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Attempts to save the morally bankrupt
financial system will fuel further instances of civil unrest -- until the
system itself finally implodes.
Civil unrest -- or to use an even
harsher term, rage -- is sweeping the globe.
We are seeing it on multiple
continents now, and it is only a matter of time before it hits the United
States.
The year kicked off with "the
Arab Spring," an event (still ongoing) in
which civil unrest spread like wildfire in the Middle East. From Tunisia to
Egypt to Yemen and beyond, anger boiled over on a combination of long-held
tensions and skyrocketing food prices.
China, too, has been dealing with
growing unrest, from trucker strikes to food protests to migrant worker
riots. As in the Middle East, building inflation pressures are making it hard
for people to eat.
And now we have Greece back on center stage (as far as unrest is concerned), with riot
police firing tear gas canisters at outraged protesters in Syntagma Square.
But why is this happening?
In Europe, some see it as the triumph
of capital over labor. The bailout mechanisms and
extended debt agreements are not meant to save citizens -- they are meant to
save the banks, French and German banks in particular.
The Greek populace knows this, which
is why opposition to "austerity" has grown by the day. To get the
latest budget cuts through parliament, Greek officials had to threaten chaos,
violence and disorder if the bailout measures failed.
Theodoros Pangalos, the deputy premier, even said there would be
"tanks protecting banks" in the event of a
return to the drachma, because terrified citizens would storm the doors
trying to get their money out. In that instance, tear gas would not be
enough.
One thread that weaves through all
these instances is the elevation of finance above human needs.
Out-of-control food prices in the Middle East, for example,
have been a result of stimulus-driven activity encouraged by the Federal
Reserve. When "stuff" amounts to a superior store of value versus
paper currency, stuff gets scarce.
In China, the same idea has long been
applied through wage suppression, and a government focus on cheap labor dominance. Good for the competitive posture of the
country, not so good for those who scrimp and save for meals.
And in Greece, the choices are seen as
bankruptcy, i.e. instant fiscal death, or prolonged economic recession or
even depression -- with crushing financial debt loads acting as a millstone
for years or even decades to come.
The response of governments virtually
everywhere has been to (1) protect the bankers, (2) shield creditors from any
losses, and (3) pump up paper assets in the hope of getting things going
again.
Why continue on this path if the
results have been so ugly? Because the plan is working, at least for some. As
the U.K. Guardian reports:
The U.K. economy is flat, the U.S. is
weak and the Greek debt crisis, according to some commentators, is
threatening another Lehman Brothers-style meltdown. But a new report shows
the world's wealthiest people are getting more prosperous -- and more
numerous -- by the day.
The globe's richest have now recouped
the losses they suffered after the 2008 banking crisis. They are richer than
ever, and there are more of them -- nearly 11 million -- than before the
recession struck.
In the world of the well-heeled, the
rich are referred to as "high net worth individuals" (HNWIs) and
defined as people who have more than $1m (£620,000) of free cash.
According to the annual world wealth
report by Merrill Lynch and Capgemini, the wealth
of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising
nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even
as austerity budgets were implemented by many governments in the developed
world.
But how can the connected rich be getting richer if the recovery is artificial? Where do
the gains come from if the global economy is sputtering and threatening to
slow?
The extra gain comes from two places:
A hidden inflation tax, engineered through pumped-up paper assets, and an
aggressive tax on future generations.
When the Federal Reserve or whoever seeks to pump
up the stock market through stimulative means, the
purchasing power of the currency is weakened. This in turn acts like a hidden
but powerful taxing mechanism, taking money from the pockets of all those who
have high fixed costs built into their budgets.
If you have to drive 25 miles each way
to work, gasoline is not optional. If you have mouths to feed, you must buy
milk and bread (and so on).
These costs are excluded from the
"core" inflation that the Federal Reserve likes to focus on. In
China, meanwhile, inflationary costs are passed on to the populace through
artificial suppression of the currency. Keeping the yuan
weak as dollars pour in causes the price of food and energy to go up --
again, a hidden tax instituted by government.
In Europe and the United States,
future generations are being taxed to the hilt in order to pay for
present-day bailouts. Adding to huge debt burdens feels like a free lunch in
the here and now, to the extent that debt markets do not balk or react badly.
But all of the bailouts and inefficient spending plans being whipped up today
come at the cost of future savings.
The West is eating its seed corn, as
one generation quietly robs the next. This dynamic is actually even worse in
Europe than the United States, where many young people have simply given up
their life and career dreams in despair. Bleak and barren landscapes, the
ground salted with debt, stretch out as far as the eye can see.
The general population may be slow to
waken, but it is neither deaf nor blind. The way the current financial system
is set up, "saving the system" means saving the banks first and
foremost. As a second order of business, it means maintaining the value of
paper assets.
But this track is not sustainable,
just as Europe's willful cramdown
of democracy is not sustainable. As general conditions worsen, anger will
only increase.
At some point the trick of robbing
future generations will wear thin, as the present debt burden becomes too
much to bear. Simultaneously, the game plan of pumping up paper assets will
lead to "non-core" inflation of such extent and degree that riots
could become commonplace -- even in the United States.
What we are doing now bears little
resemblance to a true free market system. In a real free market, or a closer
approximation of one, government would step back, allowing price levels to
clear and uneconomic entities to go bust.
Unfortunately, this would mean a lot
of banks going bust, so the authorities cannot let it happen. The relentless
focus on "saving the system" (as shown so powerfully in Europe now)
has put us in the position of facing an even larger crisis once the current
system collapses in on itself.
There can
be no genuine hope for economic revival until the toxic boil has been burst,
allowing for repricings of a free market nature --
likely coupled with some major institutions, and maybe even government
regimes, being allowed to fail. And growing instances of backlash, rage, and
civil unrest will be one of the increasingly powerful feedback loops that
bring this about.
Justice
Litle
Taipan
Publishing Group
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