (whatever good that will do). Grab your pitchfork and head to Washington (I didn’t say that NSA if you are listening). But please, please don’t cry for Jamie Dimon.

Have a great weekend.