Laurel & Hardy? No Larry & Paul

As I frequently say, I am not the sharpest knife in the drawer.  In fact I reckon I take prided in how little I actually know.  But every now and then I am able to string together a couple a few thoughts and sentences in such a manner to express what I honestly and truly believe and this is one of those rare times. When it comes to economics, I am no economist but when I read what is proposed and written by many of the “so-called’ experts in this field regarding the present economic standing of the United States, in particular Paul Krugman and Larry Summers, I always think of what Milton Friedman once said: “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.”

I would not be surprised if a lot of cats consider Paul Krugman and Larry Sumner’s as overly smart and learned men. I would agree and note there are several reason for this, inclusive of their Ivy league educations and their incessant habit of speaking in technical terms employed to make them seem smarter than they are and/or to confuse the listener when they are proven wrong and/or are just guessing about what they think versus what they actually know. I suggest this because both believe economic theory is ALWAYS right which herein my problem with them is. Let us start with Krugman, who clearly has no clue or understanding of middle and lower class Americans.

If you have ever heard Paul Krugman talk or read anything he has penned to paper, one halcyon observation that can be made is that in his astigmatic perspective, he is always right and never wrong. No matter the topic, especially when the subject is rooted in macroeconomics, if you disagree or refute his propositions, you are often accused of having bad data, reconstructing history or just being plane ole illogical. This unceasing proclivity of Krugman’s to be correct in theory but incorrect based on real world standards would be amusing if it were not so dangerous. For example Krugman frequently invents or pretends to have been the economist who predicted the housing bubble. What he forgets to add is that in 2002 he wrote that the Federal Reserve and Alan Greenspan needed to “create a housing bubble to replace the NASDAQ bubble” in order to combat the recession at the time. When this was pointed out, you guessed it, he explained away the unexplainawayable.

He also has a habit of taking credit for stuff that has nothing to do with him or his words like the fact that the U.S. has yet to experience any real increase in price inflation. This although he had stated and predicted that from 2010 on, the U.S. would experience an extended period of unending “process of disinflation.” One could go on and on: the zillion times he has said the Euro would collapse or how negative interest would never ever happen. Regarding the Euro, he even went as far as to put in writing that many of the peripheral countries of Europe would be unable to remain in the Eurozone, even predicting that Greece would be out along with Spain and Italy four years ago.

I won’t just focus on Krugman, for every slap-stick comedy duo has a sidekick and partner and there is no better person I can slot for this role (casting couch aside) than the one and only Larry Summers. Summers, former Treasury Secretary during the Clinton administration and former Director of the National Economic Council for President Obama has blessed the world with the already disjointed and discredited concept of "secular stagnation." Now to provide a little background, when Barack Obama was elected in 2008, he mounted Summers as head of the National Economic Council. This even after he made remarks suggesting that women were biologically and genetically inferiorto men and more so, had not done such a great job while in the Clinton administration with respect to the dotcom bubble and his advocacy for the Commodity Futures Modernization Act of 2000. The CFMA gave us financial derivatives, credit-default swaps and other complex papers which were basically unregulated and brought about the 2008 financial collapse. Although prior to this he regarded these new changes regarding securitization on Wall Street as being positive.

But I digress, back to secular stagnation. Summers believes that the U.S. economy is engaged in a new long-time trend or new normal that he has termed "secular stagnation." In simple terms, he suggests that without the existence of bubbles in any part of the U.S. economy, it is mathematically impossible for the economy to generate enough spending to get to full employment. For him, this is because since interest rates can't go below zero (Krugmanesque) and because the "natural interest rate “has been permanently lowered into negative territory such that real rates can't go low enough to keep the economy out of a protracted slump.

This all sounds good on paper but there are more than a few things wrong with this vision of Summers. The foremost is how one calculates real rates. How do we measure real interest rates or are we measuring real interest rates? When cats like Summers say that inflation-adjusted rates have been falling, most are just subtracting expected inflation from the nominal interest rate. The concern is that the way I see it, real interest rate is entirely different from the natural interest rate, which mean a more tenable explanation other than secular stagnation and the new normal of sub two percentgrowth, could be due to an unusual prolonged business cycle.

My question is how can cats like Krugman and Summers keep getting away with being so wrong so frequently yet venerated as economic Gods by the elite east and west coast press outlets and even many of our current politicians? Until we figure this out, it will be nearly impossible to have intelligent reasoned and fact based discussions or even arguments with such individuals on the topic of economics. I understand completely what Robert Skidelsky meant when he wrote: “Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.” 

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Next Up, The Netherlands and France

I would love to be a fly on the wall at Davos. I can only imagine the panic filled discussions being had over not just Brexit, but also the defeat of Hillary Clinton.  All of their plutocratic wealth accumulation schemes at the expense of the common person, and neoliberal plans of incessant domination as of now, look for them to be a giant ice cream cone that is melting before their eyes and in their hands due to the heat of populism. Even when they leave their luxurious surroundings in the snow-peaked Swiss Alps at the annual World Economic Forum, they will continue to have nightmares and dreams of what could have been because of what is up next at the plate.

Within the next 8 weeks the Dutch general election will happen on March 15. As it stands, the current front runner and favorite is the leader and founder of the Dutch Party for Freedom (PVV) Geert Wilders. The PVV has been described as being far-right and anti-Islam with Wilder himself recently being tried (for hate speech) in court, accused of inciting hatred against Moroccans. His crime was asking a crowed at a rally in 2014 if they wanted “fewer or more Moroccans in your city and in the Netherlands”. After the throng began to shout “fewer, fewer,” he responded: “We’re going to organize that.” Although the resulting verdict found Wilders guilty of inciting discrimination, his views and support has only grown. Like Trump, he is seen as an anti-establishment firebrand who speaks the language of the people and tells it like it is.

Pundits have projected that the PVV could win as many as 35 seats this year which would make it the majority power in the 150-seat Dutch parliament. Present policy positions presented by the PVV include but are not limited to closing down all Islamic schools and mosques, shutting down the borders, a complete ban on migrants from Islamic nation states, banning the Koran and calling for a referendum on Dutch EU membership in a hope to pull the Netherlands out of the 28-nation institute, should he become prime minister. Thus it is not improbable that the Christian Wilders, with his promise to start a complete "de-Islamification" of the Netherlands, could become the country's next Prime Minister.

After the Dutch elections, in April and May the first and second rounds of the French presidential elections will take place, and like the Netherlands, the far-right has a strong chance of winning. As it stands, Marine Le Pen of the National Front is just a few points ahead of her conservative rival and former front-runner François Fillon of Les Républicains party based on recent surveys conducted by Ipsos Sopra Steria for Sciences Po University Research Centre (Cevipof) and Le Monde. In the past French voters have supported the National Front to the runoff stage of elections; however this was when the current candidate’s father was running. This time it will be after both the election of Donald Trump and the Brexit vote. Like Obama, the French reflect a similar level of disappointment for both François Hollande and his predecessor Nicolas Sarkozy. Trump’s anti-NAFTA rhetoric is similar to the position of Le Pen regarding the European Union trying to establish a free-trade zone across Europe and North America that would be called the Transatlantic Free Trade Area (TAFTA).

Like Trump and Wilders, Le Pen boasts a similar form of political nationalism. She has been extremely critical of the migration policy of German Chancellor Angela Merkel and has ceaselessly indicated her desire, being labeled a Eurosceptic, to take France out of the EU and/or euro seeing she has pledged to hold a referendum on France’s membership in the organization. In addition she holds views some have described as being anti-Islam. For example, she believes that the children of illegal immigrants should not have access to French public schools. In concert with president Trump, she is for working closer with Russian President Putin and sees the utility of NATO as being questionable. In one recent interview with the BBC she was quoted as stating, “NATO continues to exist even though the danger for which it was created no longer exists.”

Whatever the result, a Le Pen win is set to usher in a new age of right-wing politics for France after decades of centrism. With the UK removed, along with Germany there remains only France to hold the top positions of power in the EU as nation states. And for this to continue, Le Pen and her far-right party would have to fall in defeat to her center-right opponent. If not a Le Pen victory could mean the end of Europe as we know it.

If France’s Marine Le Pen and the Netherlands’ Geert Wilders were to become president and Prime Minister of their respective nations, the impact of their victories would likely be felt far beyond Europe, especially with elections on the horizon in Germany. Not only could it result in a domino-effect of Brexit-style referendums in other member nations, it may entrench the observation that globally in the west, the mistrust of established corporate, media and political elites will continue to display itself in a tug of war between populist and establishment forces. Also, it will signal that more policies that are anti mass immigration, anti-austerity and anti-EU may not be too far behind.

Neoliberal detractors may say that politicians like Trump, Le Pen and Wilders are exploiting a populist agenda by capitalizing on irrational beliefs and views. Unfortunately the reality is that people are sick and tired of not having their political, or any interest represented by the contemporary status quo and feel they are not being represented by, or benefiting from current dysfunctional,neoliberal or neoconservative mainstream policies.  They have seen what has happened in Greece and the impact that mass immigration and migration policies can have on a nation’s security and serenity.  They are seeing increasing levels of terrorism once where they had not and are experiencing little and little less in their wallets and purses to even meet their basic needs. Even more sad and offensive is that mainstream politicians and most journalist not only are not trying to understand these phenomena but rather ignoring them as if a passing fad.

So if the Netherlands and France are next to follow Trump and Brexit, it could significantly damage the dream of a single unified shared economy for the Eurozone and significantly weaken the European Union as a world power and more importantly, signal that populist movements will continue to cultivate in Europe and the progressive left and other traditional supporters of neoliberalism will remain behind the curve or on the outside looking in.

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Extortion in 3 Letters is IMF

I am on record saying that one of the biggest scams in the world is the U.S. Federal Reserve bank.  Now I am prepared to announce that the biggest hustle in the world is the International Monetary Fund (IMF). From its inception, the IMF has only served as legalized vehicle for extortion.  I observed this firsthand the two years I lived in Nigeria from 1992 to 1993.  Then the creature of choice was what the IMF called Structural Adjustment Programs. These programs basically gave loans from the IMF (with the World Bank) to nations that were experiencing economic hardship. These programs were supposed to grow the economies of developing nations, by making them more market focused in an effort to increase trade and as a consequence reduce poverty.  That was all everyone across Nigeria spoke of, SAP and how it was driving their nation to economic ruin. It was the first time I’d ever heard of the program or really paid attention to the IMF.

In order to qualify for the loans, borrowing nations have to follow a strict guidance provided by the IMF to make sure they will be able to make debt repayments on the older debts owed to international bankers, governments and the IMF/World Bank.  The biggest catch is what I refer to as legalized pillaging – the requirement that borrowing countries devalue their currencies against the dollar; lift all regulations and restrictions on imports and exports and establish price control mechanisms. Although these programs have gone by the wayside in name, they still very much exist in practice (See Greece and Egypt).

Established in 1945 as the agency supposed to oversee the Bretton Woods system and encourage economic growth globally, the IMF basically is an international credit union that is supposed to serve the needs of poorer nations around the world. Unfortunately, the vast majority of IMF programs typically increase poverty rates in the country they say they desire to assist. This comes about because most IMF policies end up making less developed and developing third world countries more dependent on wealthier western nations. How is it that this is the case with an organization whose primary mandate is to reduce poverty yet instead makes it worse?  Namely through the implementation of policy that transfers control of economic factors to the private sector from the public sector (Neoliberalism). Through neoliberalism, and focusing on pegging currency to the dollar and debt repayment being top priorities of IMF programs, developing countries end up reducing spending on things the need like health, education and infrastructure development.

Let’s us look at the recent example of Egypt.  The IMFjust approved a three-year, more than $11 billion euros bailout program for Egypt aimed at trying to get the nations besieged economy back on a steady foot. But in order to get the loan, Egypt had to take out another loan of more than 5 billion euros from a combination of funds from other banks, China, other G7 countries and via bond issues. More troubling was that the government had to let the Egyptian Pound devalue by almost half and was mandated by the IMF to end subsidies for fuel, introducing a value-added tax to raise revenues and writing new legislation to decrease Egypt’s public sector wages. All of this being an incentive for increasing poverty in Egypt with lower wages and higher fuel prices for the average citizen. The hope is the IMF loan will make Egypt more stable, not lead to further unrest (utter hilarity).

We can also look at what happened in Greece in their relationship with the IMF. After the fact we now see the IMF was way out of step with pragmatic economic policy with respect how they handled the economic problems of the nation of Greece as noted in a report conducted by their Independent Evaluation Office (IEO). In Greece, the IMF signed off on a bailout in 2010 itself was not certain it would help to bring country’s debts under control or lead to an economic recovery. Still, the IMF did what it usually did – tried to force through an "internal devaluation" via deflationary wage cuts since the Greek economy was on the Euro. The result however was a disaster.  Not only did this action shrink the economic base and grow the national debt, it weighed down the Greek citizenry since the objectives of the bailout were to protect the EU-IMF monetary union rather than the nation. Since the introduction of these excruciating economic measures, the Greek economy has been in a depression ever since.

Honestly, the bailouts for Greece, Portugal and Ireland demonstrated the ineptness of the EU, Christine Lagarde and the IMF to the surface for all to see – that they had either no understanding of the seriousness of the problem or lacked a complete understanding of currency theory.

The problem with the IMF in simple terms is that it has the primary aim of extracting wealth from nations suffering during troubling economic times and despair.  Moreover, they have no real policy tools (at least currently) to aid in reducing public debt and controlling inflation in a manner that will also guard the country’s poor against the ramifications of what happens when debt repayment is the top priority. Until this changes, IMF policies will continue to keep on reducing the people of developing countries and poorer nations to lower standards of living.

The extortion of poorer nations and/or taking advantage of a country in a time of economic desolation is criminal. There are really no other choices when such economic adversity occurs. First, for foreign investment to come in, investors typically ask that regulations be removed that were designed to be safe guards for the people. The impact of such are more often than not even more distressing and frequently end up imparting even more misery for the developing nations as well as keeping them dependent on richer developed nations.

The shake down and exaction game of the IMF is tight too. After taking the loot, the target nation has to export more in order to raise enough money to pay off their debts on time (an IMF loan requirement). Next, the exports or natural resources become even cheaper to purchase to benefit the consumers in the developed countries and not the poorer nation. This mean these nations have to increase exports just to keep their currencies stable, meaning they spend less on the needs of the people, and eventually the value of labor decreases,  capital flows become more unpredictable (see Asian financial crisis of 1997 & Tequila banking crisis of 1994) and the probable outcome is social unrest, riots and protests.

Funny thing is that the IMF is still doing the same thing (although not called SAP anymore) and as I noted earlier, the most recent example is with Egypt.  Sadly, their feckless policy approach has yet to change and we are certain to see similar outcomes of civil unrest and riots if they continue on this path.  I will give Egypt less than two years.

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