DJIA at 15,000?

After the exceptional period of quantitative easing, central banks are trying to return to normal conditions. The stupendous amounts of cash they created to buy up Treasury and corporate bonds were a boon for stock markets that seem to have been the only beneficiaries of that generosity, with no noticeable trickling. Now that the rivers of cash have slowed down (Japan), stopped (EU) or reversed (US), those who profited the most will be the primary losers.

The massive demand for bonds by central banks pushed up prices and automatically brought down interest rates. And, simultaneously, central banks reduced their discount rates to almost zero, and below in Japan. These measures of cheap debt and free credit were a huge encouragement for all kinds of borrowing. Some of the new debts were for consumption by governments and households, but a lot, if not most, was invested in stocks and bonds. Those investors are now facing the double squeeze of falling share prices and rising interest rates.

The US Federal Reserve was the first to employ quantitative easing after the 2008 recession. It was the first to end it, and is the first to start reversing it, by selling bonds or by letting them reach maturity and having them paid back. In both cases the cash returns to the void it came from. This is reversing the cash flow of previous years into a cash drain. Less circulating cash and more expensive borrowing are having a predictable effect on stock markets, and the return to “normal” could mean a Dow Jones Industrial Average index dropping below 15,000.

Yellow is the new red

Red has been the colour of rebellion for a long time, though it has also been used to signify no surrender/no quarter in combat and siege, and as the signal of martial law. However, by the mid-19^th century the red banner had become the symbol of working class revolt, and many labour organisations adopted it. Then, during the October Revolution in Russia, red flags became popular rallying signs, and the subsequent soviet government put a hammer, a sickle and a star on a red background to make the national emblem. The red flag came to represent communism worldwide. But “communism”, in the Soviet Union, China, North Korea, Eastern Europe etc., turned out to be highly centralised, absolutist, totalitarian and very incompetent, a far cry from the promise of a common weal. The red flag lost its appeal and liberal progressive parties replaced it by a red rose. The red flag had first been raised during the 1848 revolution and the Paris Commune. The rose symbol also originated in France (Mitterrand 1981), where the French word “rose” means both a rose and the colour pink, watered down red, a sign of the times. And the hopes raised by the pink parties have long since evaporated, leaving the working classes in disarray and easy preys for all kinds of demagogueries, from Thatcher and Reagan to Blair and Obama, to Trump Macron and May, just to mention a few pre-eminent ones.

High visibility yellow vests were first worn as a rallying sign by disgruntled French drivers protesting a lowering of road speed limits at the start of 2018. Then, in May, a young working mother started an on line petition for tax cuts on fuels. In October two lorry drivers called on line for a general blockage to protest fuel prices. November saw the first yellow-vested actions, free passage at a motorway tollgate and going slow on a city circle road. Then, on November 17, came the first Saturday of general mobilisation with some three hundred thousand yellow vests disrupting things right across France, notably in Paris. This has been repeated on the four consecutive Saturdays, with climactic scenes of street fighting in Paris on December 1, while weekdays have seen occupied roundabouts, blocked refineries and shopping malls, and closed tollgates. There may be a truce for the end of year weekends - though most of the participants are unable to afford much of a festive season anyway – but the popular anger shows no sign of abating. Meanwhile, people wearing yellow vests are assembling in large numbers throughout Europe and round the world (their sale has been banned in Egypt) to express discontent and rebellion. Yellow is the new red.

Back in force

Chauvinism, jingoism, xenophobia and racism all seem to be raising their ugly heads, but they are the symptoms of different mental structures. The first two are French and English versions of the same thing: the sentiment, going back to the 19^th century, of being the greatest and best nation in the world. The third is a morbid rejection of anything and anyone foreign. The last considers that humanity is divided into species according to their physical attributes and the colour of their skin. French and English pretentiousness has been crushed by two world wars and the loss of empire, but chauvinism and jingoism have a strong subliminal persistence, not only in their countries of origin. Xenophobia closes the mind to everything different coming from outside a sometimes very restricted perimeter. Racism imagines a human hierarchy where some particularities are superior to others. Gobineau (1816-1882) was among the first to theorise this notion and placed northern Europeans at the top of the pyramid. But it originated in the abject treatment of subject populations by colonial conquerors (1). As America is the best example of what is happening around the world, chauvinism and jingoism are epitomised by MAGA and “America First”, xenophobia is the reaction to immigrants, and racism is, as always, about white supremacy.

1. See Theodore Allen’s “The Invention of the White Race”

Funding profits etc.

Industrial profits could be either unpaid added value, or just value added to the cost price. Commercial profits are value added to the cost price. And interest is also value added to the cost price. All three forms of profit demand that more is paid out than is put in. and the only way this extra value can be obtained is plunder, credit and debt. This is problematic enough, especially when incomes are static, but then the government adds on VAT to all consumption. Value added taxes (sales tax in the US) are an over-profit that can only be paid by even more plunder, credit and debt.

Profits, interest and VAT are unfunded expenses that can only be paid with debt. And as the debt grows, so must the debt to pay the growing interest. When debt growth slows down, its division between profits, VAT and ever increasing interest becomes impossible, so someone must lose out. Governments can reduce taxes and profits can fall but, when debt growth stalled in 2007, it was interest that suffered as central banks pushed it down to almost nothing. This was unfortunate for banks and all those who depended on interest for income. But VAT was maintained and profits could grow, while low interest encouraged a lot of new borrowing.

The unfunded value that is added to production costs can only be paid with debt. As that debt cannot be paid back without stopping the whole process, it just piles up along with the interest. At present, most developed nations owe two or three times their national income. Multiplied by the rate of interest, that represents a considerable percentage of GDP. A sum that must in turn be borrowed to keep the system going. And that system (profit capitalism) is on the verge of a gigantic crash.

For more on this see previous posting:

https://lelezard.blogspot.com/2017/11/bubbles-galore.html

Killing democracy

One of the reasons why the America and Israel are so close is the similarity of their foundations. Religious refugees fleeing Europe settled on native lands, expropriated the local inhabitants and made war on them. In America, the invaders were helped by contagious diseases, such as smallpox, chickenpox and tuberculosis, against which Native Americans had no inbred resistances. In Palestine, this did not occur, and most of the original inhabitants and their descendants are still around. The destruction of tribal America lasted almost three centuries, and left just a few survivors. The destruction of tribal Palestine has been going on for a century, and there are millions of survivors. But, though the death tolls cannot be compared, the cultural destruction can be. Tribal communities are structured around their common land tenure. When that is taken away, the community falls apart. Common ownership creates ties and obligations, and is extremely stable over time. Tribal property goes back to prehistoric times, perhaps to the dawn of humanity. Its main opponents have been urban societies, where a few own a lot and many own next to nothing. It is that urban hierarchy that destroyed tribal America and is destroying tribal Palestine.

America sees Israel through the lens of its own past, fighting heathen hordes with god on their side, the god of temples, cities and power. The crime of genocide is transmuted into a heroic combat of good against evil. Having rewritten its past, America applies the same method of reading to Israel’s present. And, just as in America the population that is not white enough does not have equal rights, so it is in Israel for those not Jewish enough. Israel has declared itself a Jewish nation. Will America follow and proclaim itself a white nation, not cryptically but openly like Donald Trump. America has supported Israel unconditionally since its creation in 1948, as an outpost close to the world’s major oil fields. But this strategic approach has grown in intimacy over time to become a common identification. The armed colonisation of America was reflected in the armed colonisation of Palestine, which reflects America’s armed colonisation of the world.

America cannot criticise Israel without questioning its own not so distant past. And both nations have constructed themselves on the Old Testament Bible, the manifest destiny of god’s chosen People. Success, wealth and conquest are signs of his approval. In linking modern capitalism to Protestant ethics, Max Weber brought up the notion of “a calling”, a secret voice, a sign, a presence, a personal conviction that the path followed is the right one. America was “called” to be what it is. And all the horror and misery of that becoming was just collateral damage, hardly worth mentioning. Genocide, slavery, Jim Crow segregation, mass incarceration, homelessness and the treatment of immigrants are hidden by a façade of fanfares and glamour. And America’s imperialist footprints around the planet are said to bring democracy, which has given that concept such a bad name that no one wants to hear about it anymore. Similarly, the 1948 Nakba, the Arab wars of 1956, ’67, ’73 and ’82, the blockade of the Gaza ghetto, the treatment of occupied territories and Arab Israelis, and the right of might, are glossed over with democratic paint and argued with the old narrative of god’s Promised Land. America and Israel are as close as possible, and their storytelling is intertwined. By pretending to represent democracy, they have tainted it irremediably.