My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Quote of the Week: “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” – Steve Jobs
This week we open with Chapter 11 – Macroeconomics 101 and I apologise in advance to all my readers who might find this subject tedious to say the least. The point is to make it clear in which school of thought I stand because, for me, Austrian Economics has the answers to the continual boom/bust economies since the last war. So if you wish to avoid the next few weeks I won’t blame you!
‘Austrians’ claim that small government and sound money provides an antidote to the debt-based, centralised economies of our western model which rules the world today. Of course we also predict that it has to come crashing down sometime although it is amazing that it has survived this long. At the heart of the matter is ‘energy’ and Chris Martenson has a great article describing how all this may pan out: https://www.peakprosperity.com/these-are-the-good-old-days/
Here is the link to last week: Issue 54
Now that Brexit will not be coming to a conclusion for months yet after three years, I will continue to provide weekly updates as events progress:
Brexit Update – 7th June 2019
The Brexit deadline remains 31st October 2019 and stays in place unless the next PM can get Parliament to agree a new exit plan.
“People like David Cameron and Theresa May deserve their fates. The Eurocrats in parliament like the odious Dominic Grieve will continue to prattle on about how they just know what’s best for Britain, how a united Europe is their future. But it isn’t. A now not-so-silent majority of Europeans have come to realize that the EU they were sold is not the EU they have. In fact it is the ultimate in anti-democratic institutions designed as nothing more than to be a permanent, unelected superstructure to ensure the power of those who erected it.
“And people like Cameron, May, Grieve, Olly Robbins and Tony Blair are simply the middle managers of this corporatist nightmare, having been paid handsomely to betray every oath in service of a dream for them and a nightmare for everyone else. Nigel Farage will go from his win [last] weekend in the European Parliamentary elections to the next step in his quest to remake Europe, the inevitable general election.”
https://tomluongo.me/2019/05/24/nigel-farage-takes-down-another-tory-government-bye-bye-theresa-may/
One of the next key issues will be whether a 2nd referendum is called. The Remainers and our elite UK Establishment are already manoeuvring to make sure UK stays in the EU. Their strategy is following a well-trodden path in much the same way that they got us into the EU in the first place. This article sums it up very well and this extract holds the key:
“This whole situation shows us a little snapshot of how the establishment will guarantee that [Brexit] does not happen: They will split the vote. The argument being made for the graphs splitting the vote into Brexit/Remain/Tories + Labour is that it separates the Hard Brexit parties from the Soft Brexit parties. The No Deals, from the Deals. THAT is the template for next ballot. A three-prong choice – Remain, No Deal Brexit and Deal Brexit.
With this construction of the choice, Remain only needs to win 33% of the vote to win, and – just like this week – somehow parlay an actual minority into a victory. This has been the point of the People’s Vote campaign since the beginning.”
https://off-guardian.org/2019/05/28/no-remain-did-not-win-the-european-elections/
Details of Parliament’s deliberations can be found here:
CHAPTER 11
MACROECONOMICS 101
“I think the person who takes a job in order to live – that is to say, for the money – has turned himself into a slave”. – Joseph Campbell
“Gold and silver are not by nature money, but money is by nature gold and silver.” – Karl Marx
“When people find they can vote themselves money; that will herald the end of the republic” – Benjamin Franklin
This chapter is intended to bring together all the pieces of our jigsaw so far and thus provide an integrated picture of the global, pseudo–capitalist, financial, economic and political worlds. Each individual will of course have drawn their own unique picture in their mind, agreeing or disagreeing with the various propositions which have been explored.
Part 2 of this book tells about how each of us may manage our own individual economic and financial affairs, within the boundaries and constraints set by the current backdrop of national economies, and in a deflating and near-zero growth world we witness in the second decade of the 21st century.
Politics and politicians of course contribute a major part of the workings of economies and yet, as we have learned, it is the unelected bankers and major corporations who actually control and manage global affairs.
Macroeconomics (from the Greek prefix ‘makro’ meaning “large” and “economics”) is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole. This includes national, regional, and global economies.
Before we enter into a discussion about the basics of our economic system it may help to understand the nature of our apparent capitalism by considering yet another ‘thought experiment.’
What follows is more of a fable than a thought experiment but it requires the reader to visualise a natural, self-sustaining economic system, in this case an anthill, which I trust will set the stage and context of how, in principle, a communist economy might progress towards a capitalist economy and exhibit the seeds of its own destruction, the reverse of which was postulated by Karl Marx when he said that capitalism progresses towards communism..
The Fable of an Anthill
Once upon a time there was an anthill and anthills, dear reader, have been around forever because they are natural, self-sustaining and complex adaptive systems. This is so because, although individual ants are ‘brainless’ and do not have the capacity to ‘think’, it is their lack of thinking which allows them to “do what ants do” and because they work selflessly for their community (the anthill) and co-operate with each other, they sustain themselves; this is called the Nature of Love or the Love of Nature.
The anthill acts as one super-organism (a society) and has the five main attributes of the biological tests for a living organism which are:
Living things have to fit a range of criteria:
- Growth – living things grow
- Movement – living things move around (note that growth also counts as movement) and respond to environmental changes (feedback) – living things behave differently in different environments
- Reproduction – living things can make more of themselves
- Input – living things take in energy from somewhere
- Output – living things excrete waste materials
Ants find food by using a positive feedback system. They lay a pheromone trail (a chemical substance secreted externally by some animals, especially insects) that influences the physiology or behaviour of other animals of the same species, wherever they go, searching randomly for food.
When an ant finds useful food it is genetically programmed to follow its own pheromone trail back to the anthill carrying the food and thus the trail which is now twice as pungent as those of ants which have not found food. Other ants recognise and follow this stronger trail directly to the food source, laying even more pheromones, and attracting even more ants. Thus the anthill obtains its energy to the benefit of all in the community. They are co-operating. This is a communist style system – a ‘gift economy’.
Let us now assume that one day a very special ant is born…with a brain, and free will. Ant can now make his own choices but the ant continues to follow his normal instinct within the community by searching for food. One day he finds a large supply of food and makes a world-changing decision:
“I will keep this pile of food a secret from the others; I shall put up a stall with a sign that says ‘FOOD FOR ALL – YOUR SEARCHING IS OVER!’ (This is a capitalist ant; the process is called Marketing and Advertising)”.
When the other ants eventually meet this entrepreneurial ant they are delighted to hear that their searching is over and they will be able to take a break from their incessant work. They ask the capitalist ant: “What should we give you for some food?” “Energy”, replies the ant. “You must return to your anthill and collect some energy and bring it to me, I will then exchange some food with you”. This is called trading which translates into: you do this for me, and I will do this for you in return, as opposed to love: which implies: I give you this, asking nothing in return. Therefore the ant is not acting out of love, but for Profit or Gain.
The other ants thought this was a wonderful idea and, going against their natural instinct, they returned to the anthill, telling all they met how ‘Ant the Great’ had found a new system for finding food (a capitalist system).
Great numbers of their population made their way to the ant’s stall, carrying their little piece of energy and returning with food which they quickly consumed; the ants are now customers or consumers and this is called, consumption, upon which the continuation of the new system depends.
After many months the inevitable happened. The anthill was gradually drained of all its energy, there being no renewal system, whilst the capitalist ant became richer and richer, storing all his energy, but not knowing why and what to do with it; he just stored it. This is called ownership or property and his store is called wealth. This behaviour, dear reader, is fuelled by greed and driven by fear just as are the world markets today and especially the billionaires.
Eventually the ant becomes very concerned, he worries (he was full of fear) that, as the anthill begins to collapse, the ants will revolt and attack him and steal his wealth because they had become so used to their new way of life and liked the idea of not having to do work and search for food. (This is called: dependence on the centralised, welfare state).
But, as ant is a thinker and able to strategize, he used some of his energy to build walls and stockades, recruiting other ants to help research and develop weapons of defence in order to protect his property.
Finally, the anthill died when all the energy became exhausted, leaving a dusty mound of rubbish behind together with all the consumer ants; now being totally helpless for they had long forgotten how to forage for food.
The capitalist ant had taken all the energy from their community and in so doing not only destroyed his fellow ants but now he had no customers. The economist ants, who had been supporting the new system all along and encouraging the community to consume more and more, claimed that aggregate demand had failed, but that it wasn’t the fault of the new system. They said that an economic depression had occurred, causing mass unemployment and that the population had failed to work hard enough to sustain their community.
Going back to the ‘real’ world, we can see this scenario working its way through our societies today as the ‘banksters’ and their corporate toadies continue to accumulate vast sums of wealth in the form of property, agriculture, transportation, industrial plants and oil – the very energy upon which we all rely. It is grotesque to know that some 2,000 individual ‘oligarchs’ own approximately 40% of global wealth as reported in 2015!
The world is entering a new phase of ‘no-growth’ rather than the continual growth we have been used to since the industrial revolution some 200 years ago. There is a new economic paradigm afoot which will require all of us to adjust our consumption habits so as to consume less and be more efficient as time goes on.
Our children will know a very different world which we will explore in Chapter 13. In the meantime we will continue our assessment of the current macroeconomic world of today. In the broadest sense, there are three main categories of systems in the world.
To be continued next Saturday
The 2,000 fire ants got rich printing money and destroying the culture and economy of all the others. I’m interested in the near future when the fiat money deflates to nothing.
I too join you in your thoughts Robert. My view is that the IMF backed by the BIS and World Bank will come to the ‘rescue’ next time with the SDR as a global currency for international trade to keep the wheels of industry moving.
The nations will be left with their own internal currencies – scraps of paper really which won’t carry any value or depository of wealth. I think people will revert to hard assets like land, gold and silver as true wealth while the fiats destroy themselves and domestic central banking falls into disuse. On the otherhand perhaps cryptos will rise to the occasion – I don’t think anyone can guess what will really happen at the crunch.
Believe it or not, Austrian Peter, I do intend to read your book at some point. I started long ago when you started but illness invaded my home.
I read your stuff and thing you have solid advice. I just got real busy getting well.
Then, when better… I got really busy.
So glad MG to hear that you are up and running again and enjoying the read. Thank you very much for your kind words. Best wishes.