“Patriotism is supporting your country all the time, and your government, only when it deserves it.” Mark Twain/Barack Obama
“Know thyself and it will set you free.” Code of Hammurabi
“Know thy-self-state-government, and it will set you free.” me“How dare you even frame such a question?” “How can anyone speak so crassly about the country we all love?” “Are you a nut-case, or what…?” “You un-patriotic no-good piece of dirt…!” Now these are just some of the comments and abuses, many would likely throw at any author who dared frame such a question, but I ask it in all manner of sound patriotism and honest sincerity, so please hear me out___as I intend to prove the exact insinuations, the title portends... “I’m telling you, I’ll have none of it. I’ll have you censured, banished and forever ostracized from America. You are a disgrace to fine American intelligence…!” Well I do see where such criticisms come from, but they are, imo, coming from a mis-applied over-worship of personal patriotic faiths, and not from the personal patriotic faith I have in our founding fathers, the U.S. Constitution, and the true national security truths, the hard truths, we all must realize. Why would I choose such a provocative title? Why would I wish to infuriate so many readers? This you will have to read, to find out, and I assure you, my feelings are compatible with the yearnings of all past, present, and future generations of kind people, minds and sensitive souls, which I sincerely have in mind, by writing this ominous warning…
Do I believe the title? I certainly do believe that
“perpetual economic suzerainty” is pushing aggregate free-market and trade capitalist transactions, to and into, the controlled-market trade and transactions power vacuum of communism.. I absolutely, with mathematical certainty, know it to be what has been taking place, slowly at first, but now quite rapidly, since 1972, with the second election of Richard Nixon, and his damaging choice of IFA, (international financial architecture) destruction, of capitalism’s true and safer path. Not that Nixon did anything evil, on purpose, as I do think he truly believed in his eco-political decisions, at the time, but the un-intended consequences have been almost indescribably self-suicidal. Of course this story started long before Nixon, truly in the FDR New Deal Era, where the Bretton Woods I System and GATT were dreamed up and legally instituted, thereafter. And, to make it fair to both Republicans and Democrats, I should first mention FDR’s major blunder of 1936 or `37, as the true origins of America’s present dilemma started here, with the Roosevelt Administration’s doubling of the gold price, with its unknown or un-thought-of, at the time, un-intended consequences. By FDR’s administration doubling the price of gold, to try and solve some of America’s dire internal financial problems, she actually, ipso-facto, created Chinese Communism’s initial successes. The doubling of gold, with China on a bi-metal standard of gold and silver, speculatively bankrupted our ally Chiang Kai-shek’s money system, and played directly into the rise of Mao’s power, since he was enforcing the value of his paper money, at the point of a sword, and impaling, on bamboo stakes, all who dis-agreed, as Chiang Kai-shek’s system hyper-inflated, then hyper-deflated into collapse and bankruptcy. So, in the end, China’s capitalist system fell to Mao’s communism, with FDR’s hand playing a major card(Chinese eco-history facts, Conant, King and Einzig)___The unintentional joker? You may as well laugh, as cry. History is often cruel, when seen to the bone…
At the end of the war FDR had, so-so, summoned Treasury Secretary Morgenthau to head the Bretton Woods I meetings at Mt. Washington, in New Hampshire, with Harry D. White, to be counter-party to England’s JM Keynes and company. The Bretton Wods I system was eventually set to law and instituted, as the first IFA I since the gold, and gold and silver systems, of the pre and inter-war periods, shortly after war’s end, and shortly after that, GATT was set to law and instituted, as the first round of post war trade treaties. And, from this post war era, until 1972, the world, never in its history, experienced such phenomenal growth and prosperity___All history’s numbers bare out these facts. But from 1972 to 2008, the numbers have been, comparably, rather dismal, as the BIS, World Bank, IMF and hundreds of economic and financial books easily verify, so what has truly gone wrong? Let’s make a list, to more easily see the picture:
1.IFA I, Bretton Woods I 1944-1945
2.GATT 1947-1948
3.China makes first Euro-dollar loan to self 1951
4.Russia makes first Euro-dollar loan to self 1953
5.Ike opens foreign exchanges 1957, closed since 1939
6.Post-Kennedy’s foreign exchange crisis 1968
7.Nixon floats gold, balance of payments crisis 1971
8.Nixon floats paper currencies, thus ending Bretton Woods I 1973
9.First OPEC oil crisis 1973
10.Carter’s inflation 1976-1980
11.Reagan squashes inflation 1981-1982
12.Reagan prints Russia to edge of oblivion 1982-1987
13.Global markets crash 1987
14.America and OECD’s punish Japan currency 1986-1991
15.Japan market crash 1991
16.WTO and NAFTA enacted, Mexico collapse 1995
17.S.E.Asia Tigers crash 1997
18.Russia crashes 1999
19.Argentina crashes 2000
20.World Trade Center, Enron, market crash 2001
21.Afgan War 2001
22.Iraq War 2003
23.Oil crisis 2008
24.IFA II, Bretton Woods II, The BRIC’s, Communism 2000-2008+
That’s enough for a general outline of our more recent history. You’ll have to correct my date errors, as they’re off the top of my head, but will work for what I need to show. #1., the IFA I wasn’t what all parties wanted, but it was the best political consensus possible, so it’s what we got. Did it have flaws? Yes. It’s greatest flaw was not having clearly drawn up “sliding time scale laws”, to ensure its successful life. It also didn’t possess Keynes’ Bancor system, nor his International Exchange Clearing House, as he originally wanted, which would have made it much stronger and more viable. Yet, for these flaws and omissions, it worked fine, but what truly went wrong? If you notice, there are two distinct law systems, that were instituted in the post war period___the IFA I, and the GATT. Under IFA I, GATT worked fine, yet when IFA I was ended by Nixon, GATT worked against the then semi-non-law, or no-currency-balance law system reality, that was left standing, or not standing, as reality would have it. With trade law geared to work with a balanced currency system, to lower trade barriers, a good system by the way, yet the GATT law system, alone, worked directly against the new floating currency system, that resulted from the death of the Bretton Woods I system, thus multiplying world problems and imbalances, the further currencies, and trade balances, traveled apart, finally creating the present global balance of payments imbalances___the present global debt and deficit imbalances, and the terrible currency tariffs, credits and excessive off-shoring incentives, we now see the system filled with. The two systems, from `72 on, were
locking in opposing needs, to any successful system, by pushing transactions to a counter productive trade and transactions productivity___a negative TFP(total factor productivity). Yes, the credit and trade system expanded, but at a great cost to many nations, that was never necessary, had the original IFA I been repaired and maintained___History’s global gdp’s(global gross domestic products) and tfp’s(total factor productivities) numbers, clearly show these glaringly obvious facts, along with CHIPS(clearing house international payments system) numbers. If GATT(general agreement on trade and tariffs) had been re-geared to work with the new reality of floating currencies, with proper and fair trade treaties, to rebalance global prices and trade, against unbalanced currencies, the system may have been salvageable, but it did not happen, and the world of global transactions capitalism has been drifting ever closer into global transactions socialism and outright surrender to communist China’s IFA II, ever since… Bretton Woods I could, also, have been saved by Kennedy, Johnson or Nixon, which would have been the best for all concerned, but it did not happen either. A simple guide book of operations, by
“sliding time scaled laws”(a percentage change of law, per year or less, to ever changing targets’ ratios of change, i.e., pliable currency laws) could have served this purpose, by simply moving currencies and prices back into balance, as they became imbalanced, and the same applies after the Bretton Woods I end, which could also have “sliding time scale” adjusted the tariffs, and currency tariffs, to rebalance prices, within all nations concerned, but that did not happen either. What we got was the worst of all possible worlds___Extremely imbalanced currencies, and all extremely low currencies, acting as high export tariffs to the high currency value nations, and all the extremely high currencies, acting as export credits to the low currency value nations. Of course, the high currency value nations were also acting as subsidies, to the richest nations, making it easier for the richest to buy the most, the cheapest, and off-shore at will, but only for a time___And now time has most run out…! There’s not much to it, it’s just simple Cassel PPP(purchasing price parity) mathematics___addition and subtraction. I guess the world just can’t ADD…!
So, because the world can’t add, we slowly, accidentally, surrender free-trade and market capitalism to controlled-market and trade communism, through the process of “perpetual economic suzerainty”. #’s 3., 4., and 5., are the origins of the “Shadow Banking System”, later to spawn the massive derivatives(contracts derived from underlying market equities, contracts and transactions___largest % are interest rate contracts for hedging, arbitrage and outright speculation) market. Loosely speaking, originally this was the Euro-dollar system,(no reserves required, thus allowing excessive credit expansion, outside gov., and or central bank oversight) started by the money we loaned our allies, Russia and China during WWII. As China went communist, we tried to freeze her accounts, and as usual, our Senate telegraphed her hearings, over radio, TV, and newsprint, to China, and she lent the money, through the London and European banks, to herself, thus protecting it within the system, and thus, so-so(just trying to tell a short story), forming the London Inter-Bank Market of Euro-dollars___It’s where the modern version of LIBOR(London inter-bank offered rate), so-so, comes from. Russia followed suit, with the same market transactions, a few years after China’s first institution of transactions. From these early beginnings came the tremendously huge Euro-bond market, Euro-dollar market, American derivatives market, and the massive Euro-derivatives market, which all together, more recently acquired the nick-name of “The Shadow Banking System.” This massive global derivatives’ market, according to present BIS(Bank of International Settlements) numbers, has ballooned to some $596 trillion of notional value(trading account-value) of total transactions turnover per year. (There’s only $50 trillion of real global GDP of all world nations.) The nominal value(real underlying trade-cashed value) of these contracts is somewhere between $10 and $15 trillion. Most of the derivatives’ contracts notional values’ transactions, cancel-out much of the values of contracts against contracts, as they are written and traded in over-whelming large denominations of trading values and volumes, to often make only from 1/16th to a ½% on the dollar profit. Others are much more profitable, but are fewer in number, still the speculative constituencies of this “shadow banking system” are astounding, and are greatly contributing to the world’s financial problems, at present, as the markets are clearly showing, as openly reported on CNBC… Along the way the Japanese “Zai-Tech”(financial engineering) also played a heavy hand in expanding this market, by lengthening the forward exchange market’s forward contracts, and later derivatives contracts, greatly expanding global financing, and the not-so-welcome other side of excessive speculations. It’s the most complex market the world has ever known, but basically works as any market___it’s all just long and short transactions’ trades___money’s made both up and down, in all markets, these markets are no exception___It’s just the way it is. That’s capitalism, and it’s operated similarly since the Egyptians and early Greeks, with their forward letters of credit, yet in a much more scaled down transactions market, back then.
#’s 5., 6., 7., and 8., are the eras of the first major cracks showing in the Bretton Woods I System. When Eisenhower re-opened the foreign exchanges in 1957, he made a huge unintended mistake of not dealing with the fledgling Chinese and Russian Euro-dollar and Euro-bond markets, first. The markets should never have been opened, in a true financial eco-military defense sense, until the Chinese/Russian dollar problem was solved, because this is the next beginning of America accidentally playing into communist hands, as had FDR, mistakenly done in the `30’s. By Ike opening the foreign exchange market, this allowed the two communist enemies, as they really thought of them then, to actually speculate against capitalism, thus allowing them to partly live off of capitalism, with their capitalist doggy-bags, of a considerably increasing kitty, of eventually, no small amount. It continues to this very day, but we’ve recently started trusting the un-trust-worthy, but be warned, they are not going to democratize, as many may think___and our markets will not over-come theirs, either, as many also falsely think___The numbers are glaringly against us, and for them___They’ve become addicted to the easy cash. They are also solidifying their autocratic ways, which is to offer freedom, without political freedom, as Robert Kagan stated, which poses a great manipulative danger to capitalism, especially when most think our free-trade policies will over-come their manipulated trade policies, when they clearly will not, without major disruptions of our cherished way of life, and this has been clearly pointed out by Neurial Rubini and Brad Setser’s, three scenario, Fed Paper, about our, possibly pending, balance of payments disaster. This is nothing short of accidentally surrendering capitalism to communism, when one falsely believes in the free-trade myth, when the enemy is control-trading against you, and gobbling you alive___And why would anyone think they’d give up the profits they’re easily making off us, going the direction they are? They’ve discovered “the goose that lays the golden eggs”___Trillions of dollars worth! I believe in fair-trade, but not in the suicidal-trade, that we are, currently, truly practicing. We are committing economic suicide, by not realizing communism’s long term intents and goals, of absolute financial suzerainty over us___or she’d sensibly and reasonably adjust her currency___up, as we have asked. It’s quite obvious what their true intent is, and remember financial suzerainty, leads to political and military suzerainty…
President Kennedy realized how dangerous Russia and China were politically and militarily, but he didn’t realize how dangerous their financial dabblings in capitalism were, or could become. Much of our financial troubles, leading to the `68 balance of payments crisis may have had much to do with the communists market speculations, especially in commodities, as there’s evidence of their wheat contracts being overly successful, more than once___How many others were? Kennedy should have realized how imbalanced the currency system was becoming, with our entry into the Vietnam conflict, and rebalanced the Bretton Woods I System, but he and his people seem to have had no idea how to successfully adjust the system, and were more than likely, just as our Fed has been more recently, too scared to drastically meddle with the system’s automatic evolution. The people who truly knew how to make it successful, in all market conditions, were both dead, as both Keynes and White died shortly after its institutions, in the `40’s. It’s really a shame the supreme architects, of such a successful system died, without penning a proper operations manual. The world would be a very different place, if they had___America would not be accidentally free-trading its own blind free-trade surrender to communism’s manipulative controlled-trade, if we had such a manual. The world would still be currency and trade balanced, had either man lived to guide the system until a crew were trained, to run this new economic ship, imho. Though there were others later, no-one understood their baby, as they did, at the time… It’s a true shame the world missed such an opportunity…
Of course one probably couldn’t expect Nixon to know any better either, as his political eco-ideology was against the Keynesian system, from the beginning, even though he stated the famous line, “We’re all Keynesians now.” I often wondered if he truly understood anything about Keynesianism. I really don’t think he did, thus he made the greatest blunders of all our presidents, in this story. Nixon is actually, accidentally, the single handed mass-murderer of millions of poor global citizens, just by his ignorance of a great system’s true operations, yet he has plenty of company over the last 36 years, with academic and political elites of both parties going along with the world’s greatest bundle of inanity, the planet has ever known. All parties are responsible for ending a system that was ever expanding world prosperity and health, and traded it for the two conflicting law systems of the GATT and no IFA I, except the non-system of miserable floating exchanges, which have starved, and otherwise killed, more innocent people, than all the communist rhetoric in the entire world. We’re fast catching up to both Russia and China’s death toll___well, maybe a bit exaggerated, but I’m trying to tell a good story, and make a sound point. Massively imbalanced floating exchanges, and the resulting hungry unbalanced currencies gobbling life, around the planet, is the most innocuous sight I know of, just because it’s un-necessary. It’s truly a shame, those who believe in such ideologies, can’t see the deaths such ideologies cause. How can I awake you, if you don’t want to be awaken? How can the few change the false mass psychology of an entire nation? How…? This is why I use the pen and personality as a hammer.
All the rest of my points, from #9, to #23 are nothing more than the ill workings of the world’s, worst and inane, floating exchange system’s international financial non-architecture. It’s truly sad, we’ve all fallen to our own psychological inanity. We are truly blind to the incentives’ transactions of the total global architecture of international finance, even though we, glaringly, obviously see the terrible imbalanced debts in our tremendously negative balance of payments, as I hear it all the time from average people on the streets of America, as well as the constant TV barrage___“When are we going to do something about China…?”
We, the academic and political elite, falsely believe free-trade will eventually rebalance global currencies, trade and prices___I warn you___It will not rebalance, in due time___The BRIC’s(Brazil, Russia, India, China) are manipulating free-trade, to the max. And, they won’t stop, because they have returned to a new, highly successful, Bretton Woods II, while we squander and die, in the absence of even a, once healthy, Bretton Woods I___Just open your eyes, and look at their success. Do you think that success is due to our wonderful functioning system, or theirs? Believe me, it’s theirs. The Bretton Woods II, IFA II, System is the most powerful international financial architecture, ever devised___We should know this just by looking at the glaringly successful numbers, of our own Bretton Woods I System, from `45 to `73___But, we don’t even know our own IFA I’s history, or theirs___Why? Can’t Americans read or add? Can’t Americans see the numbers, on the clearly printed pages, of the IMF reports…? Can’t Americans see the transactions successes of the BRIC’s___IFA II…? They state much of what I’ve here written, but they seem not to know what they speak___Why…? America had soon awake to this new dynamic of global transactions.
America definitely needs “A Grand Independent Finance and Energy Strategy”___Immediately…!!!
A $9+ trillion national debt, and $1+ trillion leaving the nation for the oil autocracies, and the trade-goods autocracy of China, every year___How long does anyone, truly, think this can last…? We’re free-trading the Eagle’s paper money, into the mouth of a Fierce Fire Breathing Dragon…!!! Last I checked, fire burns paper eagles…
America must realize, “You can only free-trade, until cheap labor, out-trades you.” This is the #1 law of capitalism and free-trade, and China has clearly, out-foxed, and out-traded us. The BRIC’s and Japan, have $3.5 trillion of our hard currencies, while we have the debt of that plus, and they will burry us alive, unless we change course___immediately___I can ADD…!!!
#24.___Why can’t we see…?
Thanks to Obama___Change the world? YES WE CAN…!P.S.
A Note To Paul KrugmanExcellent view of Keynesian thought, Paul. I'd just like to point out something you wrote, but may not have realized its thorough implications. WWII, as you rightly mentioned, was a public works project, but a massive one, and is the most important implied aspect of Keynes' entire manifesto, imho. Expansionary fiscal policy, alone, doesn't cut it. It must be accompanied by public works, in the most dire of times, as the `30's certainly were, and WWII’s recovery, clearly shows, etc., as fiscal stimulus, only, simply goes up the chimney of Wall St. investment and speculation, far too quickly, thus lowering TFP. It must be spread to Main St., through public infrastructure spending, as Keynes suggested, in the worst of times, to spread and slow the velocity of stimulus mechanics, throughout the entire economy, to truly raise TFP…
As to the deeper analysis of Keynes' great work, his "IFA-international financial architecture", of which you do not mention, in your piece, since it really wasn't in his "General Theory", yet is the central achievement of his thought, must be brought to the front, and thoroughly re-interpreted. I would title such a work, "The General Theory of Massive Currency Tariffs, Massive Currency Credits, and TFP Decline"___What Keynes/Einzig tried to prevent in 1945___Nixon instituted in the 1972 era, and evolved by 2008___to the highest, most nefarious, currency trade tariffs, credits/subsidies and off-shoring incentives, the world has ever known… Skedelsky is quite clear on the importance of Keynes IFA contributions, and further, his yet untried balance of payments "Bancor" system. I think if we were to work through a re-interpretation of these more central mechanics of Keynes' thought, we would be better prepared for what the world may shortly face…
Thanks for your great thinking,
and with due respect,
Lloyd Gillespie
(a polymath, autodidact, true Keynesian economist)
http://macromouse.blogspot.com/P.S.
Ode to America’s Balance of Payments Inanity/Insanity!I am America,
I see all,
I have total empirica…!
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
I am China,
I have your money,
I am the miner,
Of your total cash pot, honey.
I see your empirica,
fall,
Good-bye, America…!
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
Ah sonny, you, the power of truth, do look,
I, the truth of power, do seek.
The intellectual journey,
Makes you weak.
The true journey of cannon and money,
What you lack, and can not brook,
Makes me strong, yet meek.
You see not,
The long vision,
I seek…
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
Your paper Eagle is flying,
Into the mouth,
Of my Fire Breathing Dragon.
Who wins this buying,
For the total wagon…?
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
You use free-trade,
Comparative advantage,
Supply and demand theory,
What a trade dis-advantaged leary…
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
I use true specie point,
Incentive point,
And ppp facts.
That’s true control and command,
Not your false acts,
Free-trade, C.A., supply and demand…?
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
You, big-ego America, empirica,
You lack,
The empirica facts.
You see not…
You burry yourself, in false knowledge,
Of your long bent,
Over-brainwashed intellectual college,
Thinking it, heaven sent…
I warn you Empirica,
Miss America…!
“Woe be, to the long blind nation,
Who sees not,
Its own, self-suicidal, incineration…!”
The End…!
Thanks to Obama___Change the world? YES WE CAN…!
