August, 2011

26 Aug

Masters of War

By Walter

Dick Cheney, the warmonger, has now written his version of events, IN MY TIME, in which he proudly recounts his role in some of the more egregious activities of the Bush administration. For conservatives, who are quick to call for law and order when people begin to get a little restless over injustices, it is quite astonishing that they are then more than willing to overlook crimes when justified in the name of national security. Torture, for one. Eaves-dropping on private conversations without warrants, for another. Going to war without Congressional approval, on false pretenses, resulting in the deaths of thousands of American military and well more than 100,000 innocent Iraqi citizens. What is needed here is a war crimes trial. But don’t hold your breath. Of course, the fact that Cheney and his cohorts

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25 Aug

How Capitalism Is Like a Ponzi Scheme

By Walter

In the Ponzi and Madoff schemes, participants were promised a generous monetary return on their monetary investments. In the capitalist version, the investment is not money, but labor. As individuals invest their labor in the production and distribution of goods and services, they are paid wages that enable them to purchase and consume the goods and services they themselves produce. Fair enough. This sounds like the standard description of the bedrock elements of an economic system. And it is the promise of a bountiful return on the investment of honest labor, presented in glorious high-definition color and high-fidelity Dolby sound, that drives the capitalist dream machine. In reality, however, the dream has become a nightmare.

The defenders of the capitalist Ponzi scheme can turn themselves inside out in an effort to explain and defend the indefensible, but in the end, the essence of the scam comes down to the following: The capitalist schemers who pay wages to the workers when they are producers are the same schemers who charge the workers when they become consumers, and they charge them more when they consume a product than they pay them when they produce the same product, the difference being a little something called profit.

In 2009, gross domestic product in the United States was valued at $14.5 trillion. Of that amount, $13 trillion, or 90 per cent, went to the workers who created it, while corporations who produced nothing of value themselves racked up profits of $1.5 trillion, or 10 per cent. Workers are paid $9 to make a widget and then charged $10 to buy it. It doesn’t take rocket science to see the flaw in this arrangement. With corporations annually skimming 10 per cent off the top, an amount equal to $5,000 for every man, woman and child, or $13,000 for the average American family, it should be obvious that a game based on such a formula would have a limited life expectancy. As time goes by, workers must inevitably fall further and further behind.

Sooner or later, underpaid workers/overcharged consumers will find it impossible to keep buying what they produce, thus setting in motion a downward spiral in economic activity. If the demand for automobiles declines, so does the need for workers to make them. The result: unemployment, leading to a further decline in sales, then more unemployment, and so on.
Such a situation represents a serious challenge to a system that, like Ponzi’s and Madoff’s schemes, requires continuous and endless growth. Like all Ponzi schemes, the capitalist scheme must grow or it too will collapse. There is no provision for a sustainable equilibrium. That is why the slightest decrease in the growth rate of gross domestic product evokes a panicked hysteria on the part of the schemers, raising the fear that the economic engine might actually slow to a halt and then start to drift backward into a recession.

Under those circumstances, what are the capitalist schemers to do? How do they keep the economic cycle going forward when individuals, as well as entire countries, begin to run short of money and can no longer maintain an ever-increasing level of spending?

Credit.

Without the concept of credit, which, like money, has been around a long time, this capitalist Ponzi scheme would have collapsed a long time ago.

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25 Aug

What Is Money?

By Walter | 1 comment

1

The concept of money is as pervasive as the air we breathe. It governs every aspect of our lives: where we work, where we live, how we live, how long we live. It consumes our thoughts, focuses our ambitions, colors our dreams, sparks our disputes, and stokes our anxieties. It’s here, there and everywhere. No wonder it is viewed with the same degree of inevitability and blind acceptance as a force of nature. Such as gravity.

Money, however, is not a force of nature. It is a concept, an idea, a figment of the human imagination. And it is real only to the extent that we allow it to rule our lives and our relationships with one another.

Money, which has been around at least as long as recorded history, is most commonly and simply defined as a “medium of exchange.” And its utility is often illustrated by such examples as the ease with which it permits a shoemaker to exchange his labor for bread without having to search for a baker in need of shoes. On this simplistic level, the concept of money undoubtedly did serve some useful purpose in times past.

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24 Aug

It’s Capitalism, Stupid

By Walter

The cause of the debt crisis is to be found in the essence of capitalism itself: competition, which – surprise! – produces losers as well as winners.

The primary mechanism through which this contest is engaged is the corporation, which the US Supreme Court recently declared to be the legal equivalent of a person. Here is how it works: corporations hire workers to produce widgets for which they are paid $8.75 each. Later, when the workers become consumers and buy the widgets they produced they are charged $10. The difference: a profit of $1.25 each. That’s a 12.5% skim off the top, a house advantage that would thrill any casino operator.

Here’s how those numbers work out nationally. The monetary value of US gross domestic product (the total of all the various kinds of widgets produced) during the first quarter of this year amounted to an annual rate of $15 trillion. Corporate profits for the same period came in at an annual rate of $1.8 trillion. There it is, the culprit: 12.5% skimmed right off the top. It shouldn’t take a degree in higher math to see that this is a game with a short life expectancy. Before long, the workers will find it more and more difficult, and finally impossible, to keep buying the widgets they make.

Now this is where debt makes its appearance. The only way to keep this game going is for corporations to lend some of their profits back to their underpaid workers and overcharged consumers so they can keep buying those corporate products, but on the promise that those loans will be repaid – with interest. In the long run, of course, this only accelerates the process until finally, as now, it is no longer sustainable.

Meanwhile, the government is also called upon to borrow

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12 Aug

Dancing in the Dark

By Walter

From yesterday’s New York Times:

“The mood in the markets has taken a sharp turn for the worse. Headwinds are becoming stronger by the day.” — Mervyn A. King, governor of the Bank of England.

“What we have been dealing with in recent weeks is a crisis of confidence among investors globally in the economic leadership in both the European Union and the United States. “– Douglas Porter, economist.

“The Fed came out and said we are staring recession in the face.” — David Rosenberg, economist.

“Clearly, the problems in Europe and the growing risk of recession makes banks less valuable. The extreme nature of the reaction reflects panic.” — Douglas J. Elliott, Brookings Institution fellow.

“There is a level of fear out there that is similar [to 2008]. It’s not just the fundamentals. It’s the fear of the unknown.” — Michael Hansen, senior economist at Bank of America.

“The market psychology is such that investors no longer seem to know who or what to root for.” — Kevin H. Giddis, investment manager.

If you need more proof that the international financial community has no idea what is happening in the global economy or why, consider the evidence of the past week. Last Thursday, the Dow Jones Industrial Average fell 512 points, or 4.3%. On Friday

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08 Aug

The Curtain Rises on Act Two

By Walter

The houselights dim. The audience scurries to their seats, now with heightened anticipation. A new political force has gained ascendancy, with an anti-government, anti-regulation, anti-tax, anti-entitlement, pro-corporate, free market agenda. What will the future hold? The curtain rises and . . . .

On Thursday, the Dow Jones Industrial Average plunged over 500 points, dropping a total of 1,350 points, or 10%, over 10 trading days. This drop in stock prices represented a loss in value of $1.5 trillion. During the same period, European stocks took a similar beating, with a comparable loss in value. For comparison purposes,

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04 Aug

The Curtain Falls on Act One

By Walter

Phew! That was exciting. It had me on the edge of my seat. But what a setup for Act Two. Given the plot so far, this is going to be a bumpy ride. This is a situation in which everyone is behaving badly. Consider John Boehner, chief Republican negotiator. During the entire drama, he regularly complained that the president wasn’t giving enough. Then when the deal was done, he boasted that he got 98 percent of what he wanted. When Obama addressed the nation to report that a calamity had been avoided, he felt it necessary to assure his disappointed supporters that, even though he had given up so much, they would have another bite of the apple when the Special Joint Committee meets during the next several months because tax revenues will be on the negotiating table along with additional spending cuts. Suckered again! Boehner and associates made it clear that

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