Saturday, March 28, 2020

Game of lies


Those who are dying from COVID-19 infections are almost exclusively the elderly and the poor. And mortality among this latter group will become even more apparent when the virus gets a hold in the vast urban sprawls of Africa, Asia and South America. The old folks are those who remember the past and the wretched are those who do the dirty work. But who cares about yester-years and what might have been, as there is no alternative. And those who have little or nothing are so numerous that there will always be enough to do the lifting and carrying, pushing and pulling that machines cannot do more efficiently. A massive cull of poor and old would largely resolve the social question and the demand for a more egalitarian wealth distribution.

In the wings of power’s theatre lurk some very unscrupulous people, Bannon, Cummings and other less known murky characters. They have a simplistic vision of the world where only power is pertinent, and the power of money in particular. They completely ignore the subtle countless interactions that make society and the planet’s ecosystem possible. They whisper in the ears of the ruling class and give them words to express their instincts. What if there are a few million less old-age pensioners and destitute, they are of no use anyway. They are just cost and no gain. They add to the social bill, not to the bottom line. In a world where only the wealthy get wealthier, and where wealth crushingly dominates political power, the health and wellbeing, life or death, of unproductive elements is of least concern. From the top of the social pyramid a pandemic could be perceived as a source of profit. But, with their closed obsessional vision of society, they were unable to foresee that production would grind to a halt and profits would evaporate. The pandemic turned out to be a whirlwind that is battering the markets with unprecedented force, and plaintive cries are rising from the world’s stock exchanges, “save us before we sink”.

That the virus is highly infectious and that symptoms only appear after one or two weeks, if at all, so that people unknowingly contaminate all they touch for a period of two to four weeks, was made public in early January. All eyes were on China’s Hubei province in total shutdown. But just a few Asian governments actually organised to face the coming onslaught. Elsewhere they did nothing, contenting themselves with asinine comments on seasonal flu. Was the present situation planned or is it just the consequence of crass stupidity. In either case, those executives should not be where they are pretending to govern a nation for the benefit of all its citizens, a pretence that has been an obvious lie for quite a while.

Sunday, March 15, 2020

Who to blame


Stock markets have dived as the world goes into lockdown over the COVID-19 (pity the poor brewer) pandemic. Though no one could foretell what the detonator would be, it had been obvious for a while that a correction was imminent. The value of investments - whether shares, bonds or real estate - cannot increase infinitely. They go up and come down, and over time stay in line with the general growth of wealth. As they represent that wealth, they can only follow its actual progress. Deviations, above or below, must compensate each other so as to conform to reality. The value of investments on the market varies with supply and demand, which in turn are influenced by speculative trends, with prices rising or falling. Prices rise when there is more money entering the market and they fall when money is taken out. For close to a decade free credit and tax cuts supplied the vast quantities of liquidities that pushed up the market price of equity. Corporations were borrowing or, for a few, repatriating their overseas profits to buy back their shares. Meanwhile institutional investors, public and private, were doing their share of buying, with the more adventurous leveraging as much as they possibly could. All these were joined by millions of internet investors playing the game with their savings, or more when they could. An ever growing amount of funny money was investing the market and lifting its various indexes to unprecedented heights. From November last year to the end of February records were being broken on average twice a week on the NYSE. Then that unsustainable progression began to slow down and, in so doing, instilled doubt. Future obscurity became a manifest certainty with COVID-19, and quite suddenly everyone wanted cash, instead of all that other paper stuff. The need and the urge to sell combined and, as sufficient cash was not forthcoming, prices dropped. Wall Street was wilting, so the Federal Reserve Bank of New York poured money into the system through the repo market. Share prices have been moving up and down with unusual amplitudes, but so far the downward motion has been the strongest. When shares are in trouble, Treasury bonds are habitually in strong demand. But T-bonds are actually so overpriced –double last summer’s value, from 2% interest to 1% and below – that they are also being sold off (1). The demand for cash and particularly US dollars means other currencies are getting a beating on the foreign exchange market, though they are locally also in strong demand. Cash is cash. Even though there is more of it than usual because of quantitative easing, liquidity only represents a small fraction of exchanges. This works because money is constantly changing hands in serial exchanges. When money is being horded for security or is disappearing down the debt hole as credit repayments, cash becomes scarce and prices plunge. The present situation has been regularly offset since 2008 by more and cheaper credit, but all debts finally come home to roost and insist on obtaining their due. Credit and debt have ups and downs, in cycles that vary according to their periodicity. This multitude of time scales rising and falling may cancel each other, or may move together either up or down. Revolving credit and renewing debts reduces the effects of a downturn by pushing the reckoning further into the future. But that supposes the future inspires confidence. When it does not, lending dries up and cash is demanded. And as cash is rare bankruptcies will spread like prairie fires, driven by the viral winds of COVID-19.

03/28/20
The Federal Reserve's cash bomb seems to have made the US dollar less atractive.

1. 13/05/20. This was an exaggeration due to miscomprehension. The price of bonds varies according to interest rates, and interest rates vary according to the price of bonds. But the relation is not direct. What remains the same is the price plus the interest still to be paid. 100 at 5% will pay 50 over ten years (= 150). Supposing that a year after emission, when there are still nine payments pending (= 145), interest rates drop to 2.5%. Then 145 = 9 x 2.5 + the new price (122.5).

Wednesday, March 11, 2020

Si vis pacem, para bellum


When power is seriously contested, it will invariably resort to violence. That predictable reaction should be taken into account by contestants. It should be a part of their strategy. Opposing reactionary violence with violence has seldom been successful, as power has vast reserves of it. On the other hand, sheer violence is not an efficient means of control. It may crush opposition, but it can only bring about a slave-like society of constant turmoil and general unrest, a price that power has often paid to maintain its dominion. Martial law has evolved into a police-state quite frequently. Reactionary violence has been countered by overwhelming numbers acting in unison. But such mass movements are difficult to sustain, and usually wear themselves out over time, as less and less people participate. Armed insurgents need wooded mountains or tropical forests to move about discretely and hide. They must also have the moral support of the inhabitants. They are usually the more radical members of the local community. These groups survive and may even progress if they have external support and cross-border safe havens. A few have sparked off nationwide rebellions and changed the power structures. Some have been exterminated in genocidal killings and some have lasted decades until a final negotiated conclusion. A possible obstruction to reactionary violence is the subversion of its instruments. This is not an easy task, as the military are brainwashed to obey orders and the police often seem to be a selection of schoolyard bullies, while both are imbued with the power of armed force and trained to kill. The uniformed community’s actions ultimately determine the outcome of opposition to power. They are the guardians of empire.

Frederick Engels wrote somewhere that “in a political struggle of class against class, organisation is the most important weapon” (1). That remark still holds, but militarism has developed considerably since then. Two recent examples highlight the importance of the armed forces in politics. Evo Morales was chased out of Bolivia by the army, whereas Nicolas Maduro, backed by the army, has held firm in Venezuela. But then Hugo Chavez was a soldier who knew how the military functioned and he may have read this article by Paul Sweezy for the Monthly Review in December 1973, after the overthrow and death of Salvador Allende in Chile.
Reactionary officers should have been retired, loyal ones promoted to key command positions; the pay, living conditions and democratic rights of enlisted men and non-commissioned officers should have been expanded and improved; political education should have been introduced into training programs; and perhaps most important, all contacts between the Chilean military and the United States should have been unconditionally severed. At the same time, the UP administration should have started organizing, arming, and training a popular militia with the purpose of entrusting to it more and more of the responsibilities hitherto borne by the army and the national police (carabineros). All of these measures taken together would lead more or less rapidly to the replacement of the old bourgeois military establishment by a new one under the control of the socialist forces. When this had been achieved, the process of transforming Chilean society from capitalism to socialism could begin in earnest.”
But what actually happened was that
The generals and admirals were handled with kid gloves, and efforts were made to give them increased economic and political responsibilities. When the MIR (Movement of the Revolutionary Left) tried to do political work among the rank-and-file soldiers, the government cracked down hard: Allende’s own nephew was sent to jail for such activity. U.S. aid to the military was allowed to continue at a time when Washington was choking off all credits both by American banks and by international lending agencies to the government itself. In the final months before the coup of September 11, 1973, the Allende administration allowed the congress to pass without veto an act giving the armed forces the right to search anywhere for arms, resulting in a veritable reign of terror against workers in their factories and homes. The military policy of the UP, in short, was not only to tolerate but to flatter and strengthen an enemy and fifth column of imperialism in its midst.”
The organisation of social change must recognise the primacy of defence and security forces. The upper echelons must adhere to the program, because their obstructive powers are huge and potentially destructive.

Karl Marx joked about Louis Bonaparte obtaining the army’s support with “cold poultry and garlic sausage” (2). It was not quite that simple then (1850), and even less so today. There is also a difference between an army involved in combat operations and one that is not. France, Russia, Saudi Arabia, Iran, NATO, the USA (+?) are engaged in foreign wars. Their troops are showing signs of severe battle fatigue, but their plethora of generals just want more of the same. Any attempt at social change will have to take that situation into account. A further difference is that which exists between a conscript army and a professional one. The conscript thinks of going back to civilian life, the professional thinks of a career. Officers have been careerists for a long time, going to special schools at a young age and to military academies, whereas troops were conscripted until quite recently, when the world’s major armies went professional. A career soldier’s future promotion depends largely on obedience, and he is unlikely to adopt social change if not ordered to. Unfortunately, the support of the military hierarchy seems to depend on ever increasing funding and sinecures in the armament industries. All of which contradicts even a very moderate social-reform regime. In the developed world, class struggle is hopelessly disorganised and is faced by the overbearing might of brute force. In fact, the prospects of a more equal and free society are pretty slim, though COVID-19 may be about to bring trade, industry and finance crashing down. A global quarantine, a collapse in demand, except for food being stockpiled by households, and a general state of emergency would deal out a completely new set of cards. Triumphant capitalism may be falling off a very high cliff, in which case it will be extremely difficult to put the pieces together again. The disruption will be as severe as the climate one, and could be far more sudden.

2. “The Society of December 10 was to remain the private army of Bonaparte until he succeeded in transforming the public army into a Society of December 10. Bonaparte made the first attempt at this shortly after the adjournment of the National Assembly, and precisely with the money just wrested from it. As a fatalist, he lives in the conviction that there are certain higher powers which man, and the soldier in particular, cannot withstand. Among these powers he counts, first and foremost, cigars and champagne, cold poultry and garlic sausage. Accordingly, to begin with, he treats officers and non-commissioned officers in his Elysée apartments to cold poultry and garlic sausage. On October 3 he repeats this maneuver with the mass of the troops at the St. Maur review, and on October 10 the same maneuver on a still larger scale at the Satory army parade. The uncle remembered the campaigns of Alexander in Asia, the nephew the triumphal marches of Bacchus in the same land. Alexander was a demigod, to be sure, but Bacchus was a god and moreover the tutelary deity of the Society of December 10.”