http://thenationonlineng.net/new/brian-browne/financial-speculation-feeding-food-and-job-crises/
This past week, finance ministers
and central bankers of the G20 nations met. Joining them were the
Managing Director of the IMF and her World Bank counterpart. Lurking
ever in the interstices were the emissaries of the global financial
houses. These private concerns influence governments to the extent that
no policy is made without their input. No policy is implemented which
they genuinely oppose. Even more than before the 2008 Great Recession,
these private forces retain the impregnable status of a government
outside and beyond government. This impregnability harvests a sense of
arrogant entitlement leading the financial houses to think everything
must be done so that their profits always maximize or not be done at
all. This might not be the best nature of things but it is the present
order of them. The finance ministers gathered not to correct the global
economy; they gathered to pet the interests of Money Power.
The final communiqué was as shallow and
meretricious as a prostitute’s embrace. The group proclaimed member
nations must eschew competitive devaluation of their currencies.
Devaluating one’s currency, through either enhanced deficit spending,
loose monetary policy or both, stimulates an economy’s export sectors.
However, when many nations devalue at once, a currency war looms as each
nation later attempts to outdo the others by enacting even steeper
devaluations to gain the export advantage. This is a cynical way to
promote jobs and exports by literally pilfering them from those nations
whose currencies remain static.
Marginal tinkering with a currency’s
value is tolerable to the financial class. Because they have inside
information or some inkling of movement, the financial houses make
windfalls from transferring liquid assets from one currency into
another. However, too much downward movement in the value of too many
currencies makes hash of this managed game, causing both financial
uncertainty and significant economic dislocation in the process. In
truth, prolonged currency warfare is a race to nowhere. Thus, on a
superficial level, the statement against currency wars was condign.
Sadly, the other actions and inactions of the ministers reveal that
their cardinal purpose was not strengthening the real economy where the
majority of people live. Their great obsession was to assuage the
clannish financial markets. Whatever solace given the rest of the
economy was collateral and incidentally done.
Concerning the flaccidity of their
overall economies, the ministers acted with the disorientated
perspective of penguins confined to a dark, narrow closet, all making
unintelligent noises while ceaselessly bumping into each other. If
justice prevailed in this world, these ministers would be sued for
malpractice; successful defenses would not avail them. Brandishing the
crooked wand of austerity, they have transmogrified sickly economies
into shrinking ones.
In the final quarter of last year, the
entire Eurozone contracted by 0.6 percent, a fall much steeper than
mainstream economists predicted for some had predicted growth. Orthodox
minds thought Germany, the continent’s largest economy, inoculated from
the infirmity afflicting the Mediterranean nations. Yet, the Teutonic
dynamo was felled by a bout of economic measles. Germany’s export-driven
economy contracted like an overstretched rubber band because its
southern neighbors have become too ravaged to buy German goods in
quantities that would sustain German production levels. Confronted by
the dire and obvious logic of this economic contagion, the Germans still
appear incapable of grasping the deeper lesson of this morality play.
The rich man who impoverishes those upon whom his commerce and wealth
are based depletes his wealth to the degree his avarice undermines the
welfare of others.
Going around the globe, America
contracted during the same period. Japan contacted so severely that its
government quickly embarked on a loose money policy and a concomitant
spending spree in financial markets in the vain hope of escaping its
third recession in less than ten years. Britain’s bullheaded insistence
on austerity produced a second recession in three years. Meanwhile,
Greece has descended so headlong down the gutter that it is a nation on
perpetual strike and nearing riotous strife. Millions would migrate but
the sapping economic conditions deprive them of the funds to do so. In
Spain, when two youths meet, they are sure at least one is unemployed.
Italy is so much wracked that serially discredited Silvio Berlusconi
might once more elected Prime Minister.
Despite their withering economies, the
finance ministers were unable to come to grips with the malevolent
evidence of results of their beloved austerity. During the Great
Recession, they touted austerity would spur private sector growth. What
austerity has done is abet the financial sector’s dominance of the
overall economy by further weakening the productive sector, making the
latter vulnerable for the speculative plucking. After years of intense
such plucking, the bird has no more feathers. The experiment has gone
terrible awry. Austerity has produced the “Son of the Great Recession.”
So steeped in foul craft of orthodox economics, the finance ministers
could not bring themselves to understand the economic carnage that lay
all about was not an inevitable thing; it was a matter of their own
doing. Their economics, their beloved pseudo-science, has proven to be
nothing more than a graven idol that blasphemes reality rather than
explains it. These arrogant men in their arrogant fashion believed they
could tell reality how to behave. Upon the shining altar of their false
deity, tens of millions have suffered; too many lives have been lost in
futile sacrifice to their dumb, uncaring god.
Instead of admitting the failure of
austerity, these ministers proclaimed austerity has served its purpose
because growth waits on the horizon. Yet, isn’t this what they said last
year and the year before it? Misery has appeared in legion
manifestations but economic growth remains a rather bashful thing
adverse to human companionship. There is a rather peculiar attribute
about horizons. The closer you move toward them, the more they seem to
move away. The horizon never gets closer; it is too well mannered to
become intimate and thus keeps ample distance. Thus, people do want
economic growth to be on the horizon. They want it in their hands.
The ministerial participants maundered
that austerity should be attenuated for the time being. This was like a
team of assassins appearing at their victim’s burial and the lead killer
surmising that they should lessen their attacks on the decedent given
that he is six feet underground. However, the ministers simply could not
break completely break from this belief to which they are so
emotionally attached despite its obvious inhumanity. While talking down
austerity, they parroted terms like “fiscal discipline” which is
austerity with a less odious moniker. It is a sign of our desolate times
that the IMF Managing Director was the meeting’s leading proponent for
employment creation and economic growth via fiscal stimuli. However, few
ministers listened seriously to her. The leadership of these nations
has so imbibed hyper-capitalist doctrines, i.e. financialism, that each
government has become a draconian IMF unto itself and its people. Never
in the history of mankind have the world’s most affluent nations heaved
so much unnecessary pain on their people in peacetime for the most
unwarranted reason: the stubborn adherence to mean policies ruinous of
the many, profitable to only the chosen few.
Consequently, the ministers did not adopt
fiscal stimuli as the path for their nations to emerge from the obvious
downturn. Empirically, fiscal stimulus or deficit spending is the most
effective measure in the current environment. This assumes helping the
working and middle classes is the objective. If the aim is to secure the
financial elite, then fiscal activism is not the preferred cup into
which your tea is poured. Instead, you would do as the financial
ministers and central bankers have done. They have engaged in lax
monetary policy by embarking on large scale purchases of financial
assets. In exchange for these assets, the central banks place new money
in the hands of the former asset holders. Theoretically, they will use
the money to buy things or invest in additional financial assets, thus
increasing asset prices and spurring economic growth. While the public
may be duly hoodwinked, those in the know also know this mechanism works
differently than advertised.
Speculators hold many of the assets
purchased by the central authorities. Giving additional money to
speculators is like handing cocaine to an addict. He will not invest for
the wise or the long-term. He will search for the next speculative
high. Money will not trickle into the real economy. It will circulate in
the financial sector. Like a rapid dog, it will bound from one end to
another, chasing the highest return possible. As a result, the balance
of funds in the financial sector as compared to the productive sector
will worsen. The financial sector will be flush with money, the real
sector starved of it. The planners will increase asset prices; the
victory will prove hollow, if not pyrrhic, because it is based on an
inversion of cause and effect. Economic growth inevitably produces price
inflation. However, the engineers of lax monetary policies assume the
reverse is equally true: that price inflation produces economic growth.
It is not. As an orange tree grows its branches come to bear fruit. This
is a farmer’s dream. However, it is the height of folly for a man to
walk into the grove to hold up an orange at branch height, expecting a
tree to miraculously grow, attaching itself to the object in
outstretched hand. He will soon tire from the exertion or caring
relatives will escort the man to the nearest institution that cares for
people with his type of affliction.
So is it with policy that targets asset
prices. Because the money does little but chase its own scent within the
confines of the financial sector, financial asset prices indeed rise.
Yet, economic fundamentals remain mired, heavily burdened. Financial
speculators gain windfalls. However, employment and wages stagnate.
Consequently, we see soaring stock markets in many nations while their
overall economies wade the brackish water.
The stock and financial markets have
delinked from the overall economy. Stock and financial markets are no
longer the bellwethers for the rest of the economy. These markets are no
more reliable indicators of the health of an economy than is the
casting of lots. Financial assets and stock prices climb when investors
instigate firms to cut costs by reducing their work forces. This
provides transient benefit to speculators but penalizes the real economy
and the labor force which depends on it. Lax monetary policies rewards
the financial class and its allies while slowly amercing the great wash
of people in these nations.
In the end, the policy mixture employed
by the developed nations ensures bloated hyperactive financial sectors
on the verge of producing new speculative bubbles and weak productive
sectors on the verge of constriction and collapse.
Worst, these errant policies hurt the
developing world. As previously stated, financial speculators obsess for
the next high. Prior to the 2008 recession, they believed real estate
was the guaranteed high. They plowed funds into real estate only to see
that market and their nominal worth sink into the quicksand. Since then,
they have searched from hill to valley for the next “sure” bet. Many
believe they have found it: food. Real estate was viewed as certain
because people need a physical location to live and work. Demand exists
as long as people exist. With food, the demand is more compelling.
Everyone might not own land but all must eat. Fed easy money through the
lax monetary policies of the developed nations, speculators are
becoming increasingly active speculating in agricultural commodities.
The presence of these financial middleman increases the price of food.
For them to retrieve the profits they seek, while farmers and others in
the chain of production retain their profit levels, necessarily means
prices must increase.
For poor and struggling Africans, this is
the kiss of hunger blown from afar by esoteric financial dynamics about
which they know little and understand less. What they will come to know
is the difficulty of contending with rising food prices that eat at
their static incomes. The people will pinch here and scrape there.
Meager meals will become smaller. Plates and bowls will appear bigger to
children because there will be less food on them. Hunger will bite its
stinging bite. The weak and sickly will become more so. More will die
while the speculators sip the delectable nectar of their profits. This
is just the beginning. As financial speculators gain more control of
agricultural markets, they will dictate the quantities and types of
crops cultivated. Those with the highest profit margins will be
encouraged. Those with lower yields will be ignored. Lamentably, the
interests of the financialists will not always coincide with those of
the people. Moreover, there already is a move afoot whereby massive
international agricultural concerns acquire large tracts of arable
African land, in the process displacing peoples from their ancient
homesteads. These firms, now abetted by speculative investors, will not
be geared toward commodities for the local African market. The African
consumer does not possess the money these companies seek. These concerns
will produce for abroad. More and more African land will be used to
feed and furnish others while displaced African will be left to taste of
the compound bitterness of being displaced yet having no alternative
location to farm for their livelihoods.
Financialism continues to dominate the
global political economy despite the vast damage it has brought so
recently. Developed nations abhor the only practical remedy — fiscal
stimuli through deficit spending – that would enliven the broadest base
of their economies. Instead, these governments cosset the financial
sector and leave orphan the productive economy. The lax monetary
policies of the developed nation constitute a nearly perfect storm of
financialist malevolence against the humble masses in both developed and
developing worlds.
In the developed world, these policies
stifle fuller employment while exacerbating the inequitable power
balance between the financial sector and the productive one. In the
developing world, the policies have placed international speculators in a
position where they can unduly influence food prices to the detriment
of the billions already living at the edge of poverty and
malnourishment. The speculators will push tens of millions into the grip
of starvation in the coming years.
Once they have done their handiwork with
food, water supplies may be next. More and more, it seems the
financialist elite so lacks humanity that it sees the quickest route to
poverty eradication is to do away with poor people.
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