Monday, April 4, 2016

Macroeconomic Adjustments: Capital vs Labour

It is clear that the world is undergoing a major deflation, after years of priming the pump to inflate the global economy beyond its ability to absorb, given the current level of technology that we have.

We now have a monstrosity in our hands, the trillions of dollars that are now sloshing around the global financial markets looking for a safe home to hide. These short-term capital flights looking for high returns are the product of money printing by irresponsible central banks around the world led by the US Fed which now has a moral dilemma of how to stop printing the cash and not be blamed for the ensuing deflation. The implosion of the global economy is a natural consequences of years of excessive liquidity which has left stock prices high (and refusing to crash), real estate prices way beyond the reach of ordinary working people (and still refusing to crash), banks with loans heavily loaded on stock and shares and real estate lendings (and still refusing to crash).

The ensuing deflation and depression are the natural outcomes of decades of money printing which central bankers should have seen in the first place, but instead had argued with breathtaking profundity of how they are saving the world economy and triggering off the ICT revolution when no one is asked to do real work.

So the policy wisdom is now how to prevent deflation and depression so that we do not trigger off a third world war (which probably is already happening with madmen with cash getting hold of weapons of mass destruction now for real). It is still this thinking of a loose monetary policy that is taking hold of the minds of so-called wise central bankers who did nothing but to subject the real economy to the vagaries of global tidal waves.

For sure the argument is not a credit squeeze which would basically lock everybody out of the banking system, but for a series of bold steps to raise interest rates especially deposit rates to encourage savers, curb consumption and challenge the capitalists to come up with ideas and schemes with a decent rate of return.

The capitalists probably now have so much real estate that is going to last them many lifetimes. But of course there is excess capacity in real estate with building left unoccupied because those who need housing do not have access to shelter.

It is an unthinking capitalist who imagines that the only way the world is going to grow and prosper is to have an evergrowing population that is going to do all the hardwork to obtain decent returns for the capital of capitalists. We know this to be the mere extraction of surplus value of labour. There is no reason why just having money or property is going to make not having to labour in their lives.

There were two world wars where significant portions of the world population were killed. But the aftermath were economic boom because everybody who were left alive were galvanised as a society to work to survive and live.

It is disheartening to read in modern day Japan that young people are being taken advantage of by companies which forced people to work inhumanly long hours with wages that no human beings can live on and when workers are forced to take their own lives as the only way out of their predicament.

Japan has failed as a national economy because the government and the corporate sector collude to steal resources from the people by printing money, currency depreciation, inducing inflation, underpaying wages and with the government and the people going into debt which eventually must be paid by the younger generations. In the meantime, the Japan companies go global to seek better returns overseas and leave the kids at home to fend for themselves by working their butts off for some food in their stomachs and nowhere to go.

It is quite alarming that youth unemployment has grown to 25% and 50% for most economies, advanced or not. There seems to be a real disconnect in the globalised economy where a handful of people can earn more than several nations can in a year and that so-called wealth is not sufficiently spread around by bankers. Bankers are doing an appalling job allocating financial resources, preferring to build cities of ever-growing densities ostensibly to create better economies of scale and "fuel efficiency" centred around casino-type activities.

Governments who measure the libido of their economies by the index of their respective stock market are probably the most corrupt, for these politicians are probably managing their personal fortunes in the markets with projects they are pushing. Everybody are in it to suck the life juices of the ordinary people through all kinds of asset play.

There really is a need for bankers and the financial market to sit down quietly and analyse the economy and decide on the directions of their loans and nuture the current generation of young people who are dying for a toe-hold into the unreal world of the economic matrix.


walla said...

Unless one is mistaken, it would normally be borrowers who would ask to restructure loans. Bankers who issue them would not unilaterally restructure the loans they have inked to safeguard their spread and profit models in favor of some altruistic aim like saving a national economy.

That said, the banking industry can do something else as well, namely set new priorities to pave a healthier foundation not predicated on short-term profits through priming stock and construction activities. However that would mean longer time horizons which, given the prevailing earn-and-run circumstances, has as much a chance of happening as it would be for a well-succored freeloader to dismount from an angry and hungry himalayan tiger.

Therefore, unless there is that collective altruism in thinking about the nation first, any from the present batch of financial leaders won't take the lead to make the first move to change the paradigm of capital. Especially when it is so much easier to take money purloined from public sources despite the central presence of so-called watch-puppies and then cravenly channel it into unconscionable schemes to maintain the status quo of some political fortunes pivoted by greed, denial and deception.

Meanwhile we should ask ourselves what will happen to the young and the old in the near future. There will always be more young than old so that even if the old move on, their homes can only be given to some but not all. Distributing the liquidation is not a panacea because one can only sell if there are buyers. How many can afford the prices these days? If they easily can, there would be no liquidity slosh in the first place.

Additionally the old do not have any income source. For most, their only savings are in their provident funds which for most cases will not last beyond five years. They have no rental income because they live in their own property. They cannot depend on their young because their young are barely able to survive and will need all the funds they can muster for their own next generation in turn. Meanwhile a canopy of inflated prices bludgeons both every day for even the most basic needs for even the most rudimentary life-style.

In the past one can ask what can be done next. In the present, such a luxury of even asking has been tarnished, the prevailing solution of just raising wages being divorced from productivity which is fair evidence of the disconnect between the macro and the micro aspects of economics. Thus the misalignment between capital and labor.

It remains to ask what is the purpose of nation-building? One would think it is to pave a strong foundation for one generation to add a brick or two so that the next generation can loft the elevation even higher more easily. Today that foundation is lost from sight. When we think how few are our memorable memories which means how hollow has been life, it should behoove all to ponder more deeply whether the loss of that foundation of this nation is not spelling the death of the reason for our lives beyond us. The universal and the individual finally cross paths.

walla said...

James said...

Question - US Fed printing cash, what would be the trigger points to look for in event of US DOLLAR crash, and would metals be a bet or better to hold on to sweet potato futures?

etheorist said...

As always, wala, keep it up. Sorry for this late reply, James. I am uninspired as the local scene is all too political to my liking.

Interesting question. Metals if you think China will recover, although it is in excess industrial capacity. Food futures if you think climate especially El Nino is the main determinant of the global situation in the coming years.

The trigger point for the US dollar crash is when the US Fed is not raising interest rates which is now the case. The other central banks also have no balls in raising rates for fear of being blamed for the coming recession which I think is coming or is even here already.

My take is always that when the shit hits the fan, cash is king - which means you should be invested in the currency that has the greatest upside - the one which has taken the biggest hit lately. You know...?!