I'll tell you one thing, the stock, bond, and oil markets have been through some major swings lately. The stock market continues to have moves of more than 1% almost every day. The 10 year treasury bond yield in the U.S. has risen almost 7% today. And oil is flailing about like a schizophrenic octopus. Who feels confident in this market? Who among us can state clearly what is happening? The market is one of those devises supposed to give guidance but I think in the era of central bank debt money infusion the market does not reflect what it's built to reflect, and that is the price of things. What can be confidently said about what the market is accurately reflecting is widespread uncertainty, a condition markets hate more than anything else, except perhaps absolute decline in available energy, but this is not on the radar screen for them.
It doesn't take much digging to appreciate the scope of the uncertainty markets are dealing with. Pick a country and it probably has something to do with it. Nepal? I'll give you that it doesn't factor much in global market madness, but there aren't many n the list. Look at the major economies. The bright shining star of the global economy is the U.S. for the reason that it still is growing, at least nominally. For this reason there is a powerful belief in the U.S. that what the U.S. does is working. So, yea America! All that needs to be done now is to have every other nation in the world control the world's reserve currency. Problem solved. Call that a sarcasm interlude. But the world ex the U.S. is doing quite badly. Japan is serving as the pathfinder for China in the quest for intractable debt deflation. Europe is a political economic mess with its strongest economy, Germany, falling into the deflationary trap. Bond yields for the German Bund is now lower than Japan's rate, which has had the lowest rates in the industrial world since 1990 until now. How long the U.S. can stay positive in terms of growth given that the entire rest of the world is falling down seems to me a good question to ask.
All the problems in the economic world can be reduced to a single problem, and that problem is growth. Growth sufficient to repay the credit that is taken to generate growth, to be more specific. There has to be a project worthy of investment that produces a big return to justify the credit taken on by the investor. What has happened is that no project has been able to garner a return big enough to sustain the credit which has been extended. For a little historical perspective, if you go all the way back to early 2014, the idea was that several growth engines were revving up in the form of emerging markets. The main ones were called, or still are called, the BRIC countries: Brazil, Russia, India, and China. The BRIC's, emerging from the darkness of ignorance to the luminescence of liberalized markets, had begun the process of large scale manufacturing and raising standards of living through consumption that would justify all the issuance of credit that was to grow the global economic pie. Which of these countries is not in trouble now? I haven't heard anything specific about India so maybe they are doing all right.
China here is of primary importance and I'll have to do a blog post or three or four to talk about China. But that this state of affairs the world has found itself in has emerged leads one to ask two questions. In order of importance: Why has this happened and what do we do about it? For the most part the question that will be asked is "What do we do now?" What has been the case is that central banks have ensured the survival of the banks by insuring the banks. I firmly believe that if this had not happened the world would be hundreds of trillions of dollars poorer right now. Had governments not gotten involved in bank saving and economy stimulating everybody would be worse off, including the obscenely rich. Given the nature of political economy, however, the chance of governments not getting involved was exactly zero. President George W. Bush and his team proved that ideology calls in sick when markets suffer cardiac arrest. This should send a message to anyone alive that the Free Market of Neoliberalism exists in a narrow band of society determined by fairly set conditions and is, at the end of the day, not truly separate from the nation-state. Some other way of thinking about it has to be formed and not in a way so favorable to the super upper class.
Of the three questions above, the one that will get most asked is "What do we do now?" This is a good definition of what it means "to scramble". Scrambling around for quick fixes and dealing with immediate concerns characterizes a lot of human history, at least the exciting parts. What is happening as the clock ticks between the EU, the IMF, and French and German banks on one side, and little Greece with its new government on the other, is a lot like scrambling. If it's like a card game with a lot of money in the middle of the table, neither side can say what cards they themselves truly hold. I suspect that the Neoliberal side is operating under the moral conviction that Greece needs some market discipline. Greece is betting that the EU is sufficiently afraid that a Greek exit from the Eurozone would be a disaster. Underlying these assumptions is the fact that Greece is suffering both a financial and humanitarian emergency due to the EU insistence on market discipline. The EU is afraid of how any debt forgiveness for Greece could then be demanded by anyone else who has a similar debt crisis. That list is potentially very long and includes the largest economies in the EU outside of Germany.
In other words, the stakes are huge. My hope is for debt forgiveness. In fact, I hope that debt forgiveness becomes a general global trend. The world is in a situation with no good outcome but a managed decline seems better than an unmanaged one. The reordering of the banking system according to principles based on human need, in the face of climate disruption, and because of the shrinking scale of the human economy would be more sanely implemented than they would through a crisis/scramble model. What's likely to happen is that more and more economic and banking functions will be performed by government so that people can be employed and money can continue to flow. Depending on what information lives inside the skulls of people, this could be a positive eventuality. Dare I say that then we could plan for a different world economy based on local production and smaller scale enterprises? The Keepers of the One True Religion don't like that kind of talk.
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