Monday, January 28, 2008

Signs of the Economic Apocalypse, 1-28-07


Gold closed at 910.70 dollars an ounce Friday, up 2.9% from $885.20 for the week. The dollar closed at 0.6811 euros Friday, down 0.5% from 0.6843 at the close of the previous week. That put the euro at 1.4682 dollars compared to 1.4613 the Friday before. Gold in euros would be 620.28 euros an ounce, up 2.4% from 605.76 at the close of the previous Friday. Oil closed at 90.71 dollars a barrel Friday, up 0.1% from $90.62 for the week. Oil in euros would be 61.78 euros a barrel, down 0.4% from 62.01 at the close of the Friday before. The gold/oil ratio closed at 10.04 Friday, up 2.8% from 9.77 at the close of the previous week. In U.S. stocks, the Dow closed at 12,207.17 Friday, up 0.9% from 12,099.30 at the end of the week before. The NASDAQ closed at 2,326.20, down 0.6% from 2,340.02 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.55%, down 8 basis points from 3.63 for the week.

The stock market rose a bit last week. Ho hum, right? Of course that statement conceals the roller coaster that was last week, with stocks falling sharply the first half, then recovering the second half of the week. The drops in global stock markets in the beginning of the week (the beginning of the year, really) were so sharp that many of us, even those who had been predicting this for years, had that sick feeling in the pit of our stomach. How bad would it get? Recession, depression, or complete collapse? We still don’t know, but given the underlying situation, the collapse side of the equation seems more likely than a simple recession (two consecutive quarters of negative growth).

Why? The great big black hole of debt, of kinds of debt that have never existed before and that no one really understands:
The black box economy

Behind the recent bad news lurks a much deeper concern: The world economy is now being driven by a vast, secretive web of investments that might be out of anyone's control.

Stephen Mihm

January 27, 2008

The past year has been a harrowing one for the world's financial markets, shaken by subprime crises, credit crunches, and other ills. Things have only gotten stranger in the past week, with stock prices swinging wildly in every major market - drastically down, then back up.

Last week the Federal Reserve announced the biggest cut in overnight lending rates in more than two decades. Congress, not to be outdone, is slapping together a massive deficit spending package aimed at giving the economy an emergency booster shot.

Despite the anxiety, nobody is stockpiling canned goods just yet. The prevailing assumption in today's economy is that recessions and bear markets come and go, and that things will work out in the end, much as they have since the Great Depression. That's because there's a collective confidence that the market is strong enough to correct itself, and that experts in charge of the financial system will understand how to mount a vigorous defense.

Should we be so confident this time? A handful of financial theorists and thinkers are now saying we shouldn't. The drumbeat of bad news over the past year, they say, is only a symptom of something new and unsettling - a deeper change in the financial system that may leave regulators, and even Congress, powerless when they try to wield their usual tools.

That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade - a web of extraordinarily complex securities and wagers that has made the world's financial system so opaque and entangled that even many experts confess that they no longer understand how it works.

Unlike the building blocks of the conventional economy - factories and firms, widgets and workers, stocks and bonds - these new financial arrangements are difficult to value, much less analyze. The money caught up in this web is now many times larger than the world's gross domestic product, and much of it exists outside the purview of regulators.

Some of these new-generation investments have been in the news, such as the securities implicated in the mortgage crisis that is still shaking the housing market. Others, involving auto loans, credit card debt, and corporate debt, are lurking in the shadows.

The scale and complexity of these new investments means that they don't just defy traditional economic rules, they may change the rules. So much of the world's capital is now tied up in this shadow economy that the traditional tools for fixing an economic downturn - moves that have averted serious disasters in the recent past - may not work as expected.

In tell-all books, financial blogs, and small-circulation newsletters, a handful of insiders have begun to sound the alarm, warning that governments and top bankers may simply no longer understand the financial system well enough to do anything about it.

"Central banks have only two tools," says Satyajit Das, author of "Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives," who has emerged as a voice of concern. "They can cut interest rates or they can regulate banks. But these are very old-fashioned tools, and are completely inadequate to the problems now confronting them."

Since the last financial crisis that genuinely threatened the fabric of our society, the Great Depression, the United States has built a system of regulatory checks and balances that has, for the most part, worked. The system has worked because the new regulations enforced some semblance of transparency. Companies abide by an extensive set of rules and file information on their profits, losses, and assets.

Obviously, there are limits to transparency: Without withholding some information from public view, it would be hard for companies to take advantage of opportunities in the marketplace. But a modicum of transparency can go a long way, enabling both regulators and investors to make informed decisions. The advantages of the system are many; the costs of even a single case of nontransparency, as with Enron, can be high.

But when the mortgage crisis broke last summer, it opened a window on something else: The existence of a huge wilderness of investments in the financial sector that are nearly impossible to track or measure, and which operate out of the view of both investors and regulators. It emerged that investment banks, hedge funds, and other financial players had issued, bought, and sold hundreds of billions of dollars' worth of esoteric securities backed in part by other securities, which in turn were backed by payments on high-risk mortgages.

When borrowers began defaulting on their loans, two things happened. One, banks, pension funds, and other institutional investors began revealing that they owned huge quantities of these unusual new securities, called collateralized debt obligations, or CDOs. The banks began writing them off, causing the massive losses that have buffeted the country's best-known financial companies. And two, without a market for these securities, brokers stopped wanting to issue risky mortgages to new home buyers. Home values began their plunge.

In other words, a staggeringly complex financial instrument that most Americans had never heard of, and which many financial writers still don't fully understand, became in a matter of months the most important influence on home values in America. That's not how the economy is supposed to work - or at least that's not what they teach students in Economics 101.

The reason this had been happening totally out of sight is not difficult to understand. Banks of all stripes chafe against the restraints that federal and state regulators place on their ability to make money. By cleverly exploiting regulatory loopholes, investment banks created new types of high-risk investments that did not appear on their balance sheets. Safe from the prying eyes of regulators, they allowed banks to dodge the requirement that they keep a certain amount of money in reserve. These reserves are a crucial safety net, but also began to seem like a drag to financiers, money that was just sitting on the sidelines.

"A lot of financial innovation is designed to get around regulation," says Richard Sylla, professor of economics and financial history at NYU's Stern School of Business. "The goal is to make more money, and you can make more money if you don't have to keep capital to back up your investments."

The hiding places for these financial instruments are called conduits. They go by various names - the SIV, or structured investment vehicle, is one that's been in the news a great deal the past few months. These conduits and the various esoteric investments they harbor constitute what Bill Gross, manager of the world's largest bond mutual fund, called a "Frankensteinian levered body of shadow banks" in his January newsletter.

"Our modern shadow banking system," Gross writes, "craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever."

The mortgage-driven securities that have been making headlines are but the tip of a much larger iceberg. Far larger categories of investment have sprung up, with just as much secrecy, and even less clarity into who holds them and how much they are truly worth.

Many of these began as conventional instruments of finance. For instance, derivatives - the broad category of investments whose value is somehow based on other assets, whether a stock, commodity, debt, or currency - have been traded for more than a century as a form of insurance, helping stabilize otherwise volatile markets.

But today, increasingly, a new generation of derivatives doesn't trade on markets at all. These so-called over-the-counter derivatives are highly customized agreements struck in private between two parties. No one else necessarily knows about such investments because they exist off the books, and don't show up in the reports or balance sheets of the parties who signed them.

As the derivatives business has grown more complex, it has also ballooned in scale. Broadly speaking, Das - author of a leading textbook on derivatives and complex securities - estimates that investors worldwide hold more than $500 trillion worth of derivatives. This number now dwarfs the global GDP, which tops out around $60 trillion.

Essentially unregulated and all but invisible, over-the-counter derivatives comprise a huge web of bets, touching every sector of the world economy, that entangles a massive amount of money. If they start to look shaky - or if investors need to start selling them to cover other losses - that value could vanish, with catastrophic results to the owner and unpredictable effects on financial markets.

Derivatives can ripple through the market and link players that might not otherwise be connected. With some types of new investments, that fusion takes place within the security itself.

For instance, some financial instruments are built of two or more different types of assets, linking together sectors of the economy that aren't supposed to move in tandem. In the name of transferring risk - and in the interest of creating an appealing new product to sell to aggressive investors seeking higher returns - a bank could create a CDO, for instance, that packaged subprime mortgages together with corporate bonds. An economist would expect those to move independently, but thanks to a large - and unseen - investment in such a linked package, problems with one could drive down the other. A bad apple can ruin an entire barrel of fruit.

Again, it's not as though anyone necessarily knows the composition of these structured securities. Nor do they know who has invested in them, thanks to the fact that they have not, until recently, counted as conventional assets subject to the normal rules of accounting. And because they don't trade on open markets, their values are essentially guesses, calculated by computer algorithms.

Das disparages much of this as the product of bankers creating "complexity for the sake of complexity," trying to wow their clients by inventing more sophisticated-seeming investments. "Financial innovation is a magical catch phrase," he explains. "It's very sophisticated and chi-chi."

"Investment bankers want to make them more complex, so that they won't be copied, and so that their clients won't understand them," he says. "When they ask whether they're paying the right amount, they won't know."

But when reality comes home to roost, things can get ugly pretty quickly: If an investor is forced to sell a CDO, the onetime price realized on the open market may bear no relationship to the theoretical value generated by a computer formula. That means that everyone holding CDOs can no longer sleep well at night: the same thing can happen to them.

These risks are magnified, as they were during the stock bubble of the 1920s, by the fact that many of these assets are owned by investors who borrowed money to make the investments in the first place. When a market shock like the subprime crisis hits, it can send tremors through the system with incredible speed.

If the contagion spreads, the conventional wisdom holds that the Federal Reserve and other central banks around the world can step into the breach caused when consumers and investors start to lose their confidence. But what happens when all these complicated financial arrangements and instruments start to unravel? The market for one product alone - the credit default swap, or CDS - dwarfs this country's economy. The Fed has an uphill battle, made harder by the fact that it is grappling, to a large extent, with unseen forces.

In theory, additional regulation may help with this. The Financial Accounting Standards Board, which establishes corporate accounting procedures and guidelines, took a first step in that direction this past November, ordering investment banks and anyone else holding complicated securities to assign market values to so-called Level 3 assets - a fancy name for assets for which there is no prevailing market price. This meant assigning a market value to all those CDOs.

Banks promptly began writing down tens of billions of dollars of assets, and their investors are still trying to sort through the results. It's still too early to tell whether or not the effort will work, or whether the "market prices" that get reported are anything more than figments of in-house accountants' imaginations. For his part, Das is skeptical. "It will help that people will know the poison they're drinking," he says. "Whether it will help stabilize the system is another question."

It would be ideal if the financial markets became a bit less opaque and intelligible before that happens. That would be the job of regulators, but Das isn't sure that regulators have the intellectual horsepower to figure out what they need to do. "If you're bright and you can make $5 million a year on Wall Street," he asks, "why would you settle for making 50K as a regulator?"

And in any case, transparency isn't really what the denizens of Wall Street want, Das observes. "The regulators keep espousing things like clarity and transparency, but it's in the investment bankers' interest to keep things opaque." Das pauses for a moment.

"It's like a butcher. He doesn't want the buyer to know what goes into making the sausage." He chuckles, noting that it's the same with financiers. "That's what they're all about and always have been."

Stephen Mihm is an assistant professor of American history at the University of Georgia and the author of “A Nation of Counterfeiters.”

There’s a history to this. Most trace this complexification of financial instruments back twenty years, to the 1987 stock market crash and Alan Greenspan’s term as Federal Reserve Chairman.
More than 20 Years in the Making

Doug Noland

It all began innocently enough: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

The newly appointed Federal Reserve chairman, Alan Greenspan, released this statement prior to the opening of market trading on Tuesday, October 20, 1987. The previous day, “Black Monday,” the Dow Jones Industrial Average crashed 508 points, or 22.6%. All the major indices were down in the neighborhood of 20%, with S&P500 futures ending the historic trading session down 29%.

The 1987 stock market crash was contemporary Wall Street finance’s first serious market dislocation. Stock market speculation had been running rampant, at least partially fostered by newfangled hedging and “portfolio insurance” trading strategies. When a highly speculative market began to buckle, the forced selling of S&P futures contracts to hedge the rapidly escalating exposure to market insurance written (“dynamic trading”) played an instrumental role in instigating illiquidity and a market panic.

Following “Black Monday,” there was of course considerable media attention directed at the event’s causes and consequences. Some believed at the time the stock market was discounting a severe economic downturn. Others recognized the reality that the situation had little to do with underlying economic forces. The economy was in the midst of a robust economic expansion, while Credit was flowing (too) freely. Immediately post-crash, however, the financial system was extremely vulnerable and the Greenspan Fed acted decisively to ensure the marketplace understood clearly that the Federal Reserve was a willing and able liquidity provider.

Credit then really began to flow. Greenspan’s assurances came at a critical juncture for the fledging Wall Street securitization marketplace; for Michael Milken, Drexel Burnham and the junk bond market; for private equity, hostile takeovers and the leveraged buyout boom; for the fraudulent S&L industry and for many banks’ commercial lending operations. While it sounds a little silly after what we’ve witnessed since, there was a time when the eighties were known as the “decade of greed.”

When the junk bonds, LBOs, S&Ls, and scores of commercial banks all came crashing down beginning in late-1989 to 1990, the Greenspan Fed initiated an historic easing cycle that saw Fed funds cut from 9.0% in November 1989 all the way to 3.0% by September 1992. In order to recapitalize the banking system, free up system Credit growth, and fight economic headwinds, the Greenspan Federal Reserve was more than content to garner outsized financial profits to the fledgling leveraged speculator community and a Wall Street keen to seize power from the frail banking system. Wall Street investment bankers, all facets of the securitization industry, the derivatives market, the hedge funds and the GSEs never looked back –not for a second.

In the guise of “free markets,” the Greenspan Fed sold their soul to unfettered and unregulated Wall Street-based Credit creation. What proceeded was the perpetration of a 20-year myth: that an historic confluence of incredible technological advances, a productivity revolution, and momentous financial innovation had fundamentally altered the course of economic and financial history. The ideology emerged (and became emboldened by each passing year of positive GDP growth and rising asset prices) that free market forces and enlightened policymaking raised the economy’s speed limit and increased its resiliency; conquered inflation; and fundamentally altered and revolutionized financial risk management/intermediation. It was one heck of a compelling – alluring – seductive story.

But, as they say, “there’s always a catch”. In order for New Age Finance to work, the Fed had to make a seemingly simple – yet outrageously dangerous - promise of “liquid and continuous” markets. Only with uninterrupted liquidity could much of securities-based contemporary risk intermediation come close to functioning as advertised. Those taking risky positions in various securitizations (especially when highly leveraged) needed confidence that they would always have the opportunity to offload risk (liquidate positions and/or easily hedge exposure). Those writing derivative “insurance” – accommodating the markets’ expanding appetite for hedging - required liquid markets whereby they could short securities to hedge their risk, as necessary. There were numerous debacles that should have alerted policymakers to some of New Age Finance’s inherent flaws (1994’s bond rout, Orange Co., Mexico, SE Asia, Russia, Argentina, LTCM, the tech bust, and Enron to name a few). Yet the bottom line was that the combination of the Fed’s flexibility to aggressively cut rates on demand; ballooning GSE balance sheets on demand; ballooning foreign official dollar reserve holdings on demand; and insatiable demand for the dollar as the world’s reserve currency all worked in powerful concert to sustain (until recently) the U.S. Credit Bubble - through thick and thin…

The greatest flaw in the Greenspan/Bernanke monetary policy doctrine was a dangerously misguided understanding of the risks inherent to their “risk management” approach. Repeatedly, monetary policymaking was dictated by the Fed’s focus on what it considered the possibility of adverse consequences from relatively low probability (“tail”) developments in the Credit system and real economy. In other words, if the markets (certainly inclusive of “New Age” structured finance) were at risk of faltering, it was believed that aggressive accommodation was required. The avoidance of potentially severe real economic risks through “activist” monetary easing was accepted outright as a patently more attractive proposition compared to the (generally perceived minimal) inflationary risks that might arise from policy ease. As it was in the late 1920s, such an accommodative (“coin in the fuse box”) policy approach is disastrous in Bubble environments.

The Fed’s complete misconception of the true nature of contemporary “inflation" risk was a historic blunder in monetary doctrine and analysis. To be sure, the consequences of accommodating the markets were anything but confined to consumer prices. Instead, the primary - and greatly unappreciated - risks were part and parcel to the perpetuation of dangerous Credit Bubble Dynamics and myriad attendant excesses. Importantly, the Fed failed to recognize that obliging Wall Street finance ensured ever greater Bubble-related distortions and fragilities – deeper structural impairment to both the financial system and real economy. In the end, the Fed’s focus on mitigating “tail” risk guaranteed a much more certain and problematic “tail” – a rather fat one at that.

Fundamentally, the Greenspan/Bernanke “doctrine” totally misconstrued the various risks inherent in their strategy of disregarding Bubbles as they expanded – choosing instead the aggressive implementation of post-Bubble “mopping up” measures as necessary. They were almost as oblivious to the nature of escalating Bubble risk as they were to present-day complexities incident to implementing “mop up” reflationary policies. “Mopping up” the technology Bubble created a greatly more precarious Mortgage Finance Bubble. Aggressively “mopping up” after the mortgage/housing carnage in an age of a debased and vulnerable dollar, $90 oil, $900 gold, surging commodities and food costs, massive unwieldy pools of speculative global finance, myriad global Bubbles, and a runaway Chinese boom is fraught with extraordinary risk. Furthermore, the Fed’s previously most potent reflationary mechanism - Wall Street-backed finance – is today largely inoperable…

I’ll stick with the view that an unfolding breakdown in various trading models and hedging strategies is at risk of precipitating a crisis of confidence for the leveraged speculating community. I suspect hedge fund trading was much more responsible for chaotic global securities markets this week than a rogue French equities trader. There is, unfortunately, little prospect for markets to calm down anytime soon. There is no quick or easy fix to any of the myriad current problems – seized up securitization markets, sinking housing prices, faltering bond insurers, counterparty issues, a crisis in confidence for “Wall Street finance”, or acute economic vulnerability - to name only the most obvious. Again, they’ve been More than 20 Years in the Making.

Noland seems to think that Greenspan and all the other Ayn Rand/Milton Friedman disciples have made a blunder. What if they knew all along that they were setting up the United States-led world economy of the turn of the 21st century for a massive crash? What if it all was deliberate?

A reading of an indispensable work for understanding what has been happening over the past forty years, Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism, makes that possibility seem likely. According to Klein, the free market, neoliberal ideology of Milton Friedman and the University of Chicago Economics Department requires brutal shocks for its implementation. No one would choose to organize society on the basis of pure unadulterated capitalism, so the public and the politicians must be psychically overloaded in ways reminiscent of Cold War-era CIA experiments in brainwashing and torture. With a society thus immobilized, cold-blooded neoliberal technocrats can then impose economic “shock therapy.” Quite often real torture and public murders of opponents are part of the shock therapy policy.

After discussing the horrific story of Dr. Ewen Cameron and his CIA experiments in the unspeakable “psychic driving” techniques, Klein walks the reader through the torture regimes of the Southern Cone countries, most notably Chile under Pinochet and Argentina in the 1970s, Britain under Thatcher, Poland, Russia, South Africa, China, the Asian financial crisis of late 1990s, down to the United States and Iraq under Bush II. Klein’s work should be enough to enshrine Milton Friedman as one of the great villains of the 20th century, right up there with Hitler and Stalin.

Has any university in the history of the world contributed more to evil than the University of Chicago? The university is not only the home of the Straussian Neocons but also Milton Friedman and the whole neoliberal project. Here is Klein on the parallels between Cameron and Friedman:
Friedman’s mission, like Cameron’s, rested on a dream of raching back to a state of “natural” health, when all was in balance, before human interferences created distorting patterns. Where Cameron dreamed of returning the human mind to that pristine state, Friedman dreamed of depatterning societies, of returning them to a state of pure capitalism, cleansed of all interruptions—government regulations, trade barriers and entrenched interests. Also like Cameron, Friedman believed that when the economy is highly distorted, the only way to reach that prelapsarian state was to deliberately inflict painful shocks: only “bitter medicine” could clear those distortions and bad patterns out of the way. Cameron used electricity to inflict his shocks, Friedman’s tool of choice was policy—the shock treatment approach he urged on countries in distress. (The Shock Doctrine, p. 50)

What did the “Chicago School” led by Milton Friedman advocate?
Frank Knight, one of the founders of the Chicago School economics, thought professors should “inculcate” in their students the belief that each economic theory, is “a sacred feature of the system,” not a debatable hypothesis. The core of such sacred Chicago teachings was that the economic forces of supply, demand, inflation and unemployment were like the forces of nature, fixed and unchanging. In the truly free market imagined in Chicago classes and texts, these forces existed in perfect equilibrium, supply communicating with demand the way the moon pulls the tides. If economies suffered from high inflation, it was, according to Friedman’s strict theory of monetarism, invariably because misguided policy makers had allowed too much money to flood the system, rather than letting the market find its balance. Just as ecosystems self-regulate, keeping themselves in balance, the market, left to its own devices, would create just the right number of products at precisely the right prices, produced by workers at just the right wages to buy those products—an Eden of plentiful employment, boundless creativity and zero inflation.” (p. 50)

The challenge for Friedman and his colleagues was how to prove that a real-world market could live up to their rapturous imaginings… Friedman could not point to any living economy that proved that if all “distortions” were stripped away, what would be left would be a society in perfect health and bounteous, since no country in the world met all the criteria for perfect laissez-faire.” (p. 52)

Like all fundamentalist faiths, Chicago School economics is, for its true believers, a closed loop. The starting premise is that the free market is the perfect scientific system, one in which individuals, acting on their own self-interested desires, create the maximum benefits for all. It follows ineluctably that if something is wrong within a free-market economy—high inflation or soaring unemployment—it has to be because the market is not truly free. There must be some interference, some distortion in the system. The Chicago solution is always the same: a stricter and more complete application of the fundamentals. (p. 51)

The question, as always, was how to get to that wondrous place from here. The Marxists were clear: revolution—get rid of the current system, replace it with socialism. For the Chicagoans, the answer was not as straightforward. The United States was already a capitalist country, but as far as they were concerned, just barely. In the U.S., and in all supposedly capitalist economies, the Chicagoans saw interferences everywhere. To make products more affordable, politicians fixed prices; to make workers less exploited, they set minimum wages; to make sure everyone had access to education, they kept it in the hands of the state. These measures often seemed to help people, but Friedman and his colleagues were convinced—and they “proved” it with their models—that they were actually doing untold harm to the equilibrium of the market and the ability of its various signals to communicate with each other. The mission of the Chicago School was thus one of purification—stripping the market of these interruptions so that the free market could sing.

For this reason, Chicagoans did not see Marxism as their true enemy. The real source of trouble was to be found in the ideas of the Keynesians in the United States, the social democrats in Europe and the developmentalists in what was then called the Third World. These were believers not in a utopia but in a mixed economy, to Chicago eyes an ugly hodgepodge of capitalism for the manufacture and distribution of consumer products, socialism in education, state ownership for essentials like water services, and all kinds of laws designed to temer the extremes of capitalism. Like the religious fundamentalist who has a grudging respect for funamentalists of other faiths and for avowed atheists but disdains the casual believer, the Chicagoans declared war on these mix-and-match economists. What they wanted was not a revolution exactly but a capitalist Reformation: a return to uncontaminated capitalism. (p. 51)

For the heads of U.S. multinational corporations, contending with a distinctly less hospitable developing world and with stronger, more demanding unions at home, the postwar boom years were unsettling times. The economy was growing fast, enourmous wealth was being created, but owners and shareholders were forced to redistribute a great deal of wealth through corporate taxes and workers’ salaries. Everyone was doing well, but with a return to the pre-New Deal rules, a few people could have been doing a lot better. (p. 56)

Though always cloaked in the language of math and science, Friedman’s vision coincided precisely with the interests of large multinationals, which by nature hunger for vast new unregulated markets. In the first stage of capitalist expanion, that kind of ravenous growth was provided by colonialism—by “discovering” new territories and grabbing land without paying for it, then extracting riches from the earth without compensating local populations. Friedman’s war on the “welfare state” and “big government” held out the promise of a new font of rapid riches—only this time, rather than conquering new territory, the state itself would be the new frontier, its public services and assets auctioned off for far less than they were worth. (p. 57)

Klein shows how the realization of the Chicago School planners that no normal society would ever implement their ideas except in time of severe crisis soon led to the deliberate creation of crises for just that reason. Then, immoblized by shock, all public assets are plundered and privatized. Not only that, but decisions about such matters, surely among the most important, are removed from public debate.

So, given what Klein has laid out, how planners deliberately induce serious crises and collapses to pave the way for a neoliberal revolution and given that the United States is entering into such a severe crisis, what could be the motivation? What is left of public services to steal? Klein provides a clue from Canada in the early nineties.
In February 1993, Canada was in the midst of financial catastrophe, or so one would have concluded by reading the newspapers and watching TV. “Debt Crisis Looms,” screamed a banner front-page headline in the national newspaper, the Globe and Mail. A major national television special reported that “economists are predicting that sometime in the next year, maybe two years, the deputy minister of finance is going to walk into cabinet and announce that Canada’s credit has run out…. Our lives will change dramatically.”

The phrase “debt wall” suddenly entered the vocabulary. What it meant was that, although life seemed comfortable and peaceful now, Canada was spending so far beyond its means that, very soon, powerful Wall Street firms like Moody’s and Standard and Poor’s would downgrade our national credit from its perfect Triple A status to something much lower. When that happened, hypermobile investors, liberated by the new rules of globalization and free trade, would simply pull their money from Canada and take it somewhere safer. The only solution, we were told, was to radically cut spending on such programs as unemployment insurance and health care. Sure enough, the Liberal Party did just that…

Two years after the deficit hysteria peaked, the investigative journalist Linda McQuaig definitively exposed that a sense of crisis had been carefully stoked and manipulated by a handful of think tanks funded by the largest banks and corporations in Canada… (p. 257)

With the baby-boom generation entering retirement and high health care spending years, clearly the neoliberals want to eliminate Social Security, Medicare and Medicaid in the U.S. and throw everyone at the mercy of the cruel marketplace. It may be that the way clear to the neoliberal paradise in their minds lies in a complete collapse of the dollar and the introduction of the Amero and a North American Union, where all the workers will have the same rights and benefits of Mexican workers.

Last week we wrote:
To the extent that a social theory or movement has an incorrect view of human nature, to that extent is it susceptible to ponerization. For Marxism or revolutionary socialism, the erroneous view of human nature would be that human nature is a blank slate created by human practice. Its downfall was that it didn’t recognize the two types of humans: psychopaths and those with the potential to develop conscience. It shares that downfall with many other ideologies and religions.

Where does neoliberalism fit in? One the one hand it clearly has an impoverished view of human nature: nothing but self-interested legal actors freely buying and selling things. But neoliberalism seems more like the vehicle for the ponerization of society at large than an idealistic movement that got corrupted. Or that its idealism and corruption are one and the same. It is as if it is a purely idealistic when seen from the point of view of psychopaths. Andrew Lobaczewski in Political Ponerology explains this strange idealism, the paradise for psychopaths:
In any society in this world, psychopathic individuals and some of the other deviant types create a ponerogenically active network of common collusions [they cooperate with each other, in other words], partially estranged from the community of normal people. An inspirational role of essential psychopathy in this network appears to be a common pheonomenon. They are aware of being different as they obtain their life-experiences and become familiar with different ways of fighting for their goals. Their world is forever divided into “us and them”; their little world with its own laws and customs and that other foreign world of normal people that they see as full of presumptious ideas and customs by which they are condemned morally. Their sense of honor bids them to cheat and revile that other human world and its values at every opportunity. In contradiction to the customs of normal people, they feel that breaking their promises is appropriate behavior… (p. 138)

In the psychopath, a dream emerges like some Utopia of a “happy” world and a social system which does not reject them or force them to submit to laws and customs whose meaning is incomprehensible to them. They dream of a world in which their simple and radical way of experiencing and perceiving reality would dominate; where they would, of course, be assured safety and prosperity. In this Utopian dream, they imagine that those “others”, different, but also more technically skillful than they are, shold be put to work to achieve this goal for the psychopaths and others of their kin. “We”, they say, “will create a new government, one of justice.” They are prepared to fight and suffer for the sake of such a brave new world, and also, of course, to inflict suffering upon others. Such a vision justifies killing people, whose suffering does not move them to compassion because “they” are not quite conspecific. (p. 139)

These are the people who are pushing the world economy over the edge to create their Utopia which, if we let them, will be a nightmarish dystopia for the rest of us.

In any case, many of us in the North Atlantic regions are facing the prospect of something that none of us under the age of seventy have experienced. How to deal with these fears? With knowledge, of course, which leads to preparedness and right action. The following two articles written by Russians who lived through economic collapse are invaluable: “Survival in Times of Uncertainty: Growing up in Russia in the 1990s” by Legal Alien and Post-Soviet Lessons for a Post-American Century by Dmitry Orlov.

Next week: a glossary of terms.

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Monday, January 21, 2008

Signs of the Economic Apocalypse, 1-21-08


Gold closed at 885.20 dollars an ounce Friday, down 1.4% from $897.40 for the week. The dollar closed at 0.6843 euros Friday, up 1.1% from 0.6768 at the close of the previous week. That put the euro at 1.4613 dollars compared to 1.4776 the Friday before. Gold in euros would be 605.76 euros an ounce, down 0.3% from 607.34 at the close of the previous Friday. Oil closed at 90.62 dollars a barrel Friday, down 2.3% from $92.73 for the week. Oil in euros would be 62.01 euros a barrel, down 1.2% from 62.75 at the close of the Friday before. The gold/oil ratio closed at 9.77 Friday, up 0.9% from 9.68 at the close of the previous week. In U.S. stocks the Dow closed at 12,099.30 Friday, down 4.2% from 12,606.30 at the end of the week before. The NASDAQ closed at 2,340.02 Friday, down 4.3% from 2,439.94 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.63%, down 15 basis points from 3.78 for the week.

The continued fall in the stock market has frightened the general public and the insiders, it seems. Hardly anyone now says there won’t be a recession. Predicting recession seems to be a bullish position now, with the bears predicting a depression or even a collapse.

US bank losses intensify recession fears

Patrick Martin

15 January 2008

Two more major banks reported heavy mortgage and consumer-loan losses Monday for the fourth quarter of 2007, reinforcing fears that that US financial crisis will likely trigger a recession, not only in America, but worldwide.

M&T Bank, based in Buffalo, New York, reported a 70 percent decline in earnings for the fourth quarter, largely due to losses on Collateralized Debt Obligations, the financial instrument widely used to transform home mortgages into tradeable securities.

Sovereign Bancorp of Philadelphia said it would take a $1.6 billion write-off for the fourth quarter, much of it related to mortgage lending. However, $600 million of the loss was due to defaults on consumer loans, an indication that the financial crisis is spreading. Sovereign said it had stopped issuing auto loans in seven of the 15 states in which it does business—Nevada, Utah, Arizona, Florida, Georgia and North and South Carolina.

Also on Monday, CNBC reported that the biggest US bank, Citigroup, will announce a colossal write-off of as much as $24 billion and the elimination of as many as 24,000 jobs. The bank is to report its fourth-quarter earnings Tuesday, and is also expected to announce a cut in its dividend.

Citigroup has been scouring the Middle East and Asia for investors in a position to take multi-billion-dollar stakes. Among those said to be involved is Prince Alwaleed bin Talal of Saudi Arabia. The bank is seeking to raise as much as $15 billion in new capital. On Monday, the state-owned China Development bank decided not to go ahead with a proposed investment of $2 billion in the company, forcing Citigroup to seek other benefactors.

The Financial Times reported Monday that Merrill Lynch, the largest US stockbroker, is seeking to raise an additional $4 billion in new capital, with the Kuwait Investment Authority as the leading candidate. Merrill Lynch is expected to write off as much as $14 billion in losses and lay off up to 1,000 workers.

The spectacle of giant US financial institutions going hat in hand to the oil sheiks and the government investment agencies of China, Taiwan and Singapore is one indicator of the deteriorating world position of American capitalism.

Another is the continued fall in the dollar, both against the currencies of rival capitalist powers, and against gold and other precious metals. Gold topped the $900 an ounce mark Monday in London trading, at one point hitting $914, an all time record. Platinum set a new record of $1,587 an ounce, while silver hit $16.58 an ounce, the highest figure in 27 years.

The dollar dropped to a record low of 1.0912 Swiss francs, while also hitting seven-week lows against the euro and the yen. At $1.4890 to the euro, the dollar is near to breaking the 1.50 barrier. That is widely regarded as a psychological milestone which could produce a much wider sell-off of dollars as countries currently accumulating dollars—especially the oil states and Asian exporters—seek to shift their surpluses to euros, yen or a basket of currencies more likely to retain their value.

The latest dollar plunge was said to be in response to comments last week by Federal Reserve Board chairman Ben Bernanke, in which he pledged “substantive additional action” to prop up the US economy, a statement widely viewed as a pledge to continue cutting US interest rates by at least a half percentage point this month.

Further cuts in US interest rates, carried out at the behest of Wall Street to stave off a collapse of confidence in the financial system, ultimately make the crisis even worse, since reducing the rate of return impels foreign investors to dump their dollar-denominated assets and shift their holdings into other, more lucrative, investments.

Exerting continuous pressure on the value of the dollar is the gargantuan US trade deficit, which hit its highest monthly total in 14 months last November, according to figures released by the US Commerce Department January 11. The trade deficit shot up 9.3 percent to $63.1 billion, much more than expected, driven by a 16.3 percent rise in the cost of imported oil. Oil imports hit $34.4 billion, accounting for more than half the net deficit.

Retail sales figures from December, to be announced publicly on Tuesday, are expected to show the combined impact on consumer spending of higher gasoline and home heating costs and plunging home values. An actual decline in retail sales in December, compared to the same month the year before, would be the first such negative reading since June.
Sales reports from individual retailers already suggest the dimensions of the downturn in consumer spending, with Macy’s reporting a 7.9 percent decline in same-store sales in December 2007, compared to December 2006. Kohl’s reported an 11 percent drop and Nordstrom a 4 percent drop. The broad decline is an indication that upscale as well as middle-income consumers are cutting back.

Other figures detailed the expanding dimensions of the home mortgage crisis, which is becoming a more generalized crisis of consumer credit:

* A Mortgage Bankers Association survey found that a record 18.81 percent of the nearly 3 million sub-prime adjustable-rate loans issued by its members were already past due.

* Freddie Mac, the big mortgage finance company, found that homeowners refinancing their mortgages were able to extract $20 billion less in the third quarter than the second. The $60 billion in home equity extracted was the lowest since the first quarter of 2005, and indicates that far less such cash will be available for consumer spending.

* The American Bankers Association found that delinquency rates for home equity lines of credit had climbed to their highest level in 10 years at the end of September.

* The Federal Reserve Board reported last week that total outstanding credit card debt rose at an 11.3 percent annual rate in November 2007. For the year, credit card debt is up 7.4 percent to $937.5 trillion, compared to increases of from 2 to 4 percent between 2003 and 2005.

The growing indebtedness of consumers, combined with the falloff of spending, demonstrates that millions of households, working class and middle class, are going further into debt just to finance their day-to-day expenses. Any new expenses can lead to major financial difficulties.

In the face of these figures, the sudden flurry of proposals by the political representatives of big business—the Bush administration, Congress, and the Democratic and Republican candidates—resemble nothing so much as the reorganization of the deck chairs on the Titanic.

White House officials told the press last week that Bush would propose a stimulus package for the US economy in his State of the Union speech scheduled for January 28, although no details had been worked out yet. Treasury Secretary Henry Paulson said January 11 that the US economy had slowed “rather materially” and that “time is of the essence” in initiating any stimulus package.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, the two leading congressional Democrats, sent a joint letter to Bush Friday saying, “We want to work with you.” The letter received a favorable White House response, and Pelosi met with Fed chief Bernanke Monday to discuss what concrete actions could be taken.

Some combination of tax cuts for business, tax rebates for the working poor and a limited extension of unemployment benefits or home heating assistance is the likely outcome of such discussions, with a total amount estimated at $50 to $100 billion. Even these proposals are problematic, however, since congressional Republicans could block such measures, particularly those targeted to lower-income families.

The presidential candidates have chimed in, with the Republican candidates proposing more tax cuts for business and the wealthy—which would do nothing to alleviate the spreading economic distress among working people—and the Democrats offering stimulus packages that would amount to little more than band-aids.

Hillary Clinton’s plan, released Friday, calls for $70 billion in stimulus, including relief for homeowners facing foreclosure and an extension of unemployment benefits. Barack Obama slightly outbid her, offering a $75 billion plan, but with more targeted to business interests in the form of tax incentives.

None of these plans amount to more than a drop in the bucket compared to the vast dimensions of the social and economic crisis in the United States. By one estimate, the $30-a-barrel increase in oil prices over the past five months has by itself cost US consumers $150 billion—double the amount of “stimulus” proposed by the Clinton and Obama plans. It goes without saying that no big business politician is proposing that the oil companies disgorge any of their massive profits. On the contrary, the energy bill adopted by the Democratic Congress last month retains $12 billion in federal subsidies to the oil giants.

More fundamentally, a minor boost to consumer spending will do nothing to offset the spreading financial contagion or restabilize debt markets. The bursting of the housing bubble is only the initial stage of a financial crisis of unprecedented dimensions, one that will call into question the viability of the capitalist system worldwide.

It is probably past time to be worried much about the markets and high time to be worried about essentials like food. Talk of serious global food shortages has been increasing recently. High energy costs and conversion of food production to biofuel production are making food shortages a real possibility, even in developed countries which have had an abundance of food in recent generations.

An Oil Quandary: Costly Fuel Means Costly Calories

Keith Bradsher

January 19, 2008

KUANTAN, Malaysia — Rising prices for cooking oil are forcing residents of Asia’s largest slum, in Mumbai, India, to ration every drop. Bakeries in the United States are fretting over higher shortening costs. And here in Malaysia, brand-new factories built to convert vegetable oil into diesel sit idle, their owners unable to afford the raw material.

This is the other oil shock. From India to Indiana, shortages and soaring prices for palm oil, soybean oil and many other types of vegetable oils are the latest, most striking example of a developing global problem: costly food.

The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.

In some poor countries, desperation is taking hold. Just in the last week, protests have erupted in Pakistan over wheat shortages, and in Indonesia over soybean shortages. Egypt has banned rice exports to keep food at home, and China has put price controls on cooking oil, grain, meat, milk and eggs.

According to the F.A.O., food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.

“The urban poor, the rural landless and small and marginal farmers stand to lose,” said He Changchui, the agency’s chief representative for Asia and the Pacific.

A startling change is unfolding in the world’s food markets. Soaring fuel prices have altered the equation for growing food and transporting it across the globe. Huge demand for biofuels has created tension between using land to produce fuel and using it for food.

A growing middle class in the developing world is demanding more protein, from pork and hamburgers to chicken and ice cream. And all this is happening even as global climate change may be starting to make it harder to grow food in some of the places best equipped to do so, like Australia.

In the last few years, world demand for crops and meat has been rising sharply. It remains an open question how and when the supply will catch up. For the foreseeable future, that probably means higher prices at the grocery store and fatter paychecks for farmers of major crops like corn, wheat and soybeans.

There may be worse inflation to come. Food experts say steep increases in commodity prices have not fully made their way to street stalls in the developing world or supermarkets in the West.

Governments in many poor countries have tried to respond by stepping up food subsidies, imposing or tightening price controls, restricting exports and cutting food import duties.

These temporary measures are already breaking down. Across Southeast Asia, for example, families have been hoarding palm oil. Smugglers have been bidding up prices as they move the oil from more subsidized markets, like Malaysia’s, to less subsidized markets, like Singapore’s.

No category of food prices has risen as quickly this winter as so-called edible oils — with sometimes tragic results. When a Carrefour store in Chongqing, China, announced a limited-time cooking oil promotion in November, a stampede of would-be buyers left 3 people dead and 31 injured.

Cooking oil may seem a trifling expense in the West. But in the developing world, cooking oil is an important source of calories and represents one of the biggest cash outlays for poor families, which grow much of their own food but have to buy oil in which to cook it…

Growth in Biofuels

Biofuels accounted for almost half the increase in worldwide demand for vegetable oils last year, and represented 7 percent of total consumption of the oils, according to Oil World, a forecasting service in Hamburg, Germany.

The growth of biodiesel, which can be mixed with regular diesel, has been controversial, not only because it competes with food uses of oil but also because of environmental concerns. European conservation groups have been warning that tropical forests are being leveled to make way for oil palm plantations, destroying habitat for orangutans and Sumatran rhinoceroses while also releasing greenhouse gases…

Demand Outstrips Supply

As the multiple conflicts and economic pressures associated with palm oil play out in the global economy, the bottom line seems to be that the world wants more of the oil than it can get.

Even in Malaysia, the center of the global palm oil industry for half a century, spot shortages have cropped up. Recently, as wholesale prices soared, cooking oil refiners complained of inadequate subsidies and cut back production of household oil, sold at low, regulated prices.

Street vendors in the capital, Kuala Lumpur, complain that they cannot find enough cooking oil to prepare roti canai, the flatbread that is the national snack. “It’s very difficult; it’s hard to find,” said one vendor who gave only his first name, Palani, after admitting that he was secretly buying cooking oil intended for households instead of paying the much higher price for commercial use.

Many of the hardest-hit victims of rising food prices are in the vast slums that surround cities in poorer Asian nations. The Kawle family in Mumbai’s sprawling Dharavi slum, a household of nine with just one member working as a laborer for $60 a month, is coping with recent price increases for palm oil.

The family has responded by eating fish once a week instead of twice, seldom cooking vegetables and cutting its monthly rice consumption. Next to go will be the weekly smidgen of lamb.

“If the prices go up again,” said Janaron Kawle, the family patriarch, “we’ll cut the mutton to twice a month and use less oil.”

We often focus too much on the problems of the various free trade agreements for the developed countries involved in them. In the United States, that takes the form of complaining about jobs going to Mexico, or about Mexicans coming to the U.S. for jobs. But agreements like NAFTA also damage the poorer partners. The following piece about Mexico, where the government has for generations subsidized the price to consumers of staple food items like beans and corn, while putting tariffs on imported food, shows what happens when trade is “liberalized” with a wealthy partner.

NAFTA and Mexico's Agrarian Apocalypse
Zero Hour

John Ross

January 15, 2008

At the stroke of midnight this past January 1st, a hundred or so farmers and day laborers from both sides of the border converged on the hump of the Cordoba Las Americas bridge that connects up El Paso and Ciudad Juarez, to mark the demise of Mexican agriculture. In accordance with the timetables set by the North American Free Trade Agreement signed by Mexico, the U.S. and Canada 14 years ago, as of January 1st 2008, all tariffs on corn, beans, powdered milk, sugar and 200 agricultural products were reduced to zero, setting in motion a doomsday scenario that farmers organizations here say will inevitably lead to crisis in the Mexican "campo" or countryside, mass abandonment of unsustainable plots, increased hunger, and even armed rebellion by the nation's beleaguered small farmers.

"If they build steel walls to keep our people from entering the United States, we will make walls of people to keep their products out of Mexico," a grizzled leader of the militant farmers' front El Barzon Popular growled into his bullhorn as the protestors spread out in the frigid dark to block the lanes of the bridge over the river the U.S. calls the Rio Grande and Mexico the Rio Bravo. But traffic was slow and few trailers were lined up to ferry the thousands of tons of U.S. agricultural products that pass over the Cordoba Las Americas into Mexico every day.

Strung across the roadway, each protestor carried a letter of the alphabet in his or her hand but despite the palpable fear and loathing afoot out in the Mexican countryside as the tariffs plummet to nothing, the farmers could barely muster enough troops to spell out "Sin Maiz No Hay Pais - Y Tampoco Sin Frijol", including the appropriate spacing between words ("Without Corn, There Is No Country - And Also Without Beans.")

Despite the midnight deadline, the immediate impacts of this premeditated apocalypse may be postponed for a while - at least until the spring planting when farmers have to calculate how many hectares they can afford to put under crops. Unlike the U.S., farm subsidies are a thing of the past here, stripped away years ago in the rush to NAFTA.

Reduction to zero tariffs is not in fact a steep drop. 14 years of incremental decreases had wiped out 90% of all protectionist barriers by 2007 and U.S. corn growers were only shelling out 18% of the value of their exports to get their grain into Mexico. Moreover, NAFTA-driven dumping by lavishly subsidized U.S corn growers that allowed them to drop their loads in Mexico below cost and still make a boodle is being blunted by skyrocketing ethanol subsidies as maize climbs to record quotes on U.S. commodity markets - the grain hit an all-time record $177 USD a metric ton last spring but has begun to slide as storage capacity for ethanol corn is saturated and distribution lags far behind production.

Meanwhile, the uptick in world corn prices ripples out in the global marketplace with tortillas topping out at nine pesos the kilo on New Year's Day here - tortilla prices in Mexico have risen 126% under NAFTA from 1994 to 2007 despite - or because of - massive corn imports from the U.S. (44 million tons in the same period.) The tortilla remains the household measure for basic food prices in Mexico.

According to the World Food & Agricultural Organization or FAO, the world has only 11 weeks of consumable corn reserves left, the lowest inventory since record keeping began. Corn prices will remain unstable until producers can sort out the relationship between food cropping and biofuels, the FAO cautioned in a recent report. Low reserves and high prices are a sure formula for social upheaval, underscores the U.N. organization, pointing out that grain riots broke out in Morocco, Uzbekistan, Yemen, Guinea, Mauritania, and Senegal last year.

Despite the farmers' New Years protest on the Cordoba Bridge, the truth of the matter is that formal notice of the death of Mexican agriculture is long overdue. The damage was done long before NAFTA (or the Treaty of Free Trade With North America - TLCAN - here in Mexico) was a gleam in Ronald Reagan's eyeball. As Mexico decapitalized the "campo" following the 1982 default crisis, which allowed the World Bank and the International Monetary Fund to annex the Mexican economy and initiate "structural readjustment" of the agricultural sector, the nation ceded its nutritional sovereignty to U.S. imports.

The migration of impoverished subsistence farmers from southern Mexico that swelled the Mexico City misery belt in sprawling slums like Nezahualcoytl was the first concrete evidence of the evisceration of the "campo", ventures Harvard professor John Womack in a recent e-mail.
Womack is the author of the definitive biography of Emiliano Zapata, the incorruptible farmer-general who remains emblematic of the campesinos' struggle for land.

NAFTA-TLCAN, which, after all, is an integral part of the same scheme of "structural adjustments" to globalize Mexico's agricultural sector and force dependence on export cropping, has only accelerated the stampede from the countryside and into the migration stream. By the trade treaty's 10th anniversary in 2004, NAFTA-TLCAN had driven 1.2 million farmers off the land, according to a Carnegie Endowment evaluation of the pact's impacts issued that year. Since each farm family averages out to six people, the total number of expulsees from the campo hovers around 6 million.

In 1993, just before NAFTA-TLCAN became fact, Mexico's Secretary of Agriculture contracted UCLA professor Raul Hinojosa to calculate the fallout amongst poor farmers. The researcher's worst-case scenario was the diaspora of 10 million campesinos. Now, with the reduction of NAFTA-TLCAN tariffs to zero, that "goal" is just around the corner.

Where do they go? During ex-president Vicente Fox's six year term in office, 2.4 million Mexicans, 70% of them reportedly displaced farmers, migrated to the U.S. despite the formidable barriers erected by Washington to keep them out. U.S. anti-immigration pundits like Lou Dobbs and Republican and Democratic presidential hopefuls that beat up on undocumented Mexican workers might do better to pin the tail on the correct donkey - the North American Free Trade Agreement.

According to CONAPI, Mexico's Council on Population, 29 million Mexicans and Mexican descendants now live in the United States, two million more than live out in the Mexican campo from which so many of them have fled. Ironically, those 27 million who remain on the land back home are sustained by the $22,000,000,000 USD in "remisas" that those who have gone north send back, Mexico's second source of Yanqui dollars behind $100 barrel petroleum. Which is to say the Mexican agricultural sector is supported by those who have abandoned it.

Since NAFTA-TLCAN kicked in January 1st 1994, the same night the Zapatistas rose in Chiapas to remind Washington just how desperately poor and unstable its new trading partner really was, four Mexican presidents - Carlos Salinas, Ernesto Zedillo, Vicente Fox, and now Felipe Calderon, apparently rendered dumb by Washington's dominance, have turned a deaf ear to demands by farmers' organizations to re-open the treaty-agreement's agricultural chapters for renegotiation. Indeed, leftist Andres Manuel Lopez Obrador's insistence on renegotiating NAFTA-TLCAN was a nuts and bolts factor in the campaign to deny him the presidency.

For Calderon, who was awarded high office amidst widespread fraud, NAFTA-TLCAN has been a net gain for Mexico's farmers. The president and his cohorts like Agriculture Secretary (SAGARPA) Alberto Cardenas never tire of chanting the mantra that the trade pact has nearly tripled Mexican agricultural exports to the U.S. But what these neo-liberal mouthpieces forget to point out is that Mexico has run a $2,000,000,000 USD deficit in Ag exports to the U.S. every year since the late '90s as U.S. imports overwhelm the Mexican market.

Moreover, the Calderon-Cardenas happy stats disingenuously inflate the numbers - for example, Mexican beer on its way to transnational distributors who now invest heavily in breweries south of the border, accounts for 18% of $8.5 billion USD in Ag exports to the north through October 2007.
Under NAFTA, beer is considered an agricultural export.

Nor does the President and his cronies identify who it is that is actually benefiting from the NAFTA-TLCOM boom. According to the National Farmers Confederation or CNC, a creature of the once-ruling (71 years) PRI party and once gung-ho for the trade treaty, only 2% of all Mexican producers are sharing the largesse. The other 98%, including 3.5 million corn farmers, 85% of whom grow on five hectares or less (average U.S. corn spreads are 270 acres), have no access to the NAFTA-TLCAN market whatsoever. The big winners? About 20,000 corporate tomato growers, avocado and tropical fruit moguls, and specialty crop niche market sharpies (organic coffee -but organic anything) - plus, of course, the beer barons.

Meanwhile, on the other side of the ledger, two out of the three top chicken suppliers to Mexico are U.S. headquartered - Pilgrim's Pride and Tyson. Mexico now imports 22% of its corn, 55% of its wheat (which went to zero tariff in 2003), and 72% of its rice from U.S. growers. Wal-Mart, with over 700 megastores and now the largest employer and retail food seller in the country, provides a ready-made distribution system for getting U.S. Ag products into Mexican homes. Wal-Mart, now Mexico's leading tortilla seller, is the poster boy for the NAFTA-TLCAN credo of "convergence" - selling the same product in the same stores at the same price on all sides of the border.

But if Mexico's agricultural apocalypse has already come to pass, new ones are lighting up the radar screens. The zero tariff deadline will particularly play out on southern Mexico's mid-level sugar growers, mostly "pequenos proprietarios" or "small land owners" and their huge workforces of underclass campesinos. In respect to the beloved "frijol", although Cardenas's SAGARPA insists that Mexicanos no longer eat beans and the inundation of U.S.-grown legumes will have little impact on diet, beans are an emblematic commodity which combined with maiz form a protein that has sustained the Mexican "raza" (race) since its birth.

But the most lethal blow from zero tariffs will be a speeded-up abandonment of their plots by small corn farmers and their immersion in an already-swollen migration stream, a tale that does not presage a happy ending. Traditional migration routes to The Other Side are now shut down by U.S. militarization of the border, ICE raids in U.S. Mexican communities, and the anti-Mexican hysteria sweeping that northern neighbor as the presidential campaigns peak…

Violence has been pandemic in the Mexican campo ever since the European Conquest. Massacres and bloody land battles like Acteal in Chiapas (49 killed) and Rio Frio in Oaxaca (29) are contemporary expressions of the eternal war for the land here. Mexico's many guerrillas historically have incubated inside farmers' movements and still do. The Calderon-Cardenas strategy of deliberate denial of the crisis in the countryside is a little like whistling past the graveyard.

Secretary of Agriculture Alberto Cardenas, a former governor of Jalisco state, is an agro-tycoon from the central Mexican "Bajio", a fertile swatch of land from which big growers reap fortunes in export agriculture. A holdover from the Fox administration (Fox too made his fortune in Bajio export agriculture), he is a stocky, pugnacious and not very bright man who represents the right wing of the right wing PAN party, the "Yunque", a secretive Catholic cabal based in the Bajio from which Fox drew many of his cabinet members.

So when he had to sell Mexicans on the "benefits" of zero tariffs, Cardenas came up with the brilliant gimmick of getting Lorena Ochoa, the world's number one woman golfer and a Guadalajara native, to extol the health of the Mexican "campo" - an unfortunate play on words (a "campo de golf" is a golf course) - which has incited farmers' organizations to schedule a national march on Mexico City this January 31st.

For the Mexican underclass, "campos de golf" are the playgrounds of their "patrones" or bosses. 10 years ago, speculators secretly bought community land in Tepotzlan up in Zapata country in Morelos state to build a country club and golf course and began sucking up what little ground water the farmers still had left. Wild protests - the so-called "Golf War" - ensued. In the midst of flying rocks and burning construction machinery, a U.S. reporter asked the newly-elected mayor (the old one had sold out to the golfers) why the people were so agitated about a golf course. Lazaro Rodriguez paused, put his hand on the reporter's shoulder, and stared him in the eye like he was a nincompoop from Mars. "John," the exasperated mayor made it clear, "we don't play golf here."

Last week we looked at how capitalism works and how, by doing what it does, it ruins everything. What can we do about it? Marxism has been an indispensable tool for understanding capitalism, but historically has not been able to offer any solutions. Why is that so? If the diagnosis was so good why wasn’t the cure of revolutionary socialism effective?

According to Andrew Lobaczewski in Political Ponerology, most political movements are susceptible to what he calls “ponerization,” the infiltration of groups by pathological elements that end up twisting the original goals and motivations of the group to pathological purposes.

In order to have a chance to develop into a large ponerogenic association, however, it suffices that some human organization, characterized by social or political goals and an ideology with some creative value, be accepted by a larger number of normal people before it succumbs to a process of ponerogenic malignancy. The primary tradition and ideological values of such a society may then, for a long time, protect a union which has succumbed to the ponerization process from the awareness of society, especially its less critical components. When the ponerogenic process touches such a human organization, which originally emerged and acted in the name of political or social goals, and whose causes were conditioned in history and the social situation, the original group’s primary values will nourish and protect such a union, in spite of the fact that those primary values succumb to characteristic degeneration, the practical function becoming completely different from the primary one, because the names and symbols are retained. This is where the weaknesses of individual and social “common sense” are revealed. (p. 160)

To the extent that a social theory or movement has an incorrect view of human nature, to that extent is it susceptible to ponerization. For Marxism or revolutionary socialism, the erroneous view of human nature would be that human nature is a blank slate created by human practice. Its downfall was that it didn’t recognize the two types of humans: psychopaths and those with the potential to develop conscience. It shares that downfall with many other ideologies and religions.

Revolution, by overthrowing all traditional forms of order ended up creating the most fertile ground possible for the psychopath. We can see this historically in France, Russia, China and Cambodia. According to Lobaczewski, movements that start out with laudable goals are prime targets for pathological types because those movements can provide the perfect cover for the “other human race.”

Where does that leave us? In the position of learning from past mistakes and building movements that take the two human races into account. We would have to be able to limit the damage caused by the small percentage of psychopaths. That would involve being able to identify psychopathic behavior and being able to distinguish between genetic psychopaths for whom there is no hope (essential psychopaths in Lobaczewski’s terminology) and those who are not born pathological but made pathological. It would also avoid tactics used against the pathological borrowed from the pathological, for those tactics would only create fertile ground for ponerization.

The solution would be more evolutionary than revolutionary, because it would entail hard work on the part of those with the potential of conscience to develop that conscience while at the same time seeing both human nature and current events accurately.

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Monday, January 14, 2008

Signs of the Economic Apocalypse, 1-14-08

From (Signs of the Times):

Gold closed at 897.40 dollars an ounce Friday, up 3.7% from $865.70 for the week. The dollar closed at 0.6768 euros Friday, down 0.2% from 0.6783 at the close of the previous week. That put the euro at 1.4776 dollars compared to 1.4744 the Friday before. Gold in euros would be 607.34 euros an ounce Friday, up 3.4% from 587.15 at the close of the previous Friday. Oil closed at 92.73 dollars a barrel Friday, down 5.3% from $97.69 for the week. Oil in euros would be 62.75 euros a barrel, down 5.6% from 66.26 at the close of the Friday before. The gold/oil ratio closed at 9.68, up 9.3% from 8.86 at the close of the previous week. In U.S. stocks, the Dow Jones Industrial Average closed at 12,606.30 Friday, down 1.5% from 12,800.18 the week before. The NASDAQ closed at 2,439.94 Friday, down 2.7% from 2,504.65 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.78%, down nine basis points from 3.87 for the week.

Gold continued to shoot up in price last week, ending just below $900 an ounce. Oil, however, dropped sharply, due to concerns about economic recession (which lowers demand for energy). The evidence for recession in 2008 continued to mount this week with the release of bad holiday sales figures for the major U.S. retailers. The once strong Countrywide mortgage company was bought by Bank of America and Citigroup got another infusion of cash from a Saudi prince and China. Recession fears also pushed U.S. stocks sharply down at the end of the week.

Fears About Economy Increase
Debt Crisis Grows; Top Mortgage Firm Sold at a Bargain

Anthony Faiola and Tomoeh Murakami Tse, Washington Post Staff Writers

January 12, 2008

Major banks and mortgage companies yesterday sharply accelerated an industry consolidation that is set to change the landscape of American lending, while a convergence of events exposed fresh worries about the U.S. economy.

New indications emerged yesterday that the spiraling subprime mortgage crisis is spreading from home loans to credit cards, potentially engulfing a far broader segment of Americans. At the same time, the U.S. trade deficit soared to a 14-month high, fueled by soaring oil prices.

And rising concern that U.S. investment houses, particularly Merrill Lynch, may yet suffer far greater losses, helped set up a wide market sell-off.

Echoing the heightened concern, Treasury Secretary Henry M. Paulson Jr. said yesterday that the U.S. economy had slowed "rather materially" at the end of 2007 and that "time is of the essence" in launching an economic stimulus package to stave off a recession.

Meanwhile, a broad shake-up of the U.S. lending industry is speeding up. Bank of America agreed yesterday to buy the troubled Countrywide Financial for $4 billion, a bargain-basement price for the nation's largest mortgage lender, which, analysts said, could have even more substantial mortgage-related losses ahead.

"There are signs" that the economy "is slowing down fairly rapidly," Paulson told Bloomberg Television. Congressional Democrats have promised to work with the Bush administration to pass a series of economic measures meant to boost consumer confidence and fend off a sharp downturn, perhaps including tax rebates for low- and middle-income Americans and tax cuts and other fiscal measures to boost investment. "If something were to be done here, I think the focus would be on something that's temporary and that could get done and make a difference soon," Paulson said.

Some saw the rescuing of Countrywide from possible bankruptcy, as well as news that J.P. Morgan Chase is in "very early talks" with about a half-dozen regional banks, including Washington Mutual of Seattle, as evidence of a much-needed consolidation that in the long run could fortify the lending industry and eventually ease the nation's credit crunch.

At best, however, that dawn remains some ways off. Economists said the market drop yesterday signals that Wall Street is increasingly betting on a recession and failed to respond to vows by Federal Reserve Chairman Ben S. Bernanke that the central bank would act aggressively to prevent one.

The Dow Jones industrial average of 30 blue-chip stocks plunged 246.79, or 1.9 percent, to 12,606.30. The Standard & Poor's 500-stock index, a broader market measure, lost 19.31, or 1.4 percent, to 1401.02. The tech-heavy Nasdaq composite index declined 48.58, or 2 percent, to 2439.94.

"I almost feel like we're in the first innings of a bear market," said Jim Herrick, director of equity trading at Robert W. Baird. "It's really hard to see the light at the end of the tunnel."

Jitters were also stirred by a New York Times report that Merrill Lynch may take a $15 billion write-down when it reports earnings next week, exceeding the $12 billion that had been predicted. In addition, American Express shares shed 10.1 percent of their value after the company warned that it would take a charge of $440 million in the fourth quarter, in part to cover higher delinquencies.

As companies continue to be squeezed in the credit crunch, the landscape for financial institutions has increasingly become a matter of survival of the fittest. Wobbling mortgage lenders are searching for bailouts, and banks relatively unscathed by deteriorating mortgage assets are cautiously looking for discounted takeover targets.

Bank of America, at least on paper, is getting Countrywide on the cheap -- picking up the lender at a mere 31 percent of its book value. Yet even at that price, analysts fretted that Bank of America may still be taking on too much risk and exposing itself unnecessarily to what could be a far deeper cache of bad debt on Countrywide's books.

Other factors that will determine whether the United States is able to avoid a recession, or at least blunt its pain, are developments in the labor market, whether consumers continue to tighten their purse strings, and how much money financial institutions will be losing in the months to come as the shake-out continues.

Joe Brusuelas, chief economist at the research firm IdeaGlobal, said the magnitude of these losses may be staggering.

"We haven't even scratched the surface of what the losses will be," Brusuelas said. "I don't think we're anywhere near the end. Rather, we're still at the beginning of this."

On the plus side, some economists said, U.S. institutions are moving to deal with a bad situation far faster, for instance, than Japanese banks did after the collapse of that nation's real estate market in the early 1990s. Major U.S. financial institutions have written off $68 billion as they come to grips with the depths of their troubles.

"This all signals that we're moving in the right direction," said Art Hogan, chief market analyst for Jefferies & Co. "But we're going to have more bumps in the road ahead, especially next week, when many financial institutions will report their earnings and probably more write-offs."

Economic concerns deepened yesterday after the release of data showing an unexpectedly larger U.S. trade deficit in November, $63.1 billion. Analysts had hoped that the weaker dollar would help U.S. companies export America's way to a narrower trade gap. But while exports did stage a relatively robust uptick, they were more than offset by a 16.3 percent rise in the nation's bill for foreign oil.

The widening deficit has serious political ramifications, particularly in an election year in which globalization and free trade have become popular pi¿atas on the campaign trail as a blame for America's economic woes. Critics of free trade, as well as those who have pressed the Bush administration to get tougher on China in particular, have blamed those policies for zapping millions of jobs from the United States.

Protectionist fires are likely to be fanned by more revelations yesterday that major U.S. financial institutions are searching for cash infusions from sovereign wealth funds, the investment arms of foreign governments. Such funds in Asia and the Middle East are flush from the industrial revolution in China and soaring oil and gas exports in the Persian Gulf states.

To date, sovereign wealth funds have invested nearly $30 billion in Merrill Lynch, Citigroup, UBS, Morgan Stanley and Bear Stearns. Citigroup and Merrill are to get up to an additional $14 billion combined, the Wall Street Journal reported this week. Such deals are emerging as flashpoints for some critics, who insist that it is not in U.S. interests to have the nation's key financial institutions part-owned by foreign government entities.

In addition, Congress is considering bills that would clear the way for economic sanctions on China if it continues to prop up its currency, which some analysts say is being artificially undervalued by as much as 40 percent against the dollar to ensure that Chinese exports remain cheap.

In an interview yesterday, Commerce Secretary Carlos M. Gutierrez said the trade deficit with China had actually narrowed slightly in November and warned against slipping into a new era of protectionism.

"If the discussion were to translate into isolationist and protectionist policies, I think that would be bad for our economy and bad in terms of the message that we are sending to the world," Gutierrez said.

Last week we continued a look into the reasons why capitalism makes everyone, poor and rich, so miserable. We looked at the culture of pure capitalism as a narcissistic “family of families” in which the needs of the system takes precedence over the needs of its members. The end result being similar to symptoms found in victims of narcissistic families:
A chronic need to please; an inability to identify feelings, wants, and needs; and a need for constant validation. This group of patients felt that the bad things that happened to them were well deserved, while the good things that happened were probably mistakes or accidents. They had difficulty being assertive, privately feeling a pervasive sense of rage that they feared might surface. They felt like paper tigers-often very angry, but easily beaten down. Their interpersonal relationships were characterized by distrust and suspicion (bordering on paranoia), interspersed with often disastrous episodes of total and injudicious trusting and self-disclosure. They were chronically dissatisfied, but were fearful of being perceived as whiners or complainers if they expressed their true feelings. Many could hold their anger in for extremely long periods of time, then become explosive over relatively insignificant matters. They had a sense of emptiness and dissatisfaction with their achievements; this was found even among individuals who externally may have been viewed as very successful. The list of people included professionals who were obsessively involved in their enterprises, but were unable to achieve at a level at which they found satisfaction. In relationships, these individuals frequently found themselves in repeated dead-end situations. (Stephanie Donaldson-Pressman and Robert M. Pressman, The Narcissistic Family, p. 3)

Just what are those needs of the system?

The heart of capitalism or, as Karl Marx would put it, its inner logic, is the commodity form. In Capital, Marx proposed the distinction between two forms of exchange, one capitalistic, M-C-M, and the other pre-capitalistic, C-M-C. ‘M’ stands for money and ‘C’ stands for commodity. Tied up with this distinction is the distinction between use value and exchange value. In precapitalist exchange, a producer exchanges a commmodity for money and uses the money to buy another commodity in order to use that other commodity. In capitalist exchange you start with money, buy commodities (either materials or commoditized labor), and sell them for more money. The process then starts again by using that more money to make even more money, and so on. In both cases people are making things and selling them, but the consequences are fundamentally different.

In a recent book, Economics Transformed, Marxist economist Robert Albritton takes an interesting look at those consequences and why they make us so unhappy.

One of the points Albritton makes is that we don’t have pure capitalism, and never have. This has several consequences, including why neoclassical economics and its mathmatical models cannot accurately describe reality. These mathematical models can only accurately describe a world in which commoditization, the turning of all goods, labor, land and even money itself into commodities, is complete. To the same degree that specific historical situations fall short of that, so will the mathematical models.
[A] general economic theory can only use mathematics when commodification of economic variables is complete, because otherwise relatively autonomous and qualitatively distinct economic and non-economic structures will alter quantitative outcomes such that there can be no purely mathematical precision in them. And since at the level of history commodification is never complete, the study of economics at this level must always be multidisciplinary and include the study of different types of structures of power that are implicated in ‘economic’ outcomes. (pp. 11-12)

Now looking at it from the point of view of happiness or what Albritton calls “human flourishing” it becomes clear that profit-making, by ignoring use values will end up creating an environment where human flourishing is impossible.
With C-M-C a watchmaker produces watches that are sold for money used to buy the conveniences of life. Because the watchmaker produces a particular use-value, this use-value is invested with her life-energy and skill, such that even if her income should decline perilously, it would be difficult to shift to a more lucrative product, say shoes. Further, the purpose of watchmaking in this case is to get other use-values that are needed to live the life expected of watchmakers. Should the watchmaker make more than this, she would presumably buy more use-values resulting in a more commodious living… (p. 37)

In contrast with the petty commodity form C-M-C, which involves exchanging use-values not wanted with those wanted, M-C-M1 is the circulation form specific to capital, in which the aim is unlimited money-making. In order to achieve this, ideally capital would move easily from less profitable to more profitable production processes, and this is significantly advanced by factory production which deskills and commodifies labour-power. (p. 38)

What type of person is needed by a capitalistic system? It needs capitalists and de-skilled workers living at near subsistence levels, not happy craftspeople taking pride in making watches. To expand on this, Albritton discusses Hegel’s philosophy of the “subject.”
Hegel begins his Philosophy of Right with the legal subject understood as the externalization of the will into the creation of private property… [His] legal subject is followed by a moral subject, who, through a process of internalization, develops a soul and a conscience. Finally an ethical or political subject synthesizes the external and internal into institutions appropriate to the full development of both legal and moral subjects. The synthesis of the legal, moral and political subject can be called the ‘rational subject.’ (p. 48)

Strictly from the point of view of capital in a purely capitalist society, only the legal subject must be recognized… Capital’s indifference to use-value… implies a non-recognition of moral, political or rational subjectivity. In a purely capitalist society all that is required is subjects capable of owning commodities, selling or buying commodities, or making contracts involving exchange transactions or transfer of ownership…
From the point of view of pure capitalism, the only kind of subjectivity that need exist is free legal subjectivity: there need be no moral subjects or political subjects, and rational subjectivity is limited to the rules of survival in capitalism. (p. 49)

Indeed, were we to imagine that a purely capitalist society actually came into historical existence, the result would be a general hollowing out of the soul and an extreme externalization of the self into a commodity world. Selves would be nothing but differently appearing bodies plus the commodity accoutrement that they possess. They would be only differentiated from commodities by their capacity for self-movement, by their capacity for exclusive property rights against one another, and by their particular commodity equipage and consumption patterns. (p. 50)

The legal subject of pure capitalism is radically decentred since such a subject is simply a collection of opportunistic profit-making capacities without any centre of inner connectedness. In this case the subject writ large is capital and individuals are only recognized as subjects insofar as they are useful to capital. (p. 50)

What type of person does the system produce? Degraded people for the most part, degraded in all kinds of ways.
Fully commodified labour-power implies complete lack of organization of labour in its contracting with capital, and it implies a steady supply of labour-power to be drawn from an industrial reserve army [of the unemployed]…Insofar as there is a good supply of workers, capitalists can focus purely on the use of labour-power to expand [exchange] value, while being totally indifferent to use-value consideration such as the living conditions, health and well-being of workers. In Capital, Marx uses the example of the difficulties in getting legislation in nineteenth century England to protect children from the brutal exploitation of capitalists to illustrate capital’s indifference to use-value and its willingness to sarcrifice even the most basic human decency on the altar of profit. (p. 42)

Albritton identifies a healthy ecological environment as a use-value that capitalism has no choice but to ignore but that is necessary for human flourishing.
Given capital’s indifference to use-value and strong orientation towards short-term profits, but for the constraints of landlords there is no reason why capital should not despoil and desertify the land if it is profitable to do so. (p. 43)

Reading Albritton’s definition of human flourishing is to see immediately what a degraded situation we were born into and how far away are we from a world that encourages such flourishing.
We know a lot about what humans need to flourish materially (diet, shelter, exercise, healthy natural environment, absence of threat of physical violence, and so forth) and are gradually becoming much more knowledgeable about what sorts of social, political and psychological conditions (love, care, friendship, generosity, respect, purpose, freedom, democracy, social justice, and so forth) promote the richest possibilities of human development. If our enourmous research capabilities were directed away from the means of violence and means of profit, we could certainly learn a great deal more about creating healthy and sustainable material and social environments. For example, we only know the carcinogenic properties of a small proportion of the total number of chemicals that we have spread about our environment. We seem to be failing our youth as more and more fall into poverty and all the social ills that accompany it. At the same time, we know a great deal about what sorts of food intake and what sorts of exercise will advance bodily health. Also we know something about the sorts of caring and loving social environments that will advance mental health and sociability. And while we should know that violence breeds violence, we are doing an extremely poor job of reducing the level of violence in the world.

I use the term “human flourishing” to refer to what we know about how to make our lives more fulfilling while improving the health of the earth for future generations. (p. 163)

So why can’t we make use of this knowledge?
Humans value many things other than profits, but in pure capitalism the value of these things will not register unless they are profitable. According to capitalistic rationality a beautiful factory will not be build unless it is profitable to do so, and since making workplaces beautiful would cut into profits, in a purely capitalistic society considerations of beauty would not enter their design. Indeed, industrial workplaces are often noisy, dirty, dangerous and ugly. If testing the carcinogenic properties of a chemical might reduce profits by increasing costs, no test will be performed. Indeed, social and environmental costs that do not register in the profit structure are clustered together as “externalities.” Because of capital’s indifference to use-value, it has no interest in costing “externalities”… (p. 167)

The term “externalities,” coined by corporate accountants, carries with it the same feeling of contempt with which psychopaths discuss human morals.
Laying off workers, paying low taxes, skirting health and safety regulations, moving production to low-wage areas, can all be justified by the unavoidable imperatives of profit. Shifting income and wealth from the public sector to the private sector can also be justified by the necessity to keep the profits of the private sector high enough to encourage investment, as can massive hand-outs of public money to the private sector. (p. 168)

What a victory for the psychopaths among us, those without conscience, to have implemented a strong, dynamic engine, the commodity form-driven inner logic of capitalism that throws up a culture that pushes normal people to be selfish, greedy, shortsighted and amoral! If it doesn’t always succeed in making normal people psychopathic, the culture creates an environment where selfish, greedy, shortsighted and amoral actions are accepted as inevitable and natural. The reason it seems natural, is that the coercion behind it is concealed by being axiomatic, by being a result of the operation of the inner logic rather than of outside force like most historical social systems.
Marx argues that historically class exploitation exists wherever property relations allow a particular group to control the surplus product defined as that product above and beyond what is required for the producers to reproduce themselves. Capitalism differs from other modes of production, because, in principle, the class relation can be reproduced without reliance on extra-economic force when commodification is complete. Ideologically this has enabled capitalism to hide economic domination behind what ideally should be free and equal market exchange. And it has placed the burden on each individual to be responsible for their own economic well-being. (p. 171)

Next week we will look at what might be needed to counteract the degrading inner logic of capitalism, taking into account Ponerology and its advances in identifying in societies the psychopathic and those easily corrupted and coopted by them.

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