GLOBAL ECONO-FISCAL POLICIES: You don’t have to be mad to support the model, but it helps

madmaths26915Madmaths2

Slowly, patchily and incomprehensibly, Zirp (Z=Zero) has here and there become Nirp (N=Negative). Even ten years ago, such an idea might have made a stir as the subject of an extreme satirical critique of neoliberal monetarism. The idea of paying a bank or a sovereign to “look after” your money because there was nothing worth investing in is moronism not monetarism. But the idea becoming normalised and accepted while elsewhere investors in the stock markets were making huge returns….well, that zooms past moronic, and straight through the station marked ‘Insanity’ without stopping.

At the most basic level imaginable, it doesn’t add up

However, just when you thought you had this madness tagged and recorded, somebody reminds you that the stock markets themselves bear no relationship whatsoever to economic performance, because QE stimulation (using profits made on your money as a taxpayer) has been employed to buy back dumb things the banks bought while they were busy trading with each other – when they should’ve been lending money to finance stimulation of the capitalist economy. So the large multinational marketing companies no longer need financial stimulation from the banking sector because the stimulation is really a way of saving the bankers’ arses – and the happy side-effect of that is free money going straight to the bottom line of Big Business, which in turn means rising share values in the stock markets and thus lots of money for multinational shareholders.

Confused? Let me clarify…..

There are companies in the UK and US now – lots of them, as it happens – who haven’t created a single new product, forged a market share breakthrough or even kept their existing customer base static….because all they need to do is borrow money made directly cheap by Zirp, and indirectly cheap due to QE – and, despite risible sales performance – use investment to profit on ‘hot’ cheap money set against projected stock market inflation.

Put simply: once the whole scam gathers steam (ie, almost immediately) a quoted globalist company can borrow money at near to 0%, invest it conservatively on the world’s bourses – and then plonk it onto the bottom line at a near-zero cost of sales. Zirp provides the cheap loan, and QE delivers the profit on Zirp loans.

Next time you’re assessing your share portfolio, drill down into the detail and look at what percentage of the bottom line is listed as ‘investment income’. Then double it – because you can be near as damnit certain that jiggery accountancy pokery has been employed (often under ‘extraordinary items’ or ‘trading adjustments’) to hide one simple fact:

The company you’ve invested in is selling less, at lower and lower margins, but making more and more and more profit from not doing profitable business

Now in recent years, we’ve all become aware of the cliché “less is more”. But what I’m describing here is nothing to do with over-egging puddings: no, what I’m writing about is the idea that gigantic omelettes can feed the 5000, but use just one little egg. Whether you’re a literalist Christian Bible-basher or not, that is a preposterous idea.

And do you know what the silliest thing about all this is? Barack Obama, Janet Yellen, David Cameron, George Osborne, Mario Draghi and Shinzo Abe are all depicted by the mogul-owned media as fine, upstanding people trying their hardest to deal with a difficult situation…following which – God willing – things will return to normal….while they retire to write million quid-earning memoirs, and become national treasures. I, meanwhile, will be roundly condemned as a non-violent extremist out to do down all the finest virtues of western liberal democracy.

So let’s examine for a minute or two their shining contribution to a situation created almost entirely by their own peers.

President Obama said yes, he could join the élite (we couldn’t beat them) and that’s exactly what he did – appointing Tim Geithner to do a job that should’ve been done by Elizabeth Warren. He has knowingly presided – a Democrat in the White House – over an interregnum during which US labour lost 9% of its wage value, and wealth inequity in America worsened on every measurable dimension.

Janet Yellen promoted the ludicrous idea that – having dosed up the patient with crack cocaine for six years – just a few months recuperation would suffice for the former addict to climb the North Face of the Eiger.

David Cameron told us he had a long-term economic plan, and that it was working. But it didn’t seem to be lowering the National Debt, or creating contracted jobs, or raising the hours worked/hourly rates of those jobs.

George Osborne simply lied about everything – his ability to cut the UK trade deficit, Britain’s ability to repay longstanding debt, the impact of politically-postured austerity on the economy, the evidence of UK ‘recovery’, and the dysfunctional imbalance of the British economy in favour of financial services. To hide his incompetence, Osborne changed all the measurement criteria and launched a government subsidised property-purchase scheme designed to make the younger voter feel rich.

Mario Draghi broke every law and rule in the book: he subordinated shareholders in Greek bonds, illegally bullied Cypriot banks, used underhand menaces to destroy Greece’s democratic processes, and launched a legally dubious QE process in the eurozone….despite the obvious economic failure of the previous 13 attempts around the world.

Shinzo Abe is an anti-freedom fanatic whose policies have led to the Japanese economy now consisting of just 40% genuine activity – and 60% QE. Can you imagine how completely barmy that is going to seem to our adult grandchildren?

Such grandchildren are going to ask those younger than me (I’ll be dead) what smug, middle America/England grandpa did while the lunatics were dynamiting the asylum. I’m not sure most of them have thought about a suitable answer as yet. But thinking time is running out.

Recently at The Slog: Moody Blues for France…but not for Warren Buffet

46 thoughts on “GLOBAL ECONO-FISCAL POLICIES: You don’t have to be mad to support the model, but it helps

  1. Another excellent analysis of the current situation.
    I wish I had an answer as what to do to protect my Grandchildren from the coming crash. I’m glad they are enjoying life now and I hope that they will be adaptable with things change.

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  2. i don’t see the conflict & the resulting re-set is any way out. who will do the re-setting? They are trashing it to take total financial control of your wealth.

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  3. Dear John: I enjoy your blog, and thank you for it. Today’s piece has provoked the following product of my idle pondering:

    Fundamental to your arguments is the notion that a person who has accumulated capital ( the “lender” or “depositor”) is entitled to rent (“interest”) on his/her money if it is lent out or if it is deposited in a bank. ZIRP and NIRP are contrary to this notion, but viewing this philosophically, there must be an economic universe in which persons with accumulated wealth are not seen as entitled to rent on moneys lent or deposited. In such universe, a wealthy person could profit by investing in profit-making enterprises by taking equity positions, but not by investing in debt (corporate bonds, T-bills, or certificate of deposit, for example). It follows that credit expansion/debt creation would be stifled – transactions would be more likely to occur by cash on the barrel-head. Debt levels would be likely to be low, with people, businesses, and governments living within their means. Deficit budgeting would be stifled. Currency would tend to retain its value in the absence of monetary expansion.
    The scam in ZIRP and NIRP is that they are practiced along with fiat currency expansion, encouraging credit expansion and debt creation, and debasing currencies.
    Banksters and their cronies avoid the negative consequences of ZIRP and NIRP by rampant money creation, channeling the fiat into their own pockets and into assets which they accumulate. Governments can continue to run up debts by borrowing directly from the money printers or by issuing low-yielding bonds which investors will lap up in a search for return. Carry trade speculative “investment” is encouraged by ZIRP and NIRP. The small investor who puts his/her money in the bank or lends it out on straightforward security like a mortgage will get little or no return. But arguably the only abuse would arise from the rampant money-printing, not the low return on credit.
    The point is that ZIRP and NIRP violate the fundamental tenet of capitalism that entitles a saver to rent on monies lent or deposited. But rampant fiat creation, and the enabling of abusive carry trade speculation, also violate fundamental tenets of capitalism.

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  4. In the meantime Vladimir Putin has had enough of the faffing about and has drawn his line in the sand in Syria. He is aware that if ISIS overthrow Bashir Assad’s Govt , the next target of this Washington proxy army is the soft underbelly of Russia, the ‘Stans. Turkmenistan ,Krygistan,Uzbekistan,Azerbijan, These countries are majority Muslim and ripe for Wahhabi extremist agitation, directed by the USA and financed by Saudi Arabia.
    I give ISIS 3months before their ragged arses are run out of Syria. The remains will flee to Iraq to be the USA’s headache.
    The bait of Russia being distracted and drawn into a long slogging match in Ukraine has been rebuffed and the military stalemate suits Russia.
    The Great Game has not changed .
    Control of the trade routes and resources of the Central Asian belt, is ultimately the geopolitical target of the USA Empire of Chaos. Syria will be their Waterloo.

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  5. The problem is that we just haven’t had enough children or grandchildren. The economic problem just reflects a demographic one. Brits or Europeans – we are an old continent. Real wages declining for 40 years, second wage needed to pay the mortgage so women go out to work, and the care of young & old which used to be family responsibilities are devolved to the state. Leaving the family an empty shell.
    I am not optimistic about any of this. But my response is to take on other people’s children, in their teens & twenties and set them to work around the yard doing simple horticultural tasks. Lots of labouring – quite welcome to those just escaped school or university. Plenty of opportunity for us to talk around the table, and for me to learn that they are not optimistic either. But – plant beans, plant potatoes, trees, hide ourselves in work – it’s not sophisticated, but I don’t know what else to do

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  6. Place sufficient food- producing land in a trust for them. A pluvial location will be helpful. Trees will be great.
    So that is food water and shelter.

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  7. The economic problem is very much a reflection of an entitlement or expectation problem, rather than demographic issues.
    How many people should work and be taxed to support the system?
    That seems to be the wrong way around.

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  8. Wow sloggers do seem to see the bigger picture. Al Tinfoil. Salford Lad +10 and Dean, you are at least doing something practical with effects in the real physical world. Why are sloggers in the minority? Most folk can use common sense. This posting also goes to batman11 and Gemma who have also nailed it in recent posts and of course our glorious host and leader.
    I also have grandchildren and am deeply uneasy about the future. My grandfather, father and mother were dragged through a depression and into horrendous conflicts. Those in the first conflict were also aware of the second one coming but seemed powerless to prevent it.

    Libiya, Ukraine, Georgia, Lebanon, Syria – massive migration crisis. Almost as if it was planned?

    As John always says, follow the money.

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  9. @ Al Tinfoil

    By design of the mechanics of a fiat currency does ZIRP and NIRP or even QE actually become possible.
    The multi headed beast of ZIRP, NIRP and QE on a body of pure fiat.

    If it was silver coinage, skimming comes about and the equivalent is NIRP, you take a little bit each time you hold it – OUTLAWED!

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  10. Heard an interesting comment with all the rumours on NIRP gathering pace and potentially how we should treat central banker actions as criminality.

    If you apply NIRP and remove cash the consumer is trapped into a mechanism where banking really has no consumer choice anymore, forced to deal with thieves and made to pay for it at the same time.

    Then how will the minimum wage work if you are forced into the banking system and made to pay a fee taking you below any minimum wage threshhold!

    Is the tax office going to reimburse you all fees in full as the banking fee becomes a living expense for all people.

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  11. I do believe the ability to create the money supply should be removed from private banks. Also social credit – ctizens wage- should be considered but all of this will fall unless some system of LVT (georgism) is implemented. Otherwize any gain in income for the lower paid will vanish into rents. Something like the Bradbury Pound or Worgal Schilling should be promoted, because the real root of all our problems is Usury plain and simple. It took me along time to arrive at this but at last I see the wisdom of the ancients. Usury is death!

    Your NVT Wald

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  12. We do discuss the inadequacies of our so called ‘leaders’ until the cows come home. Yes, just tell me about one good one – the Hungarian leader.
    obama, cameron, merkel, to mention a few. They are lacking in experience, abundant in broken promises and bare faced lies, and leading our populations into a downward spiral – whilst putin grabs the headlines with some assertiveness that makes everyone tremble with fear.
    Let them do what they wish, they don’t take any notice of our letters or votes. Let them continue to ruin the world we live in, but ……. don’t feed the many headed thieving monster by paying tax
    They promise socialism, so let them pay us for their stupidity. Hands out for more benefits….they don’t like the world to see pictures of the poverty they created.

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  13. I’m going to tell the grandkids their grandfather was stocking his bunker with gold silver and single malt scotch. If they’re good I will pour a dram or two for them and send them on their way with a bag full of silver rounds and gold Canadian loonies.

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  14. and now putin would like to meet obama for talks in new york this week. Great – this may be a good opportunity to settle some outstanding business amicably. There is a lot of tension in the air.
    So now little lazy boy cameron comes running up and telling the world he will be there in new york, and what he thinks should happen to assad. Where has the little pompous twerp been for the last 5 years? What has he done about it? He just doesn’t want to miss the party.

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  15. John ‘thought for some time we have been living in a multi color khazi …
    courtesy of modern laser image techniques … all it needs is a power cut!
    then what?
    dofornow

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  16. Farmer Braun, you are right about taxes, but think of it this way: how many CORPORATIONS should be taxed to suppor the people who worked for them and the country they are established in?

    Germany has a fiscal surplus because it taxes its corporations; the corporations want an American system because it means they aren’t taxed… (and look where that’s getting us).

    This thinking comes to you thanks to my lack of medication. Corporations like medicated people, they do as they’re told.

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  17. Slightly off topic – but this has to do with fiscal and economic policies at their sharp end, that is to say, where they meet the consumer.

    In the most recent article on the VW crisis, it has been revealed that…

    Dramatic new evidence of how the motoring industry conspired with ministers to cover up cheating in diesel car testing can be revealed.

    A team of British scientists repeatedly warned the Government that emissions of a deadly pollutant from diesel cars far exceeded official safety levels. The scientists measured emissions from tens of thousands of diesel engine cars as they drove past sensors on roads in tests carried out since 2011.

    This is about all diesel vehicles, not just VW diesels!. Where have the government been burying their policies this time?

    The evidence has been there for years. Why has nobody acted? Why has the US government singled out one corporation in particular? Then ask yourself Cicero’s famous question: “Qui Bono?” (‘who gains from this?’)

    As I stated from the very start of the US witch hunt, why only VW??? More to the point, WHY NOW?? Answer both those questions and you have a very different picture of what the US is up to on this occasion.

    I know, I’ve been inhaling too many medications, nitrous oxide anyone? (Nitrous oxide is laughing gas, by the way). It’s about the only NOx diesels don’t emit…

    http://www.telegraph.co.uk/news/uknews/road-and-rail-transport/11893851/VW-scandal-Cover-up-of-British-tests-that-showed-diesel-fume-cheating.html

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  18. Tell me, Salford Lad, why is it that the US must go around beating other people up, rather than dealing with their own internal economic problems???

    Why is it that when the US is so powerful, it can’t deal with relatively small domestic problems of its own? It has been so long now that these once small issues are now mounting up to some size. It seems a little like their approach to VW: let the car industry (yes, all of it) are getting away with it for a few years and then you have each their heads in a noose ready to be hanged at your choice.

    The problem is that the US government now has its head in a noose too… and someone is just biding their time, wringing their hands with glee as they wait to release the drophatch.

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  19. @ Iain

    I’m not sure that it’s really a plan, but simply signs of desperation as ‘they’ have backed themselves into a particularly nasty corner. And a cashless society simply won’t work – think car boot sales, amongst many other types of transactions. I’m not sure that this whole NIRP thing hasn’t been flown as a kite to distract from something much worse, as yet unknown. But perhaps the last 7 years has just made me cynical.

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  20. “It resembles a giant cocktail shaker, costs next to nothing to make, is easy to fit and could stop us getting some forms of cancer. Yet nobody, it seems, wants to know.” http://www.independent.co.uk/news/uk/inventors-clean-air-exhaust-rejected-1500439.html It’s not what you know it’s who you know.
    More money as debt could save the day, only build from the bottom up. Create [Gov Bank] accounts for all citizens on a bitcoin or even a credit card protocol. Let people borrow/create money at 1% at a subsistence plus rate, all transactions charged at 2%, with a commercial entity + 10% [which they can claim off their tax bill if they have one] a 5% charge for converting to cash/ other currency, and any earnings taxed at 25% until debt is cleared, the same with any balance left in account at month end. Plus if people are already in debt and not in default let them borrow ,on this account, up to the average debt level to clear those debts, that’ll save the banks. No benefits no restrictions on work, plus occasional equal jubilees. No loaded big gov contracts, no state subsidies, just a level playing field til things get sorted.

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  21. why vw? as willie sutton said whenasked why he kept robbing banks: coz that is where de money is! it is so obvious when a ynumped up furrincompany treads over the line- slap emwhere it hurts and make sure one of the good ole us cosget thebiz.think bp, hsbc, bnp paribas etc. ratherthan gm citiwank goldman etc. btw gm killed 150 people with faulty ignitio zwitcbez and were fined a measly $ 900 million. they outspend vw 50 to 1 on lobbying a d pol contributions. perfe t crony capitalism. bring it down.

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  22. “buy back dumb things the banks bought while they were busy trading with each other”

    Where is your evidence to back the above statement up as relates to the UK? Or
    As I understand the UK situation QE was simple an asset swap. Where Govt bonds were swapped for bank credit / BoE reserves at fair market values. Now maybe the BoE overpaid for the bonds but where is the evidence, any evidence at all to back this claim up. Or did they buy other assets at more than fair market value. I have seen a claim that the Swiss CB did this by buying apple shares at market value but at a high price

    I await with interest because I have seen this claim before but no evidence to back it up

    “Britain’s ability to repay longstanding debt,”

    Osborne lies knowing that repaying debt would destroy the UK economy. It’s a game to satisfy the economically ignorant that equates a household to a monetary sovereign Govt. All politicians do it as they have no choice. It reflects on us as honest politicians would not be elected.

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  23. ?@ Gemma

    “Germany has a fiscal surplus because it taxes its corporations;”

    Where is your evidence to back this up. (Or did you assume this was the reason for the surplus?) . My understanding is that EU corporations can move profits / revenue / expenses around as they see fit as part of the EU laws / regulations. So I doubt if German companies would pay more tax (compared to UK Corporations) than need be just because they are in Germany. In fact its bordering on gross incompetence if they did.

    NB Govt’s can run surpluses without destroying the economy if and only if

    1 Savings reduce and / or
    2 The country achieves a large enough current account surplus and /or
    3 Non Govt debt increases

    Otherwise a depression is almost certain.

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  24. “How long before cash is outlawed and electronic transfers are required for all purchases”

    I doubt if this will ever happen. If it does banks will have a record of everyone’s spending, including the elite’s and politicians. Its too scary for them more so than us.

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  25. @gemma
    Think beau-Joe!..then taxis’…then missing plant life.
    If my memory serves correctly .. some of the sensors were mounted higher than a childes head!
    most pollutant dissipated any higher
    dofornow

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  26. @ Gemma
    In the words of Woodrow Wilson US President and the complicit expediter of the FED IN 1913.The business of AMERICA is business.
    The USA Financial and Industrial Corporations seek profits world wide, The US military is their thug enforcer.
    i refer you to Zbigniew Brezinskis’ The Grand Chessboard, where their strategy is laid out for all to see.
    The Wolfowitz Doctrine is another open declaration for the suppression of Russia and China.
    The Monroe Doctrine for the suppession of Latin America.
    All this information is in the public domain for those who choose to inform themselves.

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  27. Gemma. The UK government in particular needs to turn a blind eye on any adverse side effects of diesel use because behind all the blather about greenest ever and climate change guff they rely on fossil fuel as our only energy back-up now coal fired power stations are being mothballed. Check out STOR. Its ironic too that Japan are fronting asian projects for clean coal (if there is such a thing) on the basis its better to have a technogically advanced country in control of energy provision than a relatively novice nation which could be worse for the environment. Its all govern-orate propaganda!

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  28. Now it was Calvin Cooliedge (1923-28) who said the business of America is business. He was, of course, followed by Herbert Hoover in March 1929 and we know what happened that year.

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  29. RJ Wisdom

    “Germany has a fiscal surplus because it taxes its corporations;”

    If a business is registered in Germany, the fiscal regulations require it to submit full accounts and pay taxes on them. “Corporations domiciled or managed in Germany are deemed to have full corporation tax liability. This means that their domestic and foreign earnings are all taxable in Germany.” (Taxation_in_Germany, Wikipedia) For further information on this, please refer to the website of the German finance ministry: http://www.bundesfinanzministerium.de/Web/DE/Home/home.html

    However, as an example of how to avoid paying taxes in Germany, Starbucks is headquartered in the Netherlands (Registered in the Kamer van Koophandel Amsterdam under number 51295245) – and all German Starbucks businesses have to pay a fixed sum to the Dutch headquarters as a licence fee. This fee is so substantial that the German businesses pay very little German tax. A German company, registered in Germany couldn’t get away with this because they don’t pay fees of this kind…

    Starbucks then launders its profits through the Antilles.

    In short, there are ways to get around the German tax authorities, but it takes some “creative thinking”.

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  30. Could I have a translation from the Philippino? ;-) As it stands, it doesn’t make a great deal of sense to me. But I’ve not been on medications, so it might be that I can actually read and think at the same time.

    As I say, if you could kindly give it another go, I’d be obliged. Thankyou.

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  31. RJ Wisdom

    that’s the absolute beauty of the EU for the multinational! It is not the same for every country. It means the multinational can employ a few bent lawyers and discover which country has the most advantageous tax laws…

    After all, if Germany’s regulations weren’t so watertight, why would Starbucks go to the lengths of tax avoidance in the way they did?

    They’d not have to bother themselves with that kind of effort in the UK, where the government is run by the multinationals and the banks for their convenience. It saves them a lot of money.

    When you realize the difference in the way multinationals are taxed in Europe, you may come to realize why Germany is villified in the media (and elsewhere). The average Anglo-Saxon hasn’t a clue about Germany, and so believes the media (!!) It’s all about not having to pay taxes.

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