In response to an FT article by Martin Wolf on 5th July 2016, entitled ‘How Europe should respond to Brexit’
“But making the Eurozone prosperous is indispensable. Brexit is a nuisance. The priority is a practical plan for widely shared economic growth”
You are absolutely correct that prosperity is indispensable Mr Wolf - empty bellies do indeed make for angry heads. But I believe you do not cast your net wide enough to diagnose the core issue. The problems we face are symptomatic of a corrupt monetary/financial system, and a backlash against that system, that is global not European; universal not localised. We see the symptoms across continents:
Brexit…Trump…Sanders…Independence movements…referenda…left wing populism…right wing populism…
The political upheavals we are experiencing have been a long time coming, but are nonetheless predictable. What is happening in the world is not best understood or explained by becoming consumed with the individual events that are unfolding – as natural as that reaction may be.
There are no co-incidences here. We are witnessing phase two of a slow motion collapse of the Bretton Woods system – the economic and political framework agreed by the western allies in New Hampshire in 1944. Phase one came to a head in the late sixties with the massive expenditures of Vietnam and LBJ’s ‘Big Society’ – AKA ‘guns and butter’. It reached its finale in 1971, when President Nixon severed the dollar’s remaining connection to gold to prevent the US from losing the rest of its reserves. This event heralded the establishment of free floating currencies – I.E. we entered a totally fiat world where debt is money, where governments could spend as much as the bond markets would buy from them, with no requirement to measure or to account against a hard asset.
Over the next thirty-seven years we witnessed, slowly at first, the gradual 'financialization' of the economy and the ‘casinoization’ of the banking system, which accelerated during the so-called ‘liberalisation’ of the 1990s under President Clinton (‘Liberalisation’ is a euphemism for Wall Street strip mining). This was aided and abetted by the ‘easy money’ policies of Chairman Greenspan at the Fed.
In 2008, that world effectively collapsed and came to an end when the sub-prime Ponzi scheme finally ran out of ‘greater fools’. The immediate aftermath involved governments, central banks and the primary dealers rallying round to prop each other up – for the ‘benefit’ of the taxpayer of course. Eight years later and the house of cards hasn’t changed - except that now it is much bigger. Too big to fail turned out to be too big to jail, and meanwhile the people who presided over the system that brought the world to its knees are still there…all doing very nicely thank you very much. Some of them are writing books and cashing in on their previous activities, one or two of the bankers have appointed themselves Chairman as well as CEO, some of them have gone rather quiet, some of them have always been quiet - preferring to pull strings from behind the curtain -coming to public attention only when their names appear on the list of Bilderberg attendees. Still others are trying to distance themselves from what they had a hand in creating, and finally…the aforementioned ‘maestro’, Alan Greenspan, has gone full circle and, without a hint of contrition or irony, is now advocating a return to the gold standard. None of them have the slightest possibility of being personally inconvenienced by the massive transfer of wealth that they’ve enabled - the GDP and employment figures that their lackeys pore over do not apply to them – those are for the plebs.
The gap between the rich and the poor is wider than ever - exacerbated by QE, ZIRP, and now NIRP – programmes which have benefited the asset rich, the insiders who know how to front-run the game, and the corporate executives who are incentivised to trash their balance sheets for short term gain.
Meanwhile, the debt has continued to pile up, real incomes have continued to decline, and 8 years into a so-called ‘recovery’ people are more upset than they were after the initial shock of Lehman had worn off. Does that sound like a recovery to you? It is no such thing. It is a chimera, and what is happening now is that a critical mass of people are finally waking up to the realisation that nothing has changed. The deck is still rigged…and the same guy is dealing the cards. The masses are finally starting to pay attention, and are getting increasingly upset. Go figure.
A look at what the past forty-five years have done to the relationship between the ‘have lots’ and the ‘have nots’, will give you a far better idea of what is coming to a head in the world than any collection of manicured GDP figures or employment statistics. In 1977 the share of US household wealth held by the richest 0.1% bottomed at 7%. By 1988 it had climbed to 10%. In the same year of 1988 the share held by the poorest 90% peaked at 36% - so that’s 10% plays 36%. In the space of 25 years, by 2013, those percentages were 22% and 23% respectively. If that were an election, it would be quite a swing. It may not be an election, but it is certainly a verdict. A verdict on a system that is designed and run by the elites, for the elites – not quite what the US framers had in mind.
Nobody should be surprised that the result of this trend is a backlash against the status quo. Moreover, any professional commentator seeking to blame the global economy on Brexit or Donald Trump, or to explain away the upheavals we are experiencing with convenient ‘isms’, is either not paying attention, lacks the capacity to think holistically, or is selling something.
We have arrived at the apex of the outgoing cycle- peak debt and peak corruption. The governmental, banking, corporate and media elites, can whistle past the graveyard until their cheeks get cramp and their lips turn blue – it won’t make that go away. The trend has turned; the collapse of trust in the status quo has reached a tipping point. No amount of denial, demonization of the ‘plebs’, or moralistic whinging will change that. Neither will the re-distribution of a few crumbs ‘paid for’ with more debt.
Fundamental change is coming – it’s already started. It will be painful, and as is always the case, particularly so for the people who least deserve it. Maybe there is still time for the establishment to put their house in order, but I doubt it. One way or another the debt will be cleared, the monetary system will be reset, and the corrupt system of cronyism that has fed off it will be exposed for what it is – parasitic.