Sadly no, for the Arab Spring (900)

David Cameron, Nicolas Sarkozy and other Western politicians are naive in the extreme if they imagine that countries such as Tunisia, Egypt and Libya, after their recent ‘Arabian Springings’, will acquire anything resembling what we call democracy in their lifetimes. Quite besides what history tells us about cultural inertia and the slow pace of significant political change — generations rather than years or even decades — we now have scientific evidence why this is so.

This comes from the new sub-science of epigenetics. Although suspected by a handful of evolutionary biologists for two or three decades, the subject only sprang to life in recent years following the first draft of the Human Genome Project (HGP) in 2003. This is telling us that by far the most of our genes doe not act as single stimulants for this or that physical trait, or propensity to this or that disease, but only have their effect when orchestrated in large numbers. This is achieved by other agents, epigenes, which arise from the regions of our ‘junk’ DNA that lie in between the gene areas themselves.

This explains why large pharmaceutical corporations have already lost hundreds of millions of dollars in a fruitless search for single genes which cause various mid-life killer diseases such as heart diseases, diabetes, many cancers and mental senility. Yes, in each case the researchers found a few genes that seem to be specifically involved but they only contributed something like 5% or 10% to the likelihood of the disease actually developing. At least scores more, perhaps hundreds, of other genes were also involved. Furthermore, some potentially lethal genetic orchestrations also needed to be tripped off by specific features in the environment of the individual concerned — such as diet or daily habits. A person can carry a lethal predisposition but is lucky (or sensible) enough to avoid the environment which has a high chance of sparking it off.

Even more astonishing to post-2003 geneticists was the realization that new epigenetic orchestrations could not only arise in the lifetime of an individual, according to particular life-circumstances, but also that those orchestrations could be inherited by the next generation, and then the succeeding one, and so on. The reason for this is that the genes that take part in a particular orchestration actually acquire specific chemical tags and the complete set of such tags for any particular life-effect can be passed on just as certainly as genes themselves are passed on.

For the purpose of this morning’s piece (I’m endeavouring to make this as short as possible) two more points about epigenetics need to be mentioned. One is that, unlike genes themselves, the epigenetic tags are not quite as permanent as genes. If the same environmental conditions are not repeated in succeeding generations then the tags can gradually fall away from their genes. A particular epigenetic orchestration that has taken several generations to develop (and thus spread around in a population) can also degrade over further generations if the environment changes. Finally, that particular disposition will disappear altogether and the genes that were involved no longer carry those particular tags.

Secondly, epigenetic orchestrations are not confined to predispositions to physical effects (such as a particular cancer) but also to psychological and behavioural effects. For example, a pair of identical twins (with identical genes and identical epigenetic tags at birth) might behave quite differently in adult life. One might become schizophrenic (this is believed to be epigenetic) and the other, living in a different environment, might not. One might become a cheerful optimistic person, the other gloomy and pessimistic.

We can now translate these findings into considering cultures. Some cultures, after living in the same sort of environment for many generations will have inherited a fairly widespread predisposition to some particular diseases, while others, not noticeably different in other ways, will experience quite a low incidence to the same diseases. On the other hand, the latter are each highly likely to have an idiosyncratic collection of diseases to which they are particularly prone. Also, disparate cultures of long-standing will each have their own blend of psychological and behavioural predispositions. In both cases, however, even if a particular culture acquires a brand new environment overnight, then its physical and psychological predispositions would take generations to disappear and be replaced by new ones.

The sub-science of epigenetics is still very new, but what has been discovered so far is fully compatible with what historians tell us. Thinking about politics and government, modern Russia, for example, is scarcely any different in many respects (domination by secret police, lack of sufficient property law) — despite two immense make-overs — than Tsarist Russia was a century ago even though Russians may know intellectually what they should be doing before they can approximate to the standard of living of, say, America. That’s just one example of dozens that could be instanced.

Thus, in Tunisia, Egypt and Libya, although an educated youthful minority may know what is desirable by way of becoming Westernized — which is what the vast majority of their populations want — the older culture, dominated by Islamic imams, is already resisting and taking advantage of the opportunities offered them. In the West, it took most countries two or three hundred years of civil strife to bring about our voting procedures. The Islamic countries will be no different. We now have some scientific evidence to back up one’s intuition that it’s going to take more than one or two generations before the necessary psychological predispositions are in place and being inherited.

The Eurozone’s greater farce (350)

The Eurozone politicians saved their face yesterday by preventing Greece having to default completely. But, as Kenneth Rogoff said yesterday: ” . . . they’ve figured out how to buy a couple of months”. If anything, the 50% debt let-off will only reward the daily demonstrators outside their Parliament and the repeated national strikes by their public service unions. Also, what will Portugal, Spain and Ireland say about this preferential treatment of Greece? What is this ‘firewall’ that was being talked about? Sooner or later — probably sooner — they’re going to want similar handouts.

But it’s the hoped-for $1.4 trillion ‘bazooka’ fund that’s a greater farce. For one thing, it’s going to be nowhere near sufficient when Italy follows Greece and the others down the default road. Italy already has a government debt of 120% of GDP. For another, who’s going to chip into this fund? Germany says it won’t, the other Eurozone governments can’t and the banks are hardly likely to because they’ve already decided to reduce their outgoings in order to build up their reserves to 9% as enjoined by Basel II. (In 19th century England, the typical major banks had reserves of about 15% to 20% and the Bank of England between about 35% and 70% at various times.)

The lie to the prospect of a bazooka fund was already given during the summit when Sarkozy announced that he was sending an emissary to China to ask for help. How shameful! China has already ‘invested’ a quarter of its foreign exchange funds in the Eurozone. China has said it would help the Eurozone further only if it can discipline the budgets of its component governments. But the idea of a unitary fiscal authority never peeped during the summit. Why? Because Sarkozy, Merkel and other top politicians with any experience at handling their legislatures already know that this will never be possible. The differences between the cultures are far too great.

It should be pointed out to Eurozoners that even cultures that have been ‘united’ for a century or more, and even speaking the same language, can re-establish themselves. Belgium, Italy and Spain are each steadily teasing themselves into two parts. The ‘United’ Kingdom (as our politicians like to call it) into four! Anyway, that’s what this English culturalist (but not nationalist) thinks.

The Eurozone is now a farce (200)

The Eurozone has now become a farce, and the Heads of State who are meeting today at Brussels will have to be magicians with words if they are to convince investors that the Eurozone has any future at all.

Today’s Summit should have been that of Finance Ministers who were to have supplied the final details of the rescue plan for Greece through to Italy. Late last night it was postponed to an unknown meeting in the future — very likely a meeting that will never be held. It’s not as though the Eurozone problem is of recent origin. Officials and politicians have been kicking the can down the road on at least a dozen occasions in the last two years. The cancellation of the present rescue plan is only the last of these.

After opening this morning, the London Stock Exchange tried to be brave for the first ten minutes but shares are now (8.30am) plunging. Is this the beginning of a “depression that will be worse than anything in the last century” (Sir Mervyn King, Governor of the Bank of England)? Readers would be well-advised to buy a few gold coins while they’re still available before Eurozone investors get at them.

Pistols at dawn! (1,400)

The grand plan of the 12 year-old Eurozone is in great danger of unravelling this week. This at least is the headline verdict this morning of the two leading financial newspapers of the world, the Financial Times and the Wall Street Journal. The more often that politicians say something like “a solution is emerging”, the more they are being disbelieved because it is known that the three leading politicians, Angela Merkel of Germany, Nicolas Sarkozy of France and Silvio Berlusconi of Italy are now at one another throats when talking in private. And, if the Eurozone unravels, then, as all the pundits keep on telling us, it will wreak havoc on the economy of the rest of the world with national currencies in a state of chaos.

On this Monday morning, America and China are looking on with great apprehension, unable to intercede, powerful thought they are in other ways. The International Monetary Fund (IMF), according to several accounts, has given up on finding a solution. The European Central Bank (ECB), weakened by the recent resignation of two key personnel, and as yet without an operational chairman, has already reached the limits of its constitutional power. America’s central bank, the Federal Reserve (USFed), is totally non-plussed about its own monetary policies, never mind those of Europe or the rest of the world.

At the same time, a core of maybe 100 individual very rich investors, locked in self-imposed silence at the moment, but keenly observing one another and waiting for the butterfly wings of one of them to flutter, are poised to shift billions of dollars and euros in order to protect their money. If and when they feel they have to, the fate of the Eurozone will be decided. Within hours, thousands of other professional investors and institutions will follow in a panic for safety’s sake and, within a day or two, tens of thousands of amateur individual investors will also try to follow — if indeed, the stock exchanges of the world are not already closed down for a week or two by then.

If fears are realized and the beginning of a world-wide depression follows as of this week — with likely social chaos in many countries — logic tells me that only two entities can attempt to save the situation in the short term. The reason for saying this is that they both already have far more operational power than politicians and banks. And they will, of course, both want to survive. I speak of national civil services on the one hand and transnational corporations on the other. If they act, then politicians and banks will have to do as they’re told, if they want to retain any future role at all.

More specifically, the treasury departments of perhaps a dozen of the more advanced countries will dust-off their plans for food tokens for use in emergencies (such as in the aftermath of a nuclear war), in order to try and ensure that the majority of their populations have at least sufficient food for the next few weeks or months. In effect, this will immediately become a new currency, probably based around a staple feature, such as a specific weight of rice or wheat, as its standard. It will have a real value way beyond any other existing money that can be printed because it’s very likely that the latter will be seesawing about uncontrollably (if indeed the euro has any value at all beyond this week).

At the same time, the largest transnational corporations, perhaps a dozen of them with some of the most street-wise directors in the world on their boards and experts in their closest support departments, will consult together without any shadow of a doubt because they’ll already be economically intertwined and can only survive together. Above all else they’ll want to maintain some sort of respectable momentum even if investment pkans are put on ice for the moment. When they see the politicians, banks and printed currencies falling apart all around them, they, too, will want to institute a basic currency of account to use between them. This, too, will have to be based on an essential standard. Once established by a dozen or so of the largest corporations, then it will become force majeure for the rest — if they want to remain in economic existence. As an electronic digit, conveyed by the Internet and recorded on computerized accounts systems, it could ripple down through all businesses within days and weeks, even down to the smallest village shops in the advanced countries.

If this occurs, the corporate currency going downwards and outwards will meet the civil service food currencies going upwards and inwards probably at the level of the largest food supermarkets in the world, such as WalMart or Carrefours or Tesco. At that stage a currency exchange value between the two will have to be arrived at as quickly as possible. It will be simpler for the individual civil service currencies in different countries to adjust so as to be 1:1 with the world-wide corporate currency. Or it could be (more likely to be!) something like 1,000:1, whatever the weight of the standard chosen in both cases. Whatever the ratio, so long as they are fixed in relation to each other, it doesn’t matter. They would then, in fact, become one currency.

What will be new world trading currency be based on? In theory it could be any one of a number of commodities which are (a) valuable and (b) relatively stable in supply from one year to the next. However, it is almost certainly going to be gold because something approaching two billion individuals in the world already regard it as valuable and possess it in various forms. Also, all the major central banks of the world have gold in their vaults and they still define it as a foreign exchange currency. The IMF has gold. Ironically perhaps, even the ECB started with a stock of gold when it launched the euro 12 years ago! The USFed has gold, even though it has never been audited since 1953 and its present quantity is regarded as one of America’s highest secrets. (Interestingly, Japan’s central bank has no gold, because it’s not allowed by America to have any. Israel’s central bank doesn’t have gold either. Its governor, perhaps the most experienced central banker in the world, Stanley Fischer, doesn’t stock gold because he is so confident of Israel’s export earnings of high-value products that he can import gold at any time he wishes to.)

How will the transnational corporations fix on the value of a basic gold currency? They will be able to compute the total amount of money that is presently in use by the world economy (I think it’s equivalent to around US$150 trillion) and they’ll divide it by the amount of marketable gold in the world (that is, outside museums — about 180,000 tonnes). Thus the currency will have a rough and ready market value to start with and, for several months, it will probably seesaw around somewhat until it settles down. The seesawing in this case won’t matter because its value will rise and fall together for all entities using it. When it does settle down, nostalgia being as powerful as it is, national civil services (and politicians endeavouring to retain their role) will want to revive their own banknote currencies. In order to show that they are now reformed characters they will probably fix them at 1:1 with the world currency. After then, the value of individual national currencies will depend on their countries’ export potential — that is, of how much use their best products are to the rest of the world when exchanged by trade. When national currencies, too, settle down in due course, their currencies will continue to change according to their economies but only very slowly from year to year according to the changing wisdom of their governments as to their attitudes and taxation of business.

Well, the above is a stab of what could happen. Meanwhile, one of our English newspapers today (the Daily Telegraph) has the following headline in its business supplement: “Banks at odds with Europe on Greece”. Dear me! Bankers and politicians falling out! Having been co-conspirators for the past 100 years in foisting inflated money on the rest of us, it’s now pistols at dawn. If this continues neither will win. Investors will decide and the two entities described above will do the mopping up.

On retaining inequality (1,050)

Social equality is an ideal which, in reality, never happens. However, gross inequality — such as we obviously have today — ultimately leads to one of two consequences: (a) the elite survive while the remainder tend to be extinguished or to wither away; (b) a breakdown in the strategies of the elite and a subsequent take-over by another group.

Social equality is an ideal because random genetic inheritance at birth (and cultural conditioning by parents) gives each of us a unique potentiality of individual abilities and, furthermore, a powerful shared proclivity to rank order, as in thousands of other mammalian species. This maintains the quality control of each species. How this usually expresses itself is by means of the female of the species generally choosing the best genetically equipped male in her social circle as her sexual partner and avoiding breeding with the inept males. Anybody who would seek to deny both the fact and the expression of social ranking in the case of the human species would have to try and contradict both the historical record and also the modern genetic findings in evolutionary biology.

Considering (a) above, attempts at extinction, or genocides, are frequent enough in past and present history and, nasty though they are to our modern sensitivities, there doesn’t appear to be any let-up. However, the withering away of groups or supposed inferiors is a more modern phenomenon, due to population surpluses. Up until recent decades, low ranking parts of populations didn’t wither away because they were necessary food growers for the overall economy of the country. Without virtually 100% employment of the masses then the elites themselves could not have survived.

This is now changing. Mechanization on the farm or in fishing fleets means that only small numbers of workers are needed to grow or hunt for food. Increasing automation in the factory and increasing competition between major manufacturers is driving down profit margins to zero and thus making mass production of new versions of traditional products increasingly risky. At the same time, increasingly versatile robotic methods of production are bringing about more customization and shorter production runs of more specialized, fashionable products for a smaller elite market able to afford prices too high for the masses. There isn’t as yet a sharp dividing line between the two customer markets but the income and inherited wealth gap is growing.

The result of this is that the proportion of workers required for value-added production is now much less than 100% of the available adults. It also means that median wages for most jobs in advanced jobs has been declining for about three decades now. Because the cost of raising children is now very much greater than it used to be then it’s understandable why families in all the advanced countries are now smaller than replacement size. The masses in all advanced countries are now withering away. The numbers of the elite may also be declining but, of course, they can always recruit enough of the more talented from the general population in order to make up required numbers to keep the economic system going.

Considering (b) above, the elite of the last 30 years has been mainly composed of the financial sector, and its attendant top politicians and civil servants, which at present are at the top of the larger business heap (of transnationals right down to freelance businesses). The financial elite, together with a few choice governmental personnel, exercise their wealth and power by means of complex games they play with artificial money (technically called fiat currency) which have been perfected for about a century and which very few others understand in detail even when publicly available.

However, there are more than a few signs that the fiat currency system is about to collapse. In governmental and banking hands, two of the major world currencies, the dollar and the euro, are now seesawing about quite erratically, both depreciating against the value of commodities. Both America and the Eurozone simply don’t know what to do about their currencies in a fundamental way, never mind how their huge debts are ever going to be repaid. Instead, all they can think of is to print more fiat currency and hope that some sort of future economic growth will reverse the trends of the last 30 years, make the masses prosperous again and thus be able to recoup debts from increased taxation. As for China, the third major leg of the modern economic world, its fiat currency is still tied to the dollar. So whatever fate awaits the dollar also awaits the renminbi.

When the fiat currencies collapse then, if the (b) scenario wins over the (a), the governmental-banking elite will have to give way to another. It is unlikely to spring up from the masses of the advanced countries because they are so lamentably educated. They would need three or four generations of cultural development — such as the present elite has had — in order to cope with the complex economic and social systems of modern times. But another sub-elite group, whose services have already becoming absolutely essential to the power of the present elite, is waiting in the wings. I write, of course, of the scientific class.

So far, the scientific class have been kept very much on tap by the present governmental and banking elite. Their personnel hardly feature at all. They are, however, breaking through very rapidly at transnational business level and even of many smaller businesses. Indeed, increasing numbers of our most powerful corporations are not only saturated with scientists but have often been founded by individual scientists who’ve developed their research interests into commercial feasibility.

My money is on (b). If so, this gives some hope that the masses in the advanced countries won’t wither away completely. Once science has more sway in the design of policy then we can have more hope that a far superior education will become available for the masses. Even if equality is never achieved, then new-born children will at least be given vastly more opportunities in their early care, socialization and education. When young adults, they will be much more capable of insisting on sharing the much more interesting and well-paid jobs that the present elite presently exclude them from with all sorts of protective practices. Status differences could be far more modest and much more accessible than they are now.

This week-end’s G20 impasse (650)

America, the UK and China, not members of the Eurozone, and other countries will be asked at the G20 this week-end to generously chip into a new mammoth fund to save Greece, Portugal, Spain, Italy and, if the truth is to be told, France also. The reason is that Germany, Finland, Slovakia and Netherlands, which manage to control their budgets like any good housekeeper, will not be able to save the Eurozone by themselves.

China, which has already invested a quarter of its reserves in the Eurozone, says it won’t subsidize it any further until it shows evidence of serious budget control. The UK, whose government debt is already quite as bad as Portugal’s proportionately, is only sustained at present by its past reputation and the grace and favour of its AAA credit rating given (reluctantly) by Fitch, Moody and S&P. Even now its debt is getting worse and it can only help the Eurozone by going further into debt at a faster rate. America, already downgraded one notch by S&P (and due for other downgrades quite soon) is, if anything, in an even worse state than Portugal proportionately. But, maybe, America will help. It’s already the world’s most prolific printer of money and Bernard Bernanke is a stuck-needle Keynesian.

At least, Bernanke says he is. He’s also a highly intelligent economist. Despite telling a Congressional Committee some three months ago that he knows little about the history of gold currency, he will be thoroughly acquainted with the agonies of President Nixon and his advisors in 1971 when deciding to go off the gold standard because Fort Knox was losing too much bullion to European exporting countries. Like scores of central bankers all round the world, particularly China, he is probably now quietly buying gold — of that I am becoming increasingly convinced.

If the Eurozone doesn’t repair itself one way or another in the next few weeks it threatens to collapse and initiate a new world-wide depression far worse than the ’30s. America will revert to a gold standard at the midnight hour. China, Russia, Brazil and other countries have been calling for this for years. Robert Zoellick, President of the World Bank, suggested this last November. One of Bernanke’s present central bank Governors and a past economic advisor to President Bush, Larry Lindsey, is calling for it. Two of the Republican contenders for presidential candidacy are calling for it. Several US State governments are already drafting legislation for this. Eminent voices are now rising even as the price of gold continues to rise.

America is still such a lynch pin of the world economy that once America decides to go back onto the gold standard, the rest will have to follow (in the same way that all their currencies inflate when the dollar inflates). It could be done quite as simply and rapidly (that is, overnight) as when President Nixon took the US dollar off the gold standard. Announced with a fancy flow of words by Obama and Bernanke the American public will accept a gold-standard dollar in just the same way as they accepted Nixon’s decision to go off it — that is, in a totally non-plussed state of mind. Although the idea (and practice) of a gold standard currency is simple enough, it has certainly foxed the minds of politicians so far, hitherto preferring to take the easy way out of difficulties by printing money.

If the Eurozone gets out of its impasse in the coming weeks by causing China, America and the UK to print even more money (and thus invite the danger of hyperinflation), then going back onto the pre-1914 gold standard might have to be left to the next President in 2013 and maybe his appointment of a new US central banker when the next extreme crisis occurs. Whatever, and whenever, the present mayhem cannot go on for much longer.

Four Relevant Horsemen (600)

The Four Horsemen of the Apocalypse, as described in the bizarre Book of Revelation, and charging forth on their white, red, black and pale steeds are commonly supposed to represent Conquest, War, Famine and Death. A pretty gruesome quartet! To a writer in the Mediterranean region two thousand years ago, and living under the whip of a gruesome Roman Empire, those four facts of life were pretty accurate for those times. However, “Conquest” and “War” are rather too similar, so let me describe “Conquest” more specifically as conquest by unfriendly viruses and bacteria. Actually, this revised version — Disease, War, Famine and Death — pretty accurately describes the daily fears of millions of people in the world today.

And, in truth, they’re not so very far removed from the fears of people in advanced countries either! But they’re rather too brutal to face them directly so let me (brutally!) repress them and replace them with what I think are Four Relevant Horsemen which thoughtful people, particularly politicians and economists, ought to be dwelling on.

1. The lack of a stable world-wide trading currency. The two existing predominant trading currencies, the US dollar and the Eurozone euro are hosted and printed by governments which are technically bankrupt as well as many, if not most, of their synergistic financial institutions. To quote Sir Mervyn King, the Governor of the Bank of England, two or three days ago: “The world faces a worst financial disaster than at any time in history.”

2. World overpopulation and consequent resource shortages, of which recyclable freshwater for agriculture has been the first to hit us. Inevitably this will mean steadily higher food prices for all in the advanced countries from now onwards (and proportionately more starvation for many others).

3. The steadily increasing automation of mass consumer goods and services is causing a growing skills gap between interesting, well-paid, value-adding jobs and the remainder. The notion of full employment started dying two or three decades ago has now gone forever, and real average wages (taking inflation into account) have been declining pari passu. Long-term unemployment by the middle-aged has been growing as is, more recently, the beginning of lifetime unemployment by an increasing number of illiterate and innumerate young from our dysfunctional state schools.

4. All countries are now proceeding towards a remarkably similar, highly-dense urban way of life which is characterized by a stabilized range of consumer goods and services subject only to marginal improvements. The great “assembly chain” of uniquely new consumer goods that energized the industrial-consumer revolution of the last 300 years has now become something more like an airport carousel.

A modern Apocalypse? Not necessarily. We’ll probably adapt to whatever the economic and ecological environments impose on us. Periods of enforced stabilization have happened before in many previous civilizations. Sooner or later — with any luck — we will have a break-out and a new pattern of daily life will emerge. My own view is that the break-outs will arise from the huge programme of research now going on in the genetic (and epigenetic) sciences. I think they will produce revolutionary developments, particularly in education and health. If the past history of innovation is any guide at all, they’re likely to come from the young and, usually, from outside the conventional mainstream of a discipline. We shouldn’t forget the millions of unemployed young people who are now accumulating in many countries. There are, and will be, many frustrated geniuses among them. With an increasingly versatile Internet as their tutor we can reasonably expect huge surprises in our present conventional political institutions.

A new Geneva Conference is required (850)

There’s a three-party race going on right now as to who can preach world-wide doom and disaster the most persuasively. Presumably, when the financial disaster actually occurs, they all want to take credit for warning us. One party is comprised of the three credit ratings agencies, Fitch, Standard & Poor and Moody’s, which are steadily downgrading both nation-states and banks. Another party is composed of senior politicians such as Obama, Sarkozy, Merkel and Cameron. Because their pessimism is normally so uncharacteristic of politicians, we can only presume that they are feeling extremely exposed and desperate. The third party is the most venerable of them all — central bankers such as Chairman Ben Bernanke and Governor Sir Mervyn King — who now have the chutzpah to publicly blame politicians for the present mess. (A year or two ago they’d have been immediately sacked for saying these things. Not now. They’re inviolable.)

And, of course, there’s a raggle-taggle of individuals right at the back of the race who really don’t count very much because they are saying so many different things. There are hundreds, if not thousands, of economists in academe and financial institutions who want to embellish their CVs for possible future career use. Then there are tens of thousands of bloggers on the Internet, such as your own humble servant, who are flourishing theories ranging from the bizarre to the passably sane.

However, there’s a relatively small group of runners who are already at the winning post, patiently waiting for the others to arrive! They’ve been there for about a hundred years. And they’ve been saying the same thing fairly consistently for the whole of that period. And they’ve not only been forecasting the present financial disaster but also have the solution. They are known, often pejoratively, as the Austrian School, deriving from a brief intellectual ferment in Vienna a hundred years ago which kick-started many new ideas in physics, psychology and the arts as well as economics. At present they tend to cluster around the Ludwig von Mises Institute website, but there’s also a small group within the economics department of George Mason University, Virginia, others are scattered around Western academia in ones and twos, and there is even one US Senator, Ron Paul (a Presidential contender at present).

What they are saying is that it’s OK for a country to print money ad lib if it is in physical peril from another country. This way, there can be sufficient money to pay for armaments, at least for a while. For example, when England went to war against Germany in 1914 it was paying for its armaments with real money, gold. However, within a few weeks, the Bank of England realized that the Great War (as it was known then) was going to continue for much longer and it would soon run out of gold. So it had to start printing additional gold promissory notes (banknotes) on the strict understanding — be it known to every Englishman and every English arms supplier — that the new banknotes wouldn’t be redeemable with gold until after the war. Soon, all the European countries (and America, a late joiner) were at it, friend and foe alike.

The problem really started in 1922 at a conference in Geneva, eight years after the war was over, when the countries (including America) tried to get back onto the gold standard as it was before 1914. But by that time governments were already addicted to the idea of printing money and they ended up with a half-cocked scheme of trying to retain gold as the basic currency discipline but also being able to print money whenever they got into debt. The result? Bursts of inflation in all sorts of places. But the Grandaddy of them all was inflation in America, followed by a sub-prime-type house-building boom and the Wall Street Crash of 1929. The subsequent Great Depression only came to an end in the 1940s with yet more inflation as the co-partner of rearming for World War II.

Well, that’s where we are again today, waiting for Wall Street Crash II. This time, however, there are a few small voices still echoing from the Austrian School. Central banks all over the world, despite their official propaganda against gold, are now quietly buying gold. (This is why the price of gold has already gone up five-fold in the last ten years.) Gold mines in Russia, China, Central Asia, South Africa, Brazil and elsewhere are mining gold as fast as they can. The Chinese have started the Pan Asia Gold Exchange in order to stimulate gold buying and selling, and this will be extended soon to sales points and vending machines in Europe (and even in America if Congress let’s them). We can but hope that this time, when printed currencies such as the dollar and the euro have finally fizzled into decimal points, that there’s a chance of a sensible, stable currency again. A new Geneva Conference is required, though it might be in Beijing this time.

What a laugh! (150)

On Day One (that is, Wednesday of this week) the Prime Minister of England, David Cameron, tells us all that the government must try and pay all its debts, particularly those left to it by the previous Labour government. On Day Two (that is, Thursday of this week) Chancellor George Osborne says to Sir Mervyn King, Governor of the Bank of England: “What about a bit of Quantitative Easing?” The Governor replies: “Only too happy to oblige. Here’s another £75 billion”.

What Sir Mervyn doesn’t say explicitly, nor is this ever suggested in the media, is his follow-up: “But I’ll want £75 billion of assets by way of collateral. You can have the assets back again when you repay me £75 billion — plus interest in the meantime, of course.”

So we go deeper into debt. It would be a laugh if it weren’t a classic case of schizophrenia.

Making new fortunes (650)

To my mind there is only one fundamental explanation of why we are now poised on the edge of what is increasingly becoming known as the Great Recession in contrast to the Great Depression of the 1930s. It speaks to two questions that economists don’t seem to be able to answer. Why are so many very large businesses sitting on large quantities of money and not investing in something new? Why are the banks so reluctant to lend money to small and medium businesses?

My answer is a simple one. It is so simple as to seem simplistic. It is that there are no more iconic consumer goods in the pipeline. By “iconic” I mean mass-producible goods that are so attractive that everybody demands them even though, initially, they are hand-crafted and so expensive that only the very richest people can afford them. As they become cheaper due to increasingly wider swathes of factory production, each class in turn works hard and saves hard in order to buy them. Examples of these goods in the past are too numerous to mention but they range from cotton dresses and shirts of 300 years ago to colour television of about 50 years ago or the personal computer/mobile phone of 30 years ago.

There are, of course, many goods that the rich enjoy exclusively but they are either non mass-producible or they are in permanent short supply for intrinsic reasons. They may motivate the careers of the exceptionally ambitious among the rising young but can only remain dreams for most ordinary folk, whether they are well-paid or poorly-paid. There isn’t a sharp cut-off between exclusive goods and mass goods but there’s a discernible inflexion roughly between, let us say, those who can afford two or more homes (and, usually, have ample leisure time to spend in both or all of them) and those who have one.

But we have now reached a steady-state. Of course, there is a plethora of consumer goods and an almost infinite variety of, and tweaks to, traditional ones but there are now no more truly iconic consumer goods. If there were — even if there were only two or three of them in the offing — then the largest and most technologically advanced corporations with plenty of cash-in-hand would already be making them. Banks also would be recognizing some possibilities from the propositions of millions of small and medium-sized entrepreneurs — there have never been so many as now. Depressing though the general scene is, surely one iconic idea would have emerged by now and dared at least one bank to take a risk. However, as with previous iconic goods, say during the Great Depression of the 1930s, if they existed at all they should already be making their way with large profit margins and opening up more big sectors in the market place.

Increasingly, all round the world, we’re now being locked into a ‘standard’ urban way of life with a ‘standard’ range of iconic consumer goods that we have the time, energy and space to use and enjoy. Is this steady-state so remarkable? Man has become locked into previous ways of life many times in different cultures for long periods of time. It doesn’t necessarily mean backwardness, nor need our present phase be permanent while China and other countries catch up. Goodness knows, we already have what amounts to a revolution going on right now in the scientific research of our genes and, increasingly importantly, epigenes. Results and developments from these will inevitably break out into the market place sooner or later. We’ll have iconic new consumer goods and services that will then ease us into a different pattern of life just as the consumer products of the last 300 years have done so.

Paradoxically, even during a prolonged pause period, there’ll be many opportunities for entrepreneurs to make fortunes in helping us to adapt more equitably and more happily to our present way of life.

Zero Degrees of Separation (900)

When politicians finally become honest by saying that the world economy is on the edge of an economic depression then we had better believe them. Past masters at all forms of denial, deception and false optimism on matters of currency, they are now coming clean. Whether politically on the left or the right, whether they are American, European or Chinese, all top politicians are now at one in saying that unless the financial situation of Greece is not sorted out within a fortnight (when its money runs out) then a catastrophe far worse than the 2008/9 Credit-Crunch will strike at the Eurozone, America a few hours later, China a few hours later still and the remainder of the trading countries of the world within the same 24 hours.

If the IMF, the ECB and the Eurozone bosses change their minds and allow Greece to be saved by yet more subsidies, then Portugal, Spain, Ireland and Italy will also want to be saved by the same sort of subsidies. Their individual debts are far greater than those of Greece. In total, their debts are probably nearer 100 times as great. Either way, whether Greece is saved or not, there is no hope of the Eurozone or America or China surviving in their present form, nor their present types of currencies.

If we are not in a Depression already, we only await a new Wall Street Crash as the definitive marker. This time, in contrast to the 1930s, there are likely to be nearer a billion of people out of work around the world rather than a hundred million or so in America and Europe. Emergency food tokens will have to be instituted within days, particularly as there are now many millions of old folk who already totally depend on state welfare. Unlike the 1930s, when food supplies were largely supplied by their own farmers, today’s advanced countries are likely to start scrapping between them straight away to ensure that their existing foreign sources are maintained. But are they likely to succeed, given that currency exchange rates will be see-sawing about? And when some nations are more heavily endowed with armed forces than others?

In effect, the food tokens will be an additional currency in any advanced (or sensible emergent) country. For many of the old folk and many of the newly unemployed, at least in the first few weeks or months, food tokens might be the only reliable currency until further sorts of welfare tokens can be slotted in. The latter will be enormously complex, but food tokens will be relatively easy because, as in wartime, everybody will be issued with them. Indeed, because there are always possibilities of national disasters at any time (such as nuclear attack by terrorists), they’re probably already printed and civil servants will already have distribution plans in their filing cabinets. Food tokens could be distributed to most of the population of an advanced country within days before the warehouses and supply chains of the food supermarkets give out.

And, speaking of food supermarkets, most of them are either very large national corporations or they are already transnational. In turn, they are linked to transport corporations or agricultural corporations, many of which are transnational, and which, in turn, are already linked to their own transnational suppliers of necessary chemicals, materials, technical equipment, telecommunications, etc. In short, as between any two individuals on earth, there are probably no more than six degrees of separation between the Rice Krispies on your breakfast table and the carafes on the boardroom tables of the largest and most sophisticated transnational corporations in the world.

In a Depression it will be every individual, or family, or group, or community or institution for itself. There will be none more so solipsist than the top politicians of the major countries and the top executives of the most powerful transnational corporations. The politicians will be fearing for their lives, considering the mess they’ve made of their currencies, and the executives will be fearing for their careers unless they keep their shows on the road. There will be 0 Degrees of Separation between politicians and executives. In fact, in most cases there are 0 Degrees of Separation already. Most of them are constantly visiting each others’ offices anyway.

Most importantly, there will be 0 Degrees of Separation (or perhaps 1 at the most) between the necessary food token currencies that politicians will have to deliver and the necessary world currency and credits that transnationals will have to quickly devise (digitally) between themselves if their corporations are going to operate in the interconnected way that they usually do. Thus it would seem, at least to this weltschmerz writer, that the quicker the Crash occurs the better. We may then arrive at a currency that doesn’t depend on the printing press and the whims of politicians but to numbers of people and commodities (or, as convenient fundamentals, bushels of wheat, or watts of electricity, or ounces of gold, or platinum or palladium). With a non-inflationary currency we can start to make sensible plans about the future. People can save and invest their money for their retirement in confidence, without being dependent on politicians who, at present, constantly whittle away at the value of their savings or their pensions schemes. Perhaps we’ll have an economic crash which will ultimately be kind after all.