Archives for category: geopolitique

L’Hypercapitalisme mondial -Alain Cotta- 2017.

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Deux révolutions: la révolution digitale et la mondialisation des activités économiques. La symbiose  des deux assure aujourd’hui l’envahissement planétaire du capitalisme.

Deux capitalismes : l’un occidental, d’Entreprise, instigateur de la conquête de la planète, l’autre plus oriental, d’Etat, ou la volonté de ne rien céder á la conquête de son prédécesseur historique prévaut désormais.

Le capital réel (tous les biens durables) s’élève a 200 trillions de dollars en 2014, la richesse financière a 300 trillions. L’économie mondiale est plus financière que réelle. Cette supériorité va en s’accroissant puisque le taux de croissance du produit réel est de 2.5% sur le long terme, celui du capital financier de 5%.

La stratégie des fonds de gestion il y a 25 ans obéissait aux objectifs de leurs déposants dont l’age moyen, 2 ans avant celui de leur retraite, expliquait qu’ils se contentaient du revenu assuré même modeste. Depuis, ces entreprises de gestion ont pris des participations importantes et croissantes dans des entreprises d’un même secteur. Elles ont ensemble le pouvoir d’orienter la stratégie de ces entreprises.

Le grand projet des instigateurs de la mondialisation est désormais aux oubliettes. Les états-nations ne se sont pas dissous dans la parousie ‘libérale’. Et la démocratie demeure un régime politique des plus minoritaires, qui donne même quelques signes de fatigue.

[Ces révolutions donne naissance] á une société mondiale dont la stabilité devrait être durable. La mondialisation s’accompagne de l’existence d’une classe moyenne de plus en plus homogène et de moins en moins combative, et de l’inévitable exclusion économique d’une fraction croissante de sa population.

Transformer en peu de temps un paysan en ouvrier non spécialisé est relativement aisé. En faire un employé digital implique d’avantage d’effort et surtout de temps, donc beaucoup plus d’exclus pour longtemps.

La naissance d’un gouvernement mondial est attendu par tous les pères de la révolution digitale. Et pourquoi pas un Etat universel tel qu’entrevu par Ernst Junger en 1961 (au début de la coexistence pacifique de l’après-guerre)

Etat assurance, Etat confort, Etat providence : trois fonctions dont aucun individu ne saurait se passer, légitimées par une mondialisation qui crée spontanément des inégalités.

Une crise systémique mondiale parait désormais fort improbable (meilleurs moyens pour maitriser a court terme les économies nationales ; début de  comptabilité mondiale permettant de porter un jugement sur la situation a tout moment)

La montée de la Chine, demain celle de l’Inde, rendra de plus en plus fragile et contesté l’imperium financier des Etats-Unis. Sans doute trois monnaies (dollar, euro, renminbi) dans leur zone de prééminence. Deux grandes nations, Inde et Russie, resteront a l’extérieur, sans mettre en cause la caractère permanent d’une instabilité limitée et ordonnée. Des adaptations permanentes mais sans que la mondialisation elle-même soit mise en cause, sinon par des ajustements locaux.

Des 2050, la population africaine devrait atteindre 2 milliard d’individus, 20% de la population mondiale, contre 5% en Europe. 6 fois plus de pauvres que de riches – si proches.

De tous les désordres, les désordres démographique seront les plus violents et les plus malaisés a traiter lorsqu’ils deviendront très pressants.

Opposition courante entre régime démocratique et régime autoritaire : la différence essentielle réside moins dans l’exercice du pouvoir que dans son origine.

Les décisions sociales importantes exclut un nombre croissant d’individus, ce dont manifestent les niveaux d’abstention aux différentes élections, qui ne peuvent qu’augmenter, les choix sociaux á effectuer devenant de plus en plus difficiles á exposer et á comprendre.

L’importance de la redistribution (pour permettre a un nombre croissant d’exclus de vivre) est condamnée a croitre et a devenir de moins en moins familiale mais étatique. Mais sur qui prélever ?

‘L’ordre social, devenu celui de tout l’espace, reposera sur la patience et la résignation des nouveaux pauvres’ (Mme de Staël).

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La société hyper-industrielle – Pierre Veltz – 2017

Paris-Saclay

La production de biens et services industrialisés est en croissance continue, et représente un part a peu près stable de la valeur ajoutée globale. Il faut relativiser le déclin manufacturier.

La société hyper-industrielle : l’industrie manufacturière, les services, les entreprises du numérique font désormais parti du même ensemble.

En 2010, 330 millions de personnes étaient employés dans l’industrie manufacturière. Le ratio de 5% de la population mondiale employé dans le secteur manufacturier semble être resté relativement stable. Depuis 1990 la croissance de l’emploi s’est concentrée dans un petit nombre de pays, et d’abord la chine.

Les vieux pays continuent à présenter une part essentielle de la production des biens industriels à fort contenu technologique.  Chine, Mexique, Corée, Taiwan, Turquie et quelques pays de l’Est européen (base arrière de l’industrie allemande) sont les bénéficiaires de la mondialisation.

La stratégie chinoise se recentre aujourd’hui sur le marché intérieur et surtout sur une rapide montée en gamme technologique.

Globalement on constate que les services ont plus contribués à la croissance des pays pauvres que l’industrie.

L’industrie a permis de structurer les catégories dominées de la population autour d’intérêts partagés par de grandes masses de travailleurs : intérêts plus difficiles à faire émerger dans un monde de services, plus éclatés, informel ou artisanaux. La désindustrialisation prématurée des pays du sud (hors Asie de l’Est) n’est donc guère favorable à une consolidation démocratique.

Peter Menzel a photographié des familles de 30 nations étalant toutes leurs possessions matérielles.

Les US ont consommé 4.56 gigatonnes de ciment durant tout le XXème siècle. La Chine en a englouti autant en 3 ans (2008-2010).

Effet Jevons : la consommation (par exemple de canettes) a augmenté beaucoup plus vite que la dématérialisation (une canette pesait 85g en 1960, 9.5g aujourd’hui et avec 50% d’alu recyclé). Optimiser pour dématérialiser de manière relative n’est donc pas suffisant.

Nous sommes entrés dans une société où l’industrie est devenue très minoritaire en termes d’emplois. La chute (de 5M a 3M entre 1980 et aujourd’hui) va continuer du fait de l’automatisation.

Les français ont eu vision négative de l’industrie : 36% seulement la juge attractive ; contre 67% des américains et 82% des Chinois.

Gains de productivité après 2000 : la production industrielle française a été multiplié par 2 ; le total des heures de travail divisé par 2 : le produit par heure a donc été multiplié par 4. C’est une industrie largement robotisée.

La society hyper industrielle

L’étape nouvelle consiste a ne plus vendre le bien, mais a sa mise a disposition, son usage et sa fonctionnalité (Michelin vend des pneus au kilomètre parcouru, Rolls Royce vend de l’heure de vol de réacteur). Dans cette économie de la fonctionnalité a normalement intérêt a faire durer la vie du produit (sauf si le client est captif – Apple, Microsoft).

La vague technologique semble se traduire par une élévation considérable des inégalités, surtout au Etats-Unis et en Chine, et une concentration des richesses au profit d’une couche sociale de plus en plus mince, et non par une élévation de la demande globale.

Design, marketing et contrôle de la logistique sont les piliers stratégiques, et la production est complètement sous-traite (Nike, Apple, Zara, H&M…).  Cette monte de l’amont et de l’aval se traduit aussi en volume d’emplois car les taches y sont moins automatisées que celles de la production.

Le changement majeur ne sera pas celui du véhicule (voiture dans les villes) mais celui du système de mobilité. Ce sont les villes qu’il faut repenser: réinvention des villes, création de systèmes énergétiques a la fois plus étendus, plus diversifies et plus décentralises, l’ingénierie des territoires et des ressources naturelles a grande échelle, la conversion écologique de l’agriculture. On peut aussi parier sur la montée spectaculaire des biens et services centres sur l’individu, le corps,  la sante, le sport, l’alimentation, le Plaisir, le divertissement, l’éducation. Comment éviter que l’économie centre sur l’individu débouche principalement sur l’abêtissement médiatique et le narcissisme de masse.

Cette concurrence par la recherche du moins-disant en termes de salaire ou de conditions de travail et contraintes environnementales existe. Mais elle ne concerne qu’une partie limitée de l’économie internationale. La chine cherche aujourd’hui a sortir de ce positionnement de fin de chaine.

L’organisation consiste a faire des choses extraordinaires avec des homes ordinaires (Peter Drucker)

Le nouveau modèle d’entreprise est un centre de coordination mettant en œuvre des ressources  de manière totalement flexible, le travail étant défini comme une ressource liquide de contributeurs indépendants mobilisable a volonté. Certains parlent de ‘human cloud’.  Le travail devient une prestation de services dans une logique de gestions par objectifs et non plus par les moyens.

Le synchronisme des techniques a l’échelle de la planète a une conséquence radicale: il réduit a néant l’une des plus vieilles forces structurantes de l’économie, a savoir la protection des innovations et activités par la géographie, la distance physique.

De 2002 a 2013, la part de R&D en Asie (chine, Corée, japon) a augmenté de 27% a 37% du total mondiale. US+Canada a 29%, l’Europe a 24%. En Asie 80% sont des dépenses de développement. La recherché continue d’être finance par les US et l’Europe. Il y a un rééquilibrage vers l’Asie mais encore très limite. Les revenues de licences technologiques sont de 130 milliard pour les US (2013); 55 milliard pour l’Europe, moins de 1.5 milliard pour la Chine et l’inde réunies. Le rattrapage des pays émergents est limites a un tout petit nombre de pays. Il y a en outre une forte polarisation aux échelles infranationales. En France, 40% de la recherché est concentrée en région parisienne. L’internet n’a pas entamé cette polarisation: dans les sciences et la technologie les relations face a face restent essentielles.

Le ‘Made in Monde’ devient la règle. L’IPhone réunit des composants de 10 pays et de plusieurs centaines de fournisseurs.

Pour la plupart des produits, le cout de transport maritime est devenu quasiment négligeable. Les trajets maritimes créent des délais mais pas de couts. Sans cette économie du transport maritime, la montée de la Chine eut été impensable.

L’iPhone: Samsung fournit près de 30% de la valeur (des composants) l ‘IPhone 4  (pour lphone 7 TSMC a remplacé Samsung).  L’assemblage est fait en Chine. Les salaires sont verses au deux tiers aux USA. Les salaires chinois ne représentent que 2-3% du cout total. Les marges sont considérable et vont a Apple au US essentiellement. L’Iphone 6 vendu 600 dollars, le cout des composants est estime à 200-240 dollars.

Aucune usine américaine n’est capable de concurrence la capacité quasi instantanée de monter et de descendre en volume de production des unités chinoises (ceci même si les couts salariaux en Chine venaient a augmenter)

Apres 20 ans de forte croissance, le commerce mondial croit désormais moins vite que le PIB, et s’est stabilise autour de 30% de ce dernier. Les investissements directs à l’étranger ont atteint leur maximum historique en 2006. Les politiques focalisées sur la défense des intérêts nationaux font leur retour. On a pu parler de de-mondialisation. Mais est-ce une pause ou un retournement? La part de la valeur ajoute étrangère dans les exportations est partout en hausse…les relocalisations dont la presse parle souvent sont très rares.

Le poids économiques des grandes villes ne cesse d’augmenter: NY ou Tokyo (de poids similaire) équivalaient grosso modo au Brésil ou a l’Espagne, 5 fois le Portugal, 3 fois la Suède.

Les salauds de l’Europe – Jean Quatremer – 2017

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D’ici 20 ans, plus aucun des pays européens du G7 n’en fera partie.

L’Europe et ses 500 millions d’Européens concentrent 50% des dépenses sociales de la planète de 7 milliard d’habitants.

L’euroscepticisme  prend sa source dans les demi-vérités et dans l’absence de mise en perspective.

Les salauds de l’Europe ce sont les élites nationales et Européennes, celles qui ont fait de l’Europe une post démocratie ou les citoyens sont tenus a l’écart, celles qui décident a Bruxelles de politiques qu’ils n’assument pas dans leur capitale…Mais ce sont aussi les démagogues, du Front National au Mouvement 5 Etoiles, en passant par l’UKIP, l’AfD allemand, le PVV néerlandais…Des démagogues qui mentent sans retenue, déforment les faits, attisent les haines et qui ne trouvent personne pour leur répondre, puisque personne l’assume plus l’Europe, notamment en France…ce sont ceux qui détruisent l’idée européenne que Barack Obama a vantée…comme l’une des plus grandes réalisations politiques et économique des temps modernes.

Personne ne conteste que l’unification politique du continent n’a pas été portée par un irrésistible mouvement populaire.  Aucun gouvernement n’a jamais pensé consulter les citoyens lorsque la construction communautaire a été lancée dans les années 50….il était politiquement impossible pour la France de convoquer une assemblée constituante européenne qui aurait adopté une Constitution à la suite d’un large débat citoyen. Une telle aventure aurait débouché sur un échec certain.  Schuman prône une Europe qui se fera par des réalisations concrètes, créant d’abord une solidarité de fait.

Entre 1950 et 1952, les projets de création d’une Europe des transports, d’une Europe agricole et d’une Europe de la santé publique, toutes trois gérées par des Hautes Autorités, échouèrent face aux oppositions du Parlement ou de tel ou tel gouvernement…parce qu’il n’avait pas la porté politique de la CECA et parce qu’ils n’avaient pas été préparés dans le secret, ce qui a permis une mobilisations des opposants…

Schuman indique en 1951 qu’il proposer au moment voulu la création d’une organisation politique européenne pour la formation d’une politique étrangère commune.

EN 1950 la France prépare la Communauté Européenne de Défense, une armée européenne. Elle sera ratifiée facilement par les partenaires de la France alors qu’elle est rejetée par le parlement Français. De Gaulle «  l’Europe sera construite sur le cadavre de la France »  en 1952.

Intéressée par une « communauté de l’atome » la France, pour l’obtenir, s’engage alors dans un Marché commun européen qui, lui, intéresse ses partenaires Allemand et au Benelux.

Raymond Aron – l’idée de l’unité européenne est d’abord une conception d’hommes raisonnable, ce n’est pas un sentiment populaire

Cette capacité du referendum à fédérer les « non » surtout lorsque les bénéfices du « oui » sont hypothétiques et lointains est telle connue que ceux qui réclament des référendums  sur l’Europe sont toujours ceux qui lui sont opposés.

L’Europe n’a pas été fondée contre ses peuples mais pour eux, en respectant les processus démocratiques internes. (Aucun état n’a jamais été fondé à la suite d’un référendum).

Les rois qui ont fait la France ont-ils  demandé aux Angevins, aux Lorrains, aux Alsaciens s’ils acceptaient de faire partie du royaume ? A la fin du XVIIIe siècle, le français est une langue minoritaires comprise par seulement 10 à 20% des habitants…ce n’est qu’après la première guerre mondiale que la majorité des français parle le français a la maison.

Le point Godwin : «  plus une discussion en ligne dure longtemps, plus la probabilité d’y trouver une comparaison impliquant les nazis s’approche de 1 » ; moment dans un débat ou les adversaires s’injurient et ou toute discussion constructive devient impossible.

Le Conseil européen est devenu dès les années 80 de facto l’institution qui préside aux destinées de l’Union. Les présidents de la Commission après Delors (Santer, Prodi, Barroso) ont transformé la Commission en un simple secrétariat exécutant servilement les ordres du Conseil. Apres la crise de l’Euro en 2010, son rôle est encore renforce avec des réunions quasi mensuelles…

L’exécutif européen dispose du monopole d’initiative législative – il peut ne rien faire même si les états souhaitent qu’il agisse, ou orienter la discussion, car celui qui tient la plume peut faire passer ses idées.

Il reste néanmoins qu’un pays peut se voir imposer une décision dont il ne veut pas. Mais souvent les gouvernements demandent à être mis en minorité pour pouvoir incriminer Bruxelles (alors qu’ils soutiennent la position mais ne peuvent la vendre politiquement dans leur pays…)

Majorité qualifiée : 55% des pays représentant 65% des Européens.

Il n’est arrivé que très rarement qu’un gouvernement tombe à cause de ce qu’il a décidé à Bruxelles. C’est arrivé à ma connaissance une fois en Slovaquie, en 2011, lorsque le Parlement n’a pas accepté le principe de solidarité financière avec la Grèce (pourtant accepté par la Première ministre).

Apres tout, cette absence de contrôle direct (des citoyens sur les institutions de l’Europe) est-elle si grave ? En France ou aux USA, le Président ne peut pas non plus être censuré ou contrôlé : ce qui est important, ce sont les contre-pouvoirs mis en place.

Une zone Euro échappant a tout contrôle : le Parlement (bien qu’ayant des pouvoirs de codécisions étendus et faisant jeu égale avec le Conseil -sauf dans certains nombre de domaine y compris le budget !- qui doit maintenant compter avec lui) n’a pas son mot à dire au sein de la zone Euro. Alors que la zone Euro ne se réduit plus uniquement à la politique monétaire, mais touche désormais a la politique économique et budgétaire, aucun contrôle parlementaire n’existe (sauf au niveau national ou ils exercent un contrôle sur la partie qui concerne leur pays  et non sur l’ensemble de la politique applicable à la zone Euro).

Neelie Kroes : sous la surveillance directe de Junker a cause de sa participation dans une vingtaine de conseils d’administration laissant craindre des conflits d’intérêt.

Canete :  a fondé deux compagnies pétrolières (désormais dirigées par des membres de sa famille) et conserve son poste de commissaire à l’énergie et au climat (car soutenu par le PPE qui a pris en otage la candidature Moscovici…)

Depuis 1999 (chute de la Commission Santer) la Commission ménage come jamais le Parlement qui est devenu un acteur important de l’Union. Il est indéniable que l’Europe est partiellement entrée dans l’ère de la démocratie parlementaire.

En France, le referendum est devenu la forme la plus achevée de la démocratie alors qu’il en est une forme dégradée, comme l’ont bien compris les Allemands qui l’ont interdit.

Les referendums sur l’Europe : 10 votes négatifs contre 29 positifs. Ce qui en dit long sur le soi-disant rejet de l’Europe par les peuples.

Le non au référendum de 2005 – le traité constitutionnel européen : la principal motivation du non était les risques qu’il faisait peser sur l’emploi…alors que le TCE reformait surtout les institutions (mais reprenait aussi les textes des traités précédents). Les principales modifications furent intégrées deux ans plus tard dans le traité de Lisbonne.

La Commission tend à devenir au fil du temps un problème pour l’intégration communautaire, sans doute supérieur à celui que représentent les Etats. L’exécutif Européen … a oublié ce qu’était l’intérêt général Européen. Je me demande sincèrement s’il y a encore quelque chose a sauver dans cette institution qui n’est plus que l’ombre de ce qu’elle fut.

Le chef d’Etats ont convenu qu’il ne fallait plus nommer a ce poste que d’anciens Premiers ministres afin de ‘rehausser’ la fonction. En réalité le but était de raccourcir la laisse de la Commission : un ancien Premier Ministre a été membre du Conseil européen et a tendance à se comporter comme tel – en clair il cherchera à ne pas déplaire à ses collègues et mandants.

La réforme de Neil Kinnock en 2004 a consisté à briser ce qui avait été à l’origine conçu comme un corps d’élite construit sur le modèle de l’administration française pour passer a une logique de management privé proches de normes anglo-saxonnes. Il y eu un affaiblissement de l’esprit Européen due à l’accroissement des taches de pure exécution. Le recrutement ne se fait plus sur la connaissance des affaires communautaires et leur engagement Européen. Faute de capacité interne, la Commission doit faire appel des consultants extérieurs, généralement britanniques ou américains….

Le commissaire à la concurrence veille a empêcher la constitution de monopole sur le marché européen, même si cela interdit la constitution de champions européens mondiaux (Apple, Amazon, Microsoft n’auraient jamais pu naitre dans l’Union.

La Commission est incapable de remplir sa tâche, qui est non seulement d’aider à la construction communautaire, mais aussi de faire aimer le projet européen. Elle est incapable de la moindre empathie, car dénuée de tout sens politique.  Cette absence de sens politique se fait sentir dans tous les domaines, comme le montre, par exemple, la négociation de l’accord d’association avec l’Ukraine qui a déclenché les foudres russes et entrainé l’annexion de la Crimée et la guerre dans l’Est du pays…la bonne approche aurait consisté à parler à Moscou avant toute négociation pour l’assurer que jamais l’Ukraine n’adhèrerait a l’Union ou l’OTAN, comme cela avait été fait avec l’Autriche avant 1989.

Le CETA était un accord mixte – et non pas purement communautaire, c’est-à-dire qu’il devait être ratifié par le Parlement Européen et l’ensemble des parlements nationaux

Guy Verhofstadt, président du groupe libéral, ancien Premier ministre belge, émarge dans pas moins de 7 conseils d’administration (pour 12,000 euro/mois en plus de son salaire d’eurodéputé.

Le traité de Lisbonne a introduit  la possibilité de réduire les compétences de l’Union : c’est un symbole fort, puisqu’il était acquis jusque-là que l’extension des compétences de l’Union était infinie.

En matière de politique sociale, l’union n’a rien à dire dans les domaines des salaires, du droit syndical, du droit de grève, du droit de fermeture temporaire d’entreprise. Elle peut simplement adopter à la majorité qualifiée des normes minimales en santé, sécurité et conditions de travail des travailleurs, consultation des travailleurs, lutte contre la discrimination et modernisation des systèmes de protection sociale. Pour les autres compétences, l’exigence de l’unanimité paralyse l’exercice.

L’union n’était que la spectatrice du traite de Lisbonne : les gouvernements ont même refusé que la Commission publie un tableau de bord des reformes accomplies et restant à accomplir.

Si on ajoute a cela la propension des Etats a communautariser les échecs et a nationaliser les succès européens, on comprend mieux la frustration qu’engendre la construction européenne.

Ce procès en ultralibéralisme de l’union, contre la concurrence libre et non faussée, est une spécificité hexagonale. L’union regroupe des pays qui ont en commun la démocratie et l’économie de marche. Mais une économie sociale de marché comme l’affirme les traites, l’union concentrant la moitié des dépenses sociales de la planète

La concurrence libre et non faussée, son but est double; réguler la concurrence sur les marchés et entre les états. L’exact contraire de l’ultralibéralisme.

La politique de la concurrence a une fâcheuse tendance à retenir une définition très étroite du ‘marche pertinent’ ; elle se limite trop souvent au marché européen, voire une partie de se marche, alors que la concurrence est mondiale. Avec la Commission, ni Google, Amazon etc. n’aurait pu voir le jour en Europe.

En 2014, les Etats Membres ont été autorisé à aider leurs entreprises à hauteur de 152 milliard d’Euro (y inclus 41 milliard pour le rail). La Commission n’a mis son veto qu’a 1,8 milliard d’aide jugées illégales.

Fonds structurels : les pays de l’Est reçoivent 4% de leur PIB en aide communautaire, comme cela a longtemps été le cas pour l’Ireland, le Portugal ou la Grèce.

On a oublié aujourd’hui ce qu’était une crise monétaire qui faisait perdre de sa valeur à une monnaie sans qu’on le souhaite et perturbait les échanges. Cela se chiffrait en point de croissance perdu, inflation et récessions.

Il y a, à la Commission et chez les états membres, puisque la première ne peut rien faire sans les seconds, une véritable religion libre-échangiste. 90% en volume des marches publiques sont ouverts à la concurrence en Europe, 32% au Etats Unis, 28% au Japon, 16% au Canada. On cherchera en vain un Buy European Act comme il en existe aux Etat Unis depuis 1933. L’instauration d’une préférence européenne pour les acteurs publiques est une possibilité, tout comme les l’utilisation ferme des instruments de défense commerciale.

Pékin concurrence l’Europe dans tous les secteurs. L’erreur de l’Europe est  d’avoir accepté d’entrer en concurrence avec un pays qui ne respecte aucune règle du jeu, qu’elles soient concurrentielles, environnementales, monétaires ou sociales (et de croire que toute la planète va accepter le jeu de concurrence ouverte qu’elle développe en Europe…)

Traite de Maastricht : la grande Bretagne a réussi à affaiblir, tout au long de la négociation, les articles sociaux avant de réclamer, lors du sommet de Maastricht de décembre 1991, un ‘opt out’, ce qui obligea ses partenaires à placer tout le chapitre, pourtant peu contraignant, dans une charte à part.

Les coopérations renforcées, qui permettent à quelques pays d’avancer plus vite dans certains domaines, n’ont débouché sur rien en matière fiscale. Le dumping fiscal et social est bien le résultat de la volonté des Etats, pas de l’Union.

 

 

 

 

 

 

 

 

 

Swimming with Sharks – Joris Luyendijk (2015)

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In the years before the crash, commercial banks and mortgage providers lent far too much money to people who could not afford such debts – primarily in the US and the UK, mostly for mortages. This continued for a long period of time because the easy money drove up houses prices, making many people feel richer than they were. Commercial banks had no reason to worry about the risk of default on loans because they could sell them on to investment banks, which the chopped them up and repackaged them into ever more complex financial products. Assets managers at pension funds were keen to buy them because interest rates were low and these new instruments offered better returns. For protection, pension funds and others relied on American insurance giant AIG. In turn AIG trusted the credit rating agencies’ triple AAA ratings.

In 2007, millions of buyers would not be able to meet their financial obligations. Financial products that contained their mortgages began to lose value. Investors had to take big losses but banks, too, had kept some of these products. They had to write off huge sums but how much was difficult to estimate: not only some of the products where mind-bogglingly difficult to value but the same was true for the ‘vehicles’ in off-shore tax havens where banks had placed many of them. At Leman Brothers the buffers were not enough and the bank had to announce bankruptcy. Other banks and financial institutions stopped lending to each others (as none knew the financial solidity of the others). Suddenly the financial world was gripped by a paralysing fear. In response, Governments reached deep into the state coffers and central banks lowered interest rates and pumped unprecedented amounts of newly created money into the economy.  They had saved the system.

For bankers, the crash of 2008 was a perfect storm, or rather a black swam: unique and literally unforeseeable. But isn’t it all the more alarming if virtually nobody in the sector realised how dangerous these complex financial products could be?

The salaries of those who manage the risks in banks has always come from the revenues raised by those taking the risks. Historically, investment bankers worked in small partnership where management and owners partly overlapped. Partners were personally liable. From mid eighties these partnership started to list on the stock exchange or were taken over by publicly listed commercial banks who wanted to take advantage of the deregulation and move into investment banking. Those commercial banks took over dozens of other banks and became ‘too big to fail’.  In listed companies, the risk lies with shareholders rather than partners, while bankers are paid partly in shares and options. And a good way to raise the share price is to take risk (which ultimately the taxpayer will bear).  It was genuinely eye-opening to realise just how recently the investment banks had mutated in this way. Those who take the risks are no longer those who bear them.

If you can be out of the door in five minutes, your horizon becomes five minutes. That was the essence of zero job security. Not only does all loyalty evaporates, but continuity does too. Nobody can built on anyone else, the best can be poached at anytime and meanwhile there are swords of Damocles hanging over everyone’s head.

We need to get rid of the idea of ‘the bank’: that term implies a unity of action and purpose. There is no such a thing.

Perverse incentives: rewards for undesirable actions.

Traditionally there were separate firms for trading, for asset management and for deal making (mergers,listing of new companies etc.) . Since the 80’s, all three activities have been brought under the roof of one bank, through mergers and acquisitions in the financial sector. This is a conflict of interest of the highest order and banks have been asked to set up Chinese wall between their divisions and activities to avoid leaking of information and pressure from one sector to another (e.g. investing in companies whose listing is done by the same bank…)

Corporations can be hit hard by currency fluctuations (with increasing volatility in the 1970’s). So banks invented derivatives that allowed parties to protect themselves. This was a good idea that perform a useful service to the economy and society. But fast forward 20 years and you see the British bank Barings collapse as a result of a rogue trader using advance foreign currency derivatives.  A company or government can go bust, meaning investors lose money. Banks developed an insurance of sort: the Credit Default Swap (CDS). This was a good idea but a good decade later (in 2008) CDS played a crucial role in the financial crisisMortgages are good long term investments for pension funds but as a pension funds you are not going to by individual mortgages. Banks found a way to package those in instruments allowing investment by pension funds. 15 years later, those products would sank Lehman Brothers.

In 2012, a trader at JP Morgan (and his team) run up a 6.2bn loss. The year before, his pay came to 7m. He did not break any law and has never been prosecuted. (Bruno Iksil)

While doing research there are sometimes points at which lines of investigation suddenly coalesce into an insight.

Around 2000, the dot-com scandal revealed fundamental conflicts of interest between activities that used to be done by separate firms; taking company public, trading and asset management. The regulatory response was not to prevent those conflicts, it merely forced the banks to install Chinese wall – policed by their own risk and compliance staff.

Tony Blair is making 2.5M pound a year as adviser to JP Morgan. Hector Sants, chief regulator in 2008, has a top job at Barclays. His estimated compensation was 3M pound a year. The three major credit rating agencies have kept their de-facto cartel; as have the four accountancy firms who continue to do lucrative consultancy jobs for the banks there are meant to audit independently.

After quizzing interviewees on their motives, greed seemed a highly inadequate explanation of their behaviour. I have come to believe that the focus on greed is the biggest mistake outsiders have made in the aftermath of Lehman’s collapse. (The Wolf of Wall Street kept this popular). [The system was to blame in more general term, short termism etc.]

To think that blinkered bankers will one day wake up and decide to change finance from inside is wishful thinking.

Andrew Haldane, number 2 at English central bank told that the balances of the big banks are the blackest of black hole.

Four changes the laws should bring: banks must be chopped up into units so that they are no longer too big to fail; banks should not have activities under one roof that create conflict of interests; banks should not build or sell overly complex financial products, the bonus should land on the same head as the malus.

Political parties, politicians, regulators have come to identify themselves with the financial sector and the people in it. The term is ‘capture’. Politicians started to believe the world works in the way that bankers say it does.

As put by interviewee: The left insists on solidarity across the nation, with higher tax rates for rich people to help their less fortunate countrymen. But this solidarity is predicated on a sense of national belonging, to which the left is allergic; national identity comes with chauvinism and nationalism and creepy right wing supremacists.

Nobody is helped more by cynicism about politics than cynical politicians.

 

 

 

 

 

The Hidden Wealth of Nations, Gabriel Zucman, 2015

 

Tax havens are at the heart of financial, budgetary, and democratic crisis.

On a global scale, 8% of the financial wealth of households is held in tax havens. In the spring of 2015 foreign wealth held in Switzerland reached $2.3tn.  Since April 2009, when countries of the G20 held a summit in London and decreed the ‘the end of bank secrecy’, the amount of money in Switzerland has increased by 18%. For all the world’s tax havens combined, the increase is close to 25%. And we are only talking about individuals here. 55% of all the foreign profits of US firms are now kept in such havens.

To fight offshore tax avoidance, the first measure is to create a worldwide register of financial wealth, recording who owns what. Financial registry exist but they are fragmentary (Clearstream).

In France, on the eve of the 1914-18 war, a pre-tax stock dividend of 100 francs was worth 96 francs after tax. Throughout the 19th century, European families paid little or no tax. In 1920 the world changed. Public debt exploded. That year the top marginal income tax rose to 50%, in 1924 it reached 72%. The industry of tax evasion was born.

In 1920, the wealth was made up of financial securities: stock and bonds payable to the bearers. Owners looked for safe places to keep them.  The bank then took the responsibility for collecting dividends and interest generated by those securities. Many banks could do this but Swiss bank offered the possibility of committing tax fraud. Off-balance sheet activities are the holding of financial securities for someone else (they don’t belong to the bank but to clients). The most rapid growth of assets in Swizerland were in 1921-22 and 1925-27. Swiss bank secrecy laws followed the first massive influx of wealth (from France mostly), not the reverse.

For the most part, non-Swiss residents who have accounts in Switzerland do not invest in Switzerland – not today, not in the past. Swiss bank offshore successes owes nothing to the strength of the Swiss francs. It has to do with tax evasion.

Charles de Gaulle imposed a condition on the rapprochement between Switzerland and the allies in 1945: Berne was to help identify the owners of undeclared wealth. For Congress it was out of the question to send billions of dollars via the Marshall Plan without trying to tax French fortunes hidden in Geneva. Berne then engaged in a vast enterprise of falsification: they certified that French assets invested in US securities belonged not to French people but to Swiss citizens or to companies in Panama.

Recent policy changes are making it more difficult for moderately wealth individuals to use offshore banks to dodge taxes: for them the era of banking secrecy is coming to an end. The decrease of little account is more than made up for by the strong growth of assets deposited by the ultra-rich, in particular coming from developing countries.

In Switzerland, banks managed $2.3tn belonging to non-resident. $1.3tn belong to Europeans (DE,FR,IT,UK), mostly through trust and shell corporations domiciled in the British Virgin Islands. 40% is placed in mutual funds, principally in Luxembourg.  With more than $150bn in Switzerland – more than the US has, a country with a GDP 7 times higher – the African economy is the most affected by tax evasion.

If we look at the world balance sheet, more financial securities are recorded as liabilities than as assets, as if planet Earth were in part held by Mars. This amount to $6.1tn in 2014 and the bulk of the imbalance comes from Luxembourg, Ireland and Cayman Islands. This imbalance is a point of departure for estimate of the amount of wealth held in tax havens.  I estimate that $7.6tn (8% of global household financial assets) is held in accounts located in tax havens (this includes $1.5bn of bank deposits). The true figure, all wealth combined, is 10% or 11%.

It is one of the great rules of capitalism that the higher one rises on the ladder of wealth, the greater the share of financial securities in one’s portfolio. Corporate equities – the securities that confer ownership of the means of production, which leads to true economic and social power – are especially important at the very top.

On a global level, the average return on private capital, all class of assets included, was 5% per year during the last 15 years. Slightly decreased since the 1980-90, when it was closer to 6%. This is real rate, after adjusting for inflation.  Prudent funds, with 40% low risk bonds, have earned on average 6% per year. Those who invest in international stocks have returned more than 8%. As for Edge funds, reserve for the ultra-rich, their average performance has exceeded 10%.

Africa :30% of wealth held abroad; Russia:52%; Gulf countries: 57%; Europe:10%; US and Asia:4%

Foreign Account Tax Compliant Tax (FATCA): passed by Congress and Obama’s administration in 2010 – Financial institutions throughout the world must identify US clients and inform the IRS to ensure that tax on interest income, dividends and capital gains are paid. Foreign banks refusing to disclose accounts held by US taxpayers face sanctions: a 30% tax on all dividends and interest income paid to them by the US. Tax havens can be forces to cooperate if threatened with large-enough penalties.

To believe that tax havens will spontaneously give up managing the fortunes of the world’s tax dodgers, without the threat of concrete sanctions, is to be guilty of extreme naïveté.

The IRS signed a check for $104 million to the ex-banker of UBS, Bradley Birkenfeld, who revealed the practice of his former employer.  But one may well doubt the effectiveness of this strategy as to rely exclusively on whistle blowers to fight against tax-havens is not strong policy.

The EU saving tax directive, applied in the EU since July 2005 is to fight against offshore  tax evasion by sharing information between countries about clients. Yet this was a failure: Lux and Austria were granted favourable terms and do no exchange information with the rest of Europe. Lux could give the persistence of banking secrecy in Switzerland to block any revision of the directive. Lux and Austria instead of sharing information must apply a withholding tax (35%) which is less than the top marginal income tax in France. Then the tax applies only to EU owners, not to accounts held by shell corporations, trusts or foundations. And the directive applies only to interest income, not dividends. Why? This is a mystery. Was it incompetence? Complicity? The main effect has been to encourage Europeans to transfer their wealth to shell corporations (+10% in Switzerland, in the months that followed the entre into force of the Directive). Swiss bankers have deliberately torpedoed the saving tax directives. No sanctions, no verifications foreseen…it is high time to wake up to reality.

Currency Wars, James Rickards (2011)

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Applied Physics Lab : the Pentagon was about to launch a global financial war (simulation) using currencies and capital markets instead of ships and planes.

During the first part of the depression that began in 2007, sovereign wealth funds were the primary source of bailout money. SWF invested over $58bn (in Citigroup, Meryll Lynch, Morgan Stanley). These investments were decimated by the panic of 2008 – SWF lost vast amount of money (which propped the US government to step in later on to avoid those losses) yet influence that came with them remained. SWF could then be used to exercise malign influence over target companies, to steal technology, sabotage new projets, stifle competition, engage in bid rigging, recruit agents or manipulate markets (including those in strategic commodities such as oil, copper etc.).  Such activities were not common, let alone the norm, but they were possible.

The president has nearly dictatorial powers to freeze any accounts that try to disrupt the financial market (by dumping Treasury notes on the open market in vast quantities). Destroying confidence in the dollar would be far more effective than dumping a particular dollar denominated instrument. If the dollar collapse, all dollar denominated markets would collapse with it. And the president’w power to freeze accounts would be moot.

A currency war, fought by one country through competitive devaluations of its currency against others, is the most destructive and feared outcomes in international economics. It revives the ghosts of the Great Depression, the 1970s, the crises of the UK pound in 92, Russian rubles in 98 a.o.

Two currency wars : 1921 to 1936 and 1967 to 1987. Classic gold standard 1870-1914, creation of Fed 1907-1913 and WWI and treaty of Versailles 1914-1919.

1870-1914: golden age in terms of noninflationary growth coupled with increasing wealth and productivity in the industrialized and commodity producing world.

1907-1913: 1907 the failure of Knickerbocker Trust to corner the copper market led to a run on the bank in a market that was already nervous and volatile after massive caused by the 1906 earthquake. This led a more general loss of confidence, which led to a stock market crash and further bank runs and finally a full scale liquidity crisis and financial crisis. The threat was stemmed only by collective action of the leading bankers in the form of a private financial rescue organized by JP Morgan. A central bank to act as an unlimited lender of last resort to private banks was needed before panic arose.

Currency war 1 : Germany moved first in 1921 with a hyperinflation designed initially to improve competitiveness and then taken to absurd lengths to destroy an economy weighed down by the burden of war reparations. France moved next in 1925. The US moved in 1933…then England.  In round after round of devaluation and default, the major economies of the world raced to the bottom, causing massive trade disruption, lost output and wealth destruction along the way.

Germany destroyed it currency to get out from under onerous war reparations demanded by France and England. In fact, those reparations were tied to gold mark and subsequent treaty protocols were based on a % of German exports regardless of the paper currency value.

Hyperinflation in Germany:  diners offered to pay for meals in advance the price would be vastly higher by the time they finished. The demand for banknote was so great that, by 1923, the notes were being printed on one side only to conserve ink.  The currency collapse also strengthened the hand of German industrialists who controlled hard assets in contrast to those relying solely on financial assets. Hyperinflation can be used as policy lever: it produces fairly predictable sets of winners and losers and can be used to rearrange social and economic relations among debtors, creditors, labor and capital (while gold is kept to clean up the wreckage if necessary).

I don’t give a shit about the lira – Richard Nixon, 1972.

Although conceived in the form of a grand international agreement, the Bretton Woods structure was dictated almost single-handedly by the United States at a time when US military and economic power was at a height not seen again until the fall of the Soviet Union in 1991.

In Jan 1965, France converted $150 million of dollar reserve into gold and announced plan to cover another $150 million soon (that is equivalent to $12.8bn as at 2011). De Gaulle helpfully offered to send the French navy to the US to ferry the gold back to France. This came at a time when US businesses were buying up European companies and expanding operations in Europe with grossly overvalued dollars, something De Gaulle referred to as ‘expropriation’. The redemptions of dollars for gold had enable France to become a gold power, ranking behind only the US and Germany, and it remains so today.

In 1969 the IMF took up the ‘gold shortage’ cause and created a new form of international reserve asset called the special drawing right (SDR). SDR was manufactured out of thin air without tangible back up and allocated among members in accordance with their IMF quotas.  There were small issuance in 1970-72, then in 1981 (as a response to oil price and global inflation) and then in 2009, as a response the deep depression which followed the financial crisis of 2007-8.

On Sunday, august 15, 1971, President Nixon preempted the most popular show in America, Bonanza, to present a live television announcement of what he called his New Economic Policy consisting of immediate wage and price controls, a 10% surtax on imports and the closing of the gold window.  The announcement was referred ever since as the Nixon Shock.

Stagflation – a combination of high inflation and stagnant growth in the US – which lasted from 1973 to 1981 was the exact opposite of the export led growth that dollar devaluation was meant to achieve. The proponent of devaluation could not have been more wrong. The fact that the policy failed spectacularly in 1973 did not deter the weak-dollar crowd. The allure of quick fix for industries in decline and those with structural inadequacies is politically irresistible.

By 1987, gold was gone from international finance, the dollar had devaluated, the yen and the mark were ascendant, sterling had faltered, the euro was in prospect and China had not yet taken its own place on the stage. The relative peace in international monetary matters rested on nothing more substantial than faith in the dollar as a store of value based on a US growing economy and stable monetary policy by the Fed. These conditions largely prevailed through the 1990s.  Currency crisis did arrive (Sterling in 1992, Mexican peso in 1994, Asia-Russia crisis in 97-98) but did not threatened the dollar. The dollar was typically a safe haven when they arose.

 

The main battle lines being drawn are a dollar-yuan theater across the Pacific, a dollar-euro theater across the Atlantic and a euro-yuan theater in the Eurasia landmass.

Participation in currency war today is no longer confined to the national issuers of currency and their central banks. Involvement extends to IMF, World Bank as well as hedge funds, global corporation and private family offices of the superrich. (George Soros “broke the Bank of England” in 1992).

Today the risk is the collapse of the monetary system itself – a loss of confidence in paper currencies and massive flight to hard assets.

The low rate policy of the Fed was justified initially  as a response to challenges of the 2000 tech bubble collapse, the 2001 recession, the 9/11 attacks and Greenspan’s fear of deflation (the last being the main determinant for the Fed). China was now exporting its deflation to the world, partly through a steady supply of cheap labour and the low rate policy was to offsets the effects in the US.

Lower rates meant that all types of dubious or risky deals could begin to look attractive, because marginal borrowers would ostensibly be able to afford the financing costs. The sub-prime residential loan market and commercial real estate market both exploded in terms of loan originations, deal flow, securitisations …due to Greenspan’s low rate policies.

The process of absorbing the surplus of dollars entering the Chinese economy, especially after 2002, produced a number of unintended consequences. The yuan is pegged to the dollar, it does not trade freely and its use and availability are tightly controlled by the Central Bank of China. The Chinese central bank did not just take the surplus dollars, but rather purchased them with newly printed yuan. This meant that as the Fed was printing dollars, the Chinese central bank printed Yuans to maintain the pegged exchange rate.

The central bank of China (like all others) prefer highly liquid government securities issued by the US treasury. As a result, the Chinese acquired massive quantities of US treasury obligations. By 2011 Chinese foreign reserve were approximately US$2.85tr, US$950bn in US government obligations (32%).  (US$ 3.2tr in Nov 2016; US$1.15tr in US obligation – 36%). A monetary powder keg that could be detonated by either side if the currency wars spiraled out of control.

The principal accusation leveled by the US against China, since 1994, is that China manipulates its currency in order to keep Chinese export cheap for foreign buyers. But China’s export is not an end in itself. The real end of Chinese policy is jobs for the young workers in coastal factories, assembly plants and transportation hubs.

The US has now chosen the G20 as the main arena to push China in the direction of revaluation (Chinese are more deferential to global opinion than to US opinion alone. Chinese are attentive to the G20 in ways that they may not be when it comes to other forums.

The relationship between Euro and Dollar is better understood as co-dependence rather than confrontation.

Although the bankruptcy of Leman Brother was filed in US federal courts after bailed out attempt failed, some of the largest financial victims and worst-affected parties were European hedge funds that had done over-the-counter swaps business (ie. Directly between parties, without any supervision as provided by exchange trading for instance) or maintained clearing accounts at Lehman’s London affiliates.

Investors happily snapped up billions of euros in sovereign debt from the likes of Greece, Portugal, Spain, and Ireland at interest rates only slightly higher than solid credits such as Germany. This was done on the basis of high ratings from incompetent rating agencies, misleading financial statements from government ministries and wishful thinking by investor that a euro sovereign would never default.

2010 Euro debt crisis: banks would buy sovereign bonds in the belief that no sovereign would be able to fail. Sovereigns happily issued bonds to finance no sustainable spending.  European banks gorged also on debt issued by Fannie Mae and other collateralized debt obligations (CDO). The European banks were the true weak links in the global financial system.

In 2010, of the $236bn of Greek debt, 15bn was owed to UK, 75 to France and 45 to German entities. Of $867 billion of Irish debt, 60bn was to France, $188 to UK and $184 to Germany. Of the 1.1tn of Spanish debt, 114 was to UK, 220 to French entities and 238 to German. The mother of all inter-European debt was the $511bn that Italy owed to France.

The sovereign debt was owed to other countries’ banks. This was the reason for the Fed’s secret bailout of Europe in 2008. This was the reason Fannie Mae and Freddy Mac bondholders never took any losses when those companies were bailout by the US taxpayers in 2008. The European banking system was insolvent so subsidizing Greek pensioners and Irish banks was a small price to pay to avoid watching the all edifice collapse.

The relationship between euro and yuan is simply dependent. China is emerging as a potential savior of Greece, Portugal and Spain, based on self-interest and cold calculation. China has an interest in strong euro as EU is its largest trading partner: a devaluation of the Euro would be costly for China. China interest in supporting the Euro is as great or greater than its interest in maintaining the Yuan peg against the dollar. China’s motives include diversifying its reserve position to include more euros, winning respect of friendship in Europe, gaining access to sensitive infrastructure through foreign direct investment. By buying sovereign bonds from peripheral countries, China help Germany to bear the costs of European bailouts and avoid the losses it would suffer if the euro collapsed. China stabilize the Eurasia flank while it fights the US, its main front in the currency war.

The G20 is perfectly suited to US treasury secretary Timothy Geithner’s modus operandi, which he call ‘convening power’.

Government spending and business investment might play a role, but American consumer, at 70% or more of GDP, has always been the key to recovery.  In 2008, 2009 the G20 summits had also been preoccupied with plans to rein in the banks and their greed-based compensation structures, which provided grotesque rewards for short term gains but caused long term destruction of trillions of dollars.

The IMF: in the 1980s and 1990s it had assisted developing countries’ economies suffering foreign exchange crises by providing finance conditioned upon austerity measures designed to protect foreign bankers and bondholders. Yet with the elimination of gold, the rise of floating exchange rates and pilling up of huge surpluses in developing countries, the IMF entered the 21st century with no discernable mission. And suddenly the G20 breathed new life into the IMF….

Quantitative Easing which consist of increasing money supply to inflate asset prices and weakening the dollar through inflation. In its simplest form, QE is printing money. Fed buys treasury debt securities from a select group of banks called primary dealers. The primary dealer have a global base of customers, sovereign funds, other central banks, pensions funds, institutional investors and high net worth individuals. When Fed want to reduce money supply, they sell securities to the primary dealers. Securities go to the dealers and the money paid to the Fed simply disappears. Conversely, to increase money supply, Fed buy securities from the dealers and pay with fresh printed money (which then support further money creation by the banking system).

China’s policy of pegging the Yuan to the dollar was based on the mistaken belief that the Fed would not abuse its money printing privileges. Now the Fed was printing with a vengeance (through QE in 2009-10)

Collateral damage of the currency war:  through a combination of trade surpluses and hot money flows seeking higher investment returns, inflation caused by US money printing soon emerged in South Korea, Brazil, Indonesia, Thailand

This is the down side of Convening power. The absence of governance can be efficient if people in the room are likeminded of if one party has the ability to coerce the others, as it was the case when the Fed confronted the 14 families at the time of the LTCM bailout (Long Term Capital Management was a very successful hedge funds (40+% return) with almost $100bn investment in derivatives in 1998 when the default of Russia caused panic in the market.  LTCM highly leveraged investment started to crumble and banks and funds that had invested in LTCM wanted their money back. To save LTCM and avoid a collapse of the banking system, the Fed convinced 15 (or 14) banks to bail out LTCM (in return for 90% ownership of the Fund) with Fed lowering funds rate to make this easier. Once financial firms realized the Fed would bail them out, they become more willing to take risk, and this contributed to a situation that led to the financial crisis in 2007-8).

March 11, 2011 the earthquake in Japan. The yen surged against the dollar, bolstered by expectation of massive yen repatriation to fund reconstruction. Some portion on Japanese reserve outside the country ($2tn) would have to be converted back in Yen and brought back home: this led the price surge. This seemed to fit nicely with US goals but Japan wanted the opposite (a cheap yen would help promote japan export and help recovery). With no G20 to agree on a plan, the three US, Japan and European central banks would work together, under the banner of the G7 french minister Lagarde to coordinate an attack on the yen that consisted of massive dumping of yen by central banks and corresponding purchases of dollars, euros, Swiss francs etc. The attack continued across time zones as European and New York Markets opened. Lagarde deft handling on the yen crisis led her to replace Strauss-Khan as head of IMF in June 2011.

Keynes’s theory: stimulus programmes work better in the short term than the long term. They work better in a liquidity crisis than solvency crisis and better in mild recession than in severe one. And they work better in economies that have low debt level.

The Value at Risk is a method used by Wall Street to manage risk: it measure risk of a portfolio with certain risk offset against others. This is the VaR that gave the all clear to high leverage and massive off-balance sheet exposure before the crisis (and it is still in use today). But the flaws  and limitations were well known (notably it does not guarantee against all positions to fall at the same time) but were ignored as VaR permitted the pretense of safety that allows firms to use high leverage and make larger profit while being backstopped by tax payers when things went wrong.

The destructive legacy of financial economics is hard to quantify but $60tn in destroyed wealth in the months following the panic of 2008 is a good estimates. Derivative contracts did not shift risks to strong hands, instead it concentrated risk in the hands of the too big to fail.

Today government spending has grown so large and sovereign debt burdens so great that citizen rightly expect that some combination of inflation, higher taxation and default will be required to reconcile to debt burden with the means available to pay it.

Thought emerges from the human mind in the same complex, dynamic way that hurricanes emerges from the climate.

Between June 2000 and June 2007, the amount of over the counter foreign exchange derivatives went from $15tn to $57tn, a 367% increase. Interest rates derivative went from $64tn to $381tn, a 589% increase. Equity derivatives went from $1.9tn to $9.5tn, a 503% increase.

Actual mortgage losses are still less than $300bn. When derivatives and other instruments are included, total losses reached over $6tn, an order of magnitude greater than actual losses.

Next time it will be different. Based on theoretical scaling metrics, the next collapse will not be stopped by governments, because it will be larger than government.

It is well understood that the sun uses far more energy than a human brain. Yet the sun is vastly more massive than a brain. When differences in mass are taken into account, it turns out that the brain uses 75,000 times as much energy as the sun (in Chaisson’s standard units).

China would never dump it Treasury securities because it has far too many of them. The Treasury market is deep, but not that deep, and the price of Treasuries would collapse long before more than a small fraction of China’s bond could be sold. Resulting losses would fall on the Chinese themselves. Between 2004 and 2009, China secretely doubled it official holding of gold. China argues that secrecy was needed to avoid running up the price of gold… China’s posture toward the US dollar is likely to become more aggressive as its reserve diversification becomes more advanced.

Marc 30, 2009 AFP reports that China and Russia are cooperating in a creation of a new global currency. Dec 13, 2010 Sarkozy calls for the consideration of a wider role for SDR. Dec 15, 2010 Russia and China are launching a yuan-ruble trade currency settlement.

America has become a nation of guinea pigs in a grand monetary experiment, cooked up in petri dish of the Princeton economics department.

Easy money and dollar devaluation are designed to work together to cause actual rates low to get the lending and spending machine back in gear.

Fundamentally monetarism is insufficient as a policy tool not because it gets the variables wrong because the variables are too hard to control. Velocity is a mirror of consumer confidence and cand be highly volatile. The money supply transmission mechanism can from base money to bank loans can break down because of lack of certainty, lack of confidence on the part of the lenders and borrowers.

Because debt and deficits are now so large, the US has run out of dry powder. If struck by another financial crisis, its ability to resort to deficit spending would be impaired.

As long as profits continue on Wall Street, the hard questions will not be asked, let alone answered.

In 2011 US dollar is 61% of identified reserves. The next largest is the euro with just over 26%. The IMF reports a slow but steady decline of the dollar over the last 10 years (from 71%). [from internet in 2016: In 2014, USD dollar is up to 63% and Euro down to 22%].

Eichenberg research led to a plausible and fairly benign conclusion that a world of multiple reserve currencies, with no single dominant currency, may once again be in prospect. It is a world of reserve currencies adrift. Instead of a single central bank like the fed abusing its privileges, it will be open season with several central banks to do the same.  There would be no safe harbor reserve currency and markets would be more volatile and unstable.

SDR is world money, controlled by the IMF, backed by nothing and printed at will. Experts object to use the word money for the SDR as citizen can’t obtain them. They are a medium of exchange : nations can settle their local currency trade balances with other nations in SDR.

Smaller is safer – the correct approach is to break up big banks. Gold standard will bring more certainty, greater stability in inflation, interest rates and exchange rates . This will promote investment.

Early 2012, by unilaterally excluding Iran from the dollar payment system, the US caused the a currency collapse, hyperinflation and sky-high interest rate in a matter of days.  Later US pressured the SWWIFT governing board to exclude Iranian banks from its facilities.  While smuggling of dollars (from Iraq) to help make payment kicked in rapidly, this was only a fraction of the global commerce Iran lost. Iran was too important to remain a complete pariah and ideas for trade financing mechanisms that did not involve the dollar were proposed. And later in 2012 BRICs suggested the creation of a multilateral bank to facilitate lending and payments among emerging markets. An unintended consequence of US sanctions on Iran.