– by Anthony Wile
Anthony Wile
This is a really irritating article, and that's saying something considering it appears in The Economist magazine, which is regularly obnoxious on a variety of fronts.
Of course, The Economist is fun to read and is erudite and self-consciously witty. Its owners aspire to a tone and technicality that provides an "intellectual" stance. This is important to the power elite that publishes the mag and wants it to set the pace for business execs around the world.
The main point of The Economist "newspaper" – which it drives home every issue – is that private sector accomplishments originate with the government. In other words, as Hillary Clinton famously put it, "It Takes a Village" ... and that village needs supervision.
This is what we call a dominant social theme. Every week The Economist mag profiles these supervisory forces and traces in deadly detail how they interact with the "marketplace." There is not a trace of negativity when it comes to these observations. The way the system is, is the way it ought to be.
Whether it is celebrating the foresight of a dictator, evaluating the "successes" of a socialist regime or delineating the evermore corrupt politics of Western countries, you can always count on The Economist for archly snide prose and gracefully evasive argumentation.
By "evasive" I mean that the editorial policy of The Economist is always to leave something out. And this article is no exception. The main thing that The Economist leaves out is the impact that monopoly/fiat central banking has on the economies and countries that it covers and the "issues" it analyzes.
In this article The Economist scribes claim that the United States is "reinventing itself." Since there is no United States (there are PEOPLE who make up a "united states") that is a living entity capable of doing anything "itself," it is somewhat hard to understand what is being reinvented. Is the land changing? Is California falling into the sea?
Okay, the convention is to refer to places as people. That's why politicians and celebrities often say "hello" to regions rather than individuals in prepared remarks. Nonetheless, it is part of an inventory of irritations and is mentioned within that context.
Moving beyond the title we encounter a plethora of riches. The evasions multiply as the article switches metaphorically into high gear. Here's some more:
America's sluggishness stems above all from pre-crisis excesses and the misshapen economy they created. Until 2008 growth relied too heavily on consumer spending and house buying, both of them financed by foreign savings channeled through an undercapitalised financial system. Household debt, already nearly 100% of income in 2000, reached 133% in 2007. Recoveries from debt-driven busts always take years, as households and banks repair their balance sheets.
Nonetheless, in the past three years that repair has proceeded fast. America's houses are now among the world's most undervalued: 19% below fair value, according to our house- price index. And because the Treasury and other regulators, unlike their euro-zone counterparts, chose to confront the rot in their financial system quickly, American banks have had to write off debts and raise equity faster than their peers. (Citigroup alone has flushed through some $143 billion of loan losses; no euro-zone bank has set aside more than $30 billion.) American capital ratios are among the world's highest. And consumers have cut back, too: debts are now 114% of income.
New strengths have also been found. One is a more dynamic export sector. The weaker dollar helps explain why the trade deficit has shrunk from 6% of GDP in 2006 to about 4% today. But other, more permanent, shifts—especially the growth of a consuming class in emerging markets—augur well. On the campaign trail, both parties attack China as a currency-fiddling, rule-breaking supplier of cheap imports (see Lexington). But a richer China has become the third-largest market for America's exports, up 53% since 2007.
And American exporters are changing. Some of the products—Boeing jets, Microsoft software and Hollywood films—are familiar. But there is a boom, too, in high-value services (architecture, engineering and finance) and a growing "app economy", nurtured by Facebook, Apple and Google, which employs more than 300,000 people; its games, virtual merchandise and so on sell effortlessly across borders. Constrained by weakness at home and in Europe, even small companies are seeking a toehold in emerging markets. American manufacturers are recapturing some markets once lost to imports, and pioneering new processes such as 3D printing.
All of this is somewhat nonsensical. The building boom of the 2000s was a direct result of the low interest rates that the US Federal Reserve imposed on the American economy. This low-rate strategy was the outcome of the previous tech crash in 2000.
In other words, the Fed's central banking brain trust set rates low in the 1990s, creating first the tech boom and bust and then a housing boom and bust.
In the process, the easy money created whole industries that might have matured at a different pace without the hot money the Fed was injecting. This is part of the distortive effect of monopoly fiat money. Force-feeding too much money into the economy (and central bankers never know how much is too much) distorts not just industries but whole continents, economically speaking.
Who knows how Western economies would look without central banking monetary stimulation? China would not have grown so quickly without monopoly fiat money. Japan would not have gained so much and then mislaid much of its progress once again during its various lost decades.
This is because central banking distorts economies. For most of humankind's history, money was market based. Today, money is part of a massive price fix and price fixing never works. Central bankers decide how much money to issue but how do they know if what is considered enough is too much?
They don't. The history of modern economies is the history of massive monetary overprinting. The Economist in this article, as in so many others, simply declines to mention the BASIC reason for the constant booms and busts that have so badly damaged the West and eventually the world.
America's workout is not finished. Even when the results are more visible many problems will remain unsolved. Because the companies leading the process are so productive, they pay high wages but do not employ many people. They may thus do little to reduce unemployment while aggravating inequality. Yet this is still a more balanced and sustainable basis for growth than what America had before − and a far better platform for prosperity than unreformed, elderly Europe.
Oh, really? America's workout will never be finished. And that's because it is not a "workout" but merely a monetary restimulation. The Economist wishes to natter on about "companies leading the process" [toward further productive industry]. But there is nothing "productive" about it.
Does the world need more cars, trucks and off-road trikes? Does it need more dolls and pet rocks? Does it need a dozen multinational hamburger chains? Some of what the world produces is no doubt the product of a real economy. But a lot of it is merely the flotsam and jetsam of monetary overstimulation. People have money so they buy. If they didn't, they wouldn't.
That companies, once again awash in faux currency, are able to produce this stuff – and consumers to buy it – tells us less about the state of the economy than it does about the stimulative power of paper money and electronic digits.
Remember, please, we estimate that the world's central banks have probably printed something like US$ 50 TRILLION in the past five years in an effort to restimulate the global economy. This is an unfathomable amount of money, much of it trapped in commercial banking coffers.
When this money DOES start to circulate, it will give rise to enormous price inflation, triggering vast interest rate hikes. The Economist, in its hurry to proclaim a "recovery," doesn't bother to tell us this, either.
The last time we went through one of these "golden bull" markets in the 1970s (when money metals experienced a considerable appreciation), the price inflation proved so intractable that Paul Volcker had to screw interest rates up nearly 20 percent.
The trouble with the current economic situation worldwide is that the powers-that-be elected once again to stimulate and create "too big to fail" financial companies rather than let the horribly distorted system deflate into rationality. But these are not 1970s distortions; they are much bigger.
It is possible that interest rates might have to go to 40 percent to wring the excess money out of the system. The Economist's scribblers believe that a recovery is on the way but they have forgotten to mention that the money banks are sitting on constitutes a kind of unexploded nuclear (monetary) weapon.
This Economist article is so dishonest on so many levels that one is temped to label it "best of breed." In its inimitable, coy way it informs us that companies and banks have divested themselves of underperforming assets but it never explains why those assets were attractive in the first place (because of hyper-monetary stimulation).
It then explains that the vaunted efficiency of the modern American company will provide a basis for sustainable "growth." This is probably untrue, as well. Once there is appreciable growth (as there is NOT yet), money will begin to circulate and rates will rise, potentially choking off the recovery.
The article, smug as it is, is shot through with glaring economic and financial lacunae. It is the reason the magazine, for all its readability, is so irritating.
I always tell myself I have to swear off buying it but then I end up reading it once again – and getting upset by it once more. That's why I'm writing this article.
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