What Comes Next; Part 1, Useful History of the 20th Century

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Value as a foundation seems almost too literal to be an economic or financial concept, but it is perhaps the bedrock association that makes the economic system. We are used to aspects like profits and money, even inflation, but those are all symptoms of the ever-changing world surrounding value. Karl Marx understood very well how deeply embedded value was even by the 1850’s, unleashed in just a few centuries’ time as Adam Smith’s wonderful summation recounted how mercantile capitalism was more than just some “invisible hand.” For Marx, he knew that the very rise of modern economic orientation would spoil all his plans and conceits for instituting equality as he saw it; that is why hisrevolution had to be worldwide and comprehensive, to totally and completely destroy all notions of value in order to start over.

I wrote quite exhaustively (as I typically do) about the socialist strands in our economic history here, but it is, I think, useful to emphasize the role of value in theory that animates if not all of the historical progression of the elements that define our systemic operation than at least a majority portion. As early as the 1830’s, “reformers” of all kinds were beginning to examine how value might be “exploitable” as means to achieve desired results.

In the 1830’s, Robert Owen, a Welsh “reformer”, had tried repeatedly to convert currency to labor function. Time-based currency was an idea where you were “paid” in time for labor (notes actually denominated in hours), exchangeable for products “valued” under the same terms. The idea was simple, namely that all labor should be equal so that inequality of class would be abolished. Time currency, then, meant that there was no value to labor, only to goods, which presented inordinate problems in valuing goods as they were also intermediate to labor.
Owen, therefore, had very little luck in actually creating a workable system outside of that theory. He had close experience with a similar system, though wholly opposite his egalitarian intentions, in the “truck system” of early 19th century Britain. Owen was a part-owner of a mill and it was typical practice to pay mill workers in tokens (either in part or even in full) that were only exchangeable at the mill owner’s “truck shop.” Since the owner would often supply the worst kinds of inferior goods and charge the highest prices for them, Owen realized the relative exchange equation here was to devalue labor; he intended to accomplish the opposite thinking it would not only be more equitable to labor but far more efficient for everyone (instead of benefiting the mill owner almost exclusively, a far more fair labor “value” might benefit all of social society).

Socialists independent of Marx, including Owen who had influenced Marx with his time currency, shared many of his ideals if not his fervor for destroying everything in a clean and devastating break. For many, money could be the agent of change, whether in the course of redistribution (including government taxation and “spending”) or outright redefinition. If they would not go so far as to destroy value from the root, then they thought it, as Owen, potentially effective to manipulate money as a substitute or proxy for value. And a great deal of socialist contribution had little to do with equality other than utopian ideals of creating “optimal” outcomes. The shared methodology was simply to reduce individuals to cogs in order to more cohesively control the macro mess of them.

The development of economics as both a study and a political expression is certainly non-linear, but in the 20th century there is a clear progression; we started in gold and ended under much less certain terms, a process that seems chaotic, and often was, but with its own guiding if largely invisible hand. The battles in the various marginal directions seemed to take shape over money and currency, but in reality it is and has always been about value. The intent at times has been to separate money from value, but the grand mistake seems to have been where theorists simply assumed that all money and currency are eventually perfect substitutes. That may be true in at least one monetary function, payment terms, but has proven far more stubborn in practice across the whole spectrum of monetary discipline.

At the start of the 20th century, value was relatively easy to describe and its role was just as straightforward. The decade of the 1890’s proved that inordinately (as it was known up until the 1930’s as the Great Depression) where value was imposed on financial society through the act of convertibility. Numbers and quantitative descriptions did not apply, which is why so often the ire of “experts” is invoked against this type of expression, but it comes down to a simple and collective judgment (not aggregated) of the people to disassociate their property from financial components; the latter being judged un-valuable with respect to the former. Continue reading

Where ISIS Fighters (Allegedly) Come From

Submitted by Pater Tenebrarum  –  The Acting Man Blog

A Map of ISIS Recruitment

Via “Amazing Maps” on Twitter comes the following info-graphic that purports to show the origin of foreign ISIS recruits (i.e., recruits that are not from Syria and Iraq). There are obvious problems with such statistics, such as the one mentioned by one commenter on Twitter, namely “do they all have to register when they leave their respective countries?”.

Nevertheless, we thought the estimates interesting, if only on a relative basis. In several cases the estimates strike us as likely far too low, such as the numbers attributed to assorted Gulf sheikdoms. Qatar, Bahrain and the UAE are very small, but just 15 fighters from each? We recall that there even exists an ISIS propaganda video that shows recruits from precisely these places burning their passports.

ISIS fighter originsThe countries of origin of foreign ISIS recruits, with estimates of their numbers – click to enlarge.

It may also have been sensible to split Russia into Chechnya and the rest of Russia, since Chechens reportedly represent the bulk of recruits originating from Russia (which is certainly credible). Even the chief military strategist of ISIS is from Chechnya.

Still, it is astonishing how many people have followed the siren call and have entered the conflict on the side of ISIS voluntarily. We were also briefly taken aback by the fact that there are apparently Chinese recruits as well, however, those likely come from China’s Muslim Uighur minority. Continue reading

Snowden, Putin, Greece: It’s All The Same Story

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Milton Greene “Actress Marilyn Monroe in bed” 1955

Through the last decades, as we have been getting ever more occupied trying to be what society tells us is defined as successful, we all missed out on a lot of changes in our world. Or perhaps we should be gentle to ourselves and say we’re simply slow to catch up.

Which is somewhat curious since we’ve also been getting bombarded with fast increasing amounts of what we’re told is information, so you’d think it might have become easier to keep up. It was not.

While we were busy being busy we for instance were largely oblivious to the fact the US is no longer a beneficial force in the world, and that it doesn’t spread democracy or freedom. Now you may argue to what extent that has ever been true, and you should, but the perception was arguably much closer to the truth 70 years ago, at the end of WWII, then it is today.

Another change we really can’t get our heads around is how the media have turned from a source of information to a source of – pre-fabricated – narratives. We’ll all say to some extent or another that we know our press feeds us propaganda, but, again arguably, few of us are capable of pinpointing to what extent that is true. Perhaps no big surprise given the overdose of what passes for information, but duly noted.

So far so good, you’re not as smart as you think. Bummer. But still an easy one to deny in the private space of your own head. If you get undressed and stand in front of the mirror, though, maybe not as easy.

What ails us is, I was going to say perfectly human, but let’s stick with just human, and leave perfection alone. What makes us human is that it feels good to be protected, safe, and prosperous. Protected from evil and from hard times, by a military force, by a monetary fund, by a monetary union. It feels so good in fact that we don’t notice when what’s supposed to keep us safe turns against us.

But it is what happens, time and again, and, once again arguably, ever more so. What we think the world looks like is increasingly shaped by fiction. Perhaps that means we live in dreamtime. Or nightmare time. Whatever you call it, it’s not real. Pinching yourself is not going to help. Reading Orwell might.

The Sunday Times ran a story today -which the entire world press parroted quasi verbatim- that claimed MI6 had felt compelled to call back some of its operatives from the ‘field’ because Russia and China had allegedly hacked into the encrypted files Edward Snowden allegedly carried with him to Russia (something Snowden denied on multiple occasions).

Glenn Greenwald’s take down of the whole thing is – for good reasons- far better than I could provide, and it’s blistering, it leaves not a single shred of the article. Problem is, the die’s been cast, and many more people read the Times and all the media who’ve reprinted its fiction, than do read Greenwald:

The Sunday Times’ Snowden Story Is Journalism At Its Worst

Western journalists claim that the big lesson they learned from their key role in selling the Iraq War to the public is that it’s hideous, corrupt and often dangerous journalism to give anonymity to government officials to let them propagandize the public, then uncritically accept those anonymously voiced claims as Truth. But they’ve learned no such lesson. That tactic continues to be the staple of how major US and British media outlets “report,” especially in the national security area. And journalists who read such reports continue to treat self-serving decrees by unnamed, unseen officials – laundered through their media – as gospel, no matter how dubious are the claims or factually false is the reporting.

We now have one of the purest examples of this dynamic. Last night, the Murdoch-owned Sunday Times published their lead front-page Sunday article, headlined “British Spies Betrayed to Russians and Chinese.” Just as the conventional media narrative was shifting to pro-Snowden sentiment in the wake of a key court ruling and a new surveillance law, the article claims in the first paragraph that these two adversaries “have cracked the top-secret cache of files stolen by the fugitive US whistleblower Edward Snowden, forcing MI6 to pull agents out of live operations in hostile countries, according to senior officials in Downing Street, the Home Office and the security services.”

Please read Greenwald’s piece. It’s excellent. Turns out the Times made it all up. At the same time, it’s just one example of something much more expansive: the entire world view of the vast majority of Americans and Europeans, and that means you too, is weaved together from a smorgasbord of made-up stories, narratives concocted to make you see what someone else wants you to see.

Last week, the Pew Research Center did a survey that was centered around the question what ‘we’ should do if a NATO ally were attacked by Russia. How Pew dare hold such a survey is for most people not even a valid question anymore, since the Putin as bogeyman tale, after a year and change, has taken root in 99% of western brains. Continue reading

Discount Bubble Check

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Yesterday was the quarterly release of the Financial Accounts of the United States (Z1), formerly titled as the Flow of Funds, which means we get updates on the asset bubbles through Q1. That starts with equity valuations, with the components to Tobin’s Q being revised all over the place. The Q ratio is made up of the total value of equity liabilities, nonfinancial (as a proxy for stock prices and values), divided by estimated net worth of nonfinancial corporations.

That makes intuitive sense as rising values in stocks if supported by rising net worth would tend to argue in favor of a fundamental advance opposed to something more artificial. When equity values far outstrip net worth, the vision of an asset bubble is much stronger.

The Federal Reserve has not been able to sit still upon its estimates for these components, however. Revisions are a constant source of clouding comparisons, but they seem to have taken heightened sensitivity really in the past year or so. In the first part, corporate net worth, the Fed keeps upping the estimate not just in trend but also in revision.

ABOOK June Z1 Corp Net Worth

The latest adjustment in June 2015 is rather astounding, amounting to a $331 billion boost to net worth in Q4 2014 alone. What calls into question its veracity is the timing, noted easily on the chart above – the quarter immediately following QE4. In other words, are we noting an actual increase and upward revision in corporate fortunes due to actual and sustainable advancements in their economic placement and function, or is this a baseline assumption of monetarists charitably refiguring their own work?

That may be partially answered by what comes next, the revisions in the numerator of the Q ratio. While net worth has been moved to a much higher trend, corporate equities have been somehow been reworked in the opposite direction.

ABOOK June Z1 Corp Equity Liab

Again starting around Q1 2013, the Fed appears to be combining new estimates of how QE was better than thought for corporate activities but at the same time not quite so robust on equity prices. The net result is that Tobin’s Q ratio, while still historically elevated, has flattened out and even declined in its trajectory for the last year (Establishment Survey trend-cycle effect?). Continue reading

Happy Birthday Magna Carta

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

Monday, June 15, 2015, is the 800th anniversary of Magna Carta. In his book, Magna Carta, J.C. Holt, professor of medieval history, University of Cambridge, notes that three of the chapters of this ancient document still stand on the English Stature Book and that so much of what survives of the Great Charter is “concerned with individual liberty,” which “is a reflexion of the quality of the original act of 1215.”

In the 17th century Sir Edward Coke used the Great Charter of the Liberties to establish the supremacy of Parliament, the representative of the people, as the origin of law.

A number of legal scholars have made the irrelevant point that the Magna Carter protected rights of the Church, nobles, and free men who were not enserfed, a small percentage of the population in the early 13th century. We hear the same about the US Constitution–it was something the rich did for themselves. I have no sympathy for debunking human achievements that, in the end, gave ordinary people liberty.

At Runnymede in 1215 no one but the armed barons had the power and audacity to make King John submit to law. The rule of law, not the rule of the sovereign or of the executive branch in Washington acceded to by a cowardly and corrupt Congress and Supreme Court, is a human achievement that grew out of the Magna Carta over the centuries, with ups and downs of course.

Blackstone’s Commentaries in 1759 fed into the American Revolution and gave us the US Constitution and the Bill of Rights.

The Geneva Conventions extended the rule of law to the international arena.

Beginning with the Clinton Administration and rapidly accelerating with the George W. Bush and Obama regimes and Tony Blair in England, the US and UK governments have run roughshod over their accountability to law.

Both the US and UK in the 21st century have gone to numerous wars illegally under the Nuremberg Standard established by the US and UK following Germany’s defeat in WWII and used to execute Germans for war crimes. The US and UK claim that unlike Germany they are immune to the very international law that they themselves established in order to punish the defeated Germans. Washington and London can bomb and murder at will, but not Germany.

Both governments illegally and unconstitutionally (the UK Constitution is unwritten) spy on their citizens, and the Bush and Obama executive branches have eviscerated, with the complicity of Congress and the federal courts, the entirely of the US Constitution except for the Second Amendment, which is protected by the strong lobby of the National Rifle Association. If the gun control “progressives” have their way, nothing will be left of the US Constitution. Continue reading

Not All Establishment Economics Onboard Economic Reboarding

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

While the recovery narrative received a boost from only the seasonally adjusted retail sales data this week, the rest of the domestic economy, including and especiallyunadjusted retail sales, is still being marked down. First, the World Bank reduced its estimates for global growth to 2.8%, meaning that the promised annual recovery is now put off yet another year. Further, the World Bank singled out the Fed, putting the US on notice that not all of establishment economics is so optimistic.

Kaushik Basu, the World Bank’s chief economist, said the Federal Reserve should hold off on a rate hike until next year to avoid worsening exchange rate volatility and crimping global growth.
In its twice-yearly Global Economic Prospects report, the global development lender predicted the world economy would expand 2.8 percent this year, below its 3 percent prediction in January.

ABOOK June 2015 World Bank

While the World Bank was focused more on the US as incorporated into the overall global framework, the OECD was far more specific. Their estimates show US GDP for 2015falling behind even last year’s “anomaly.”

U.S. growth, which dipped notably in early 2015, is now seen at 2.0 percent for the year, marginally lower than last year’s 2.2 percent, before picking up to 2.8 percent in 2016.

How can this year be worse than last year? This was supposed to be the year in a way that all the prior claims of the same kind were not. There were low oil prices, the best jobs market in decades and a Federal Reserve “proving” its recovery scenario by how suicidal it repeatedly appears with threatening ZIRP – they would only do that, economists claim, if the economy was more than strong enough to take on the added financial burden of readjustment. For the World Bank and OECD to both render such negative verdicts on the 2015 version of recovery is more than disheartening; we are edging mercifully closer to disproving. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

The IMF Knew In 2010 That The Greek Memorandum Would Increase Debt (SYRIZA)
Why Greece Should Reject the Latest Offer From Its Creditors (Philippe Legrain)
The Saga Of The Greek Review That Never Ended (Kathimerini)
Endgame Looms For Greek Crisis As Both Sides Take Talks To The Brink (Guardian)
Greece’s Last-Ditch Talks Aim at Agreement Before Monday (Bloomberg)
Germany Is Bluffing On Greece (Weisbrot)
Spain Swears In Leftist Mayors for Madrid, Barcelona in Historic Turn (AP)
Why Keynesian Voodoo Doesn’t Work Anymore (Bawerk) US Labor Movement’s War Against Fast-Track May Not Be Over (Guardian)
Doubts Over EU Proposals For Saving TTIP Deal (Reuters)
The Warren Buffett Economy – Why Its Days Are Numbered-Part 4 (David Stockman)
End of the Line: China and Germany Look Ready to Pop (Herry Dent)
IMF Says It Will Continue To Back Ukraine (DW)
How One Accounting Rule Wrecked The Middle Class (Daniel Drew)
Britain Pulls Out Spies As Russia, China Crack Snowden Files (Reuters)
US Is Poised to Put Heavy Weaponry in Eastern Europe (NY Times)
Did Mathematician John Nash Help Invent Bitcoin? (CoinDesk)
Elon Musk Asks Permission To Put 4,000 Internet Satellites Into Orbit (Ind.)
High-Tech Solar Projects Fail To Deliver (WSJ)

Much more here: Debt Rattle June 14 2015 – TheAutomaticEarth.com