The world is aflame with the BLOWBACK from policies of the elites who carved a world fit to desired outcomes of a self-established ruling class. The free flow of capital in pursuit of cheap labor has led to the stagnant wages that have given rise to anti-establishment forces, which have upset the Davos crowd’s playbook. As long as capital pursues a maximization of return but is answerable to the Westphalian construct of the nation-state, there will continue to be bouts of conflict that result in less desirable outcomes for global corporations.
The world of short-term profits is the attraction for equity markets. But political leaders in search of power determine alternative outcomes and continue to have the greatest impact over the longer run. The bottom line is that there will be conflict between the returns on capital and the wishes of a populace armed with ballots and bullets. As the Rolling Stones sang:
I watched with gleeWhile your kings and queensFought for ten decadesFor the gods they made [Sympathy for the Devil]
This is not to say that I agree about Mario Draghi, Donald Trump, Vladimir Putin, Xi Jinping and Recep Tayyip Erdogan playing the role of Satan. The point is that they each have an enhanced ability to disrupt the desired outcomes for global capital.
At Davos in 2017, the corporate elites designated President Xi as the defender of the global, liberal order. The idea of Xi being the standard-bearer for global capital has certainly been relegated to the same bin as Fukuyama’s concept of the “End of History” thesis.
President Erdogan has plagued developed market participants as they struggle to comprehend the desires of the Turkish leader. Do the Turks wish to maintain a center piece of the Nato Alliance and thus a welcome addition to the post World War political economic order? Under the Erdogan’s policies it is an open question. The problem for western capitalism is that the Turks have piled up a mountain of debt to European banks resulting in Turkey being able to shake the financial foundations of Europe and thus the world.
The question facing the western alliance is what does Erdogan seek? His party is religious based and he may well have designs on re-establishing the Ottoman caliphate that represented the height of Islamic influence on global political affairs.
Another disruptor is President Putin, who certainly wishes to influence the global system by resurrecting the Russian sphere of influence that was decimated by the collapse of the Soviet Union. Currently, Putin’s main strength is his ability instigate and agitate and provide support to the disaffected from the global economic political order. But as the world challenges the SWIFT system of financial transfers and looks for alternatives to a DOLLAR standard, Moscow’s influence and its vast energy reserves will provide a potential alternative.
I stuck around St.PetersburgWhen I saw it was time for a changeKilled the czar and his ministersAnastasia screamed in vain.
President Trump has certainly been tarred as Lucifer for his designs on redrawing the global order. After his election, I noted that the key elements to a TRUMP presidency would be the desire to admit to the changes in the international order that have negatively impacted the U.S. The cost of maintaining Pax Americana has begun to outweigh the benefits, and thus other nations that had benefited from the post-war order would have to bear a greater burden.
Most importantly, Trump promised to give voice to the displaced workers and middle class that bore the greatest burden from the international capitalist order. Stagnant wages were the result of unencumbered flows of capital in search of a new proletarian army. The disenfranchised rust belt workers elevated Trump to a position of power in an effort to reinforce the reins of power to the nation-state at the expense of a borderless world.
Pleased to meet youHope you guessed my name,oh yeahBut what’s puzzling youIs the nature of my game….
So now it all comes down to a key component of the international capitalist order and the direct confrontation of regional power versus the Westphalian system. ECB President Draghi has bailed out the entire EU edifice by doing whatever it takes to preserve the euro. An Italian financial engineer has used the credit card of German voters to rescue French, Dutch, Italian, Spanish and German banks from a massive restructuring of ill-advised loans to European sovereign governments. The Davos crowd cheered the efforts of President Draghi as the European model was sustained and elevated to the paradigm of a potential derivative of the Pax Americana global order.
Over the weekend, Chemnitz, Germany became the site of ugly battles between the left and right as anti-immigration demonstrators rallied against Chancellor Merkel’s policies. The Financial Times and other media outlets have “diagnosed” the rise of the alt-right AfD party in Germany as being representative of xenophobic tendencies in the German electorate.
I regard the issue of immigration as being a sideshow and the initial rise of the AfD was due to the financial repression foisted upon the German populace by the designs of the ECB and Draghi policy of “whatever it takes” to save the euro. German inflation is 2% while the two-year Schatz is yielding NEGATIVE 60 BASIS POINTS, resulting in a short term yield of NEGATIVE 260 BASIS POINTS for German savers. Financial repression enacted by an unelected authority to bail out other nation-states creates the political environment for a direct challenge to the designs of global capitalism.
The demonstrations in Chemnitz draw attention to the problems facing the Merkel/Macron desire to craft a stronger political union based on shared responsibilities. This Labor Day sees the direct confrontation between unfettered global capital versus the residual power of the nation-state. How this plays out is the main theme as we head into the last four months of the year.
Tags: Davos, Draghi, Erdogan, global capital, Putin, Trump, U.S. Dollar, Xi
September 4, 2018 at 3:06 am |
Labor will lose big. Capital has tech on its side, and in particular, rapidly advancing AI-smart robots. Suggestions to tax them like people will simply competitively disadvantage those societies against others that don’t do so and instead increasingly embrace robotics, quantum computing and AI. Currently, Japan exports almost 40% of the world’s advanced robots, China uses 62% of the global supply, and Korea leads in terms of the robots per worker ratio (ie., most automated workforce). The US and Europe are also major players in advanced robots, so robots are the future everywhere.
Looky at this guy in Boston and imagine its capabilities doubling every year, it becoming a trillion times smarter than any human and infinitely more knowledgeable, while its cost drops by half annually.
https://www.cnet.com/videos/boston-dynamics-atlas-robot-can-run-not-just-backflip/
Happy labor day?.
September 4, 2018 at 3:06 am |
Yra- Nice presentation of the battle between globalization and (you fill in the nation state) FIRST.
But you cannot describe this conflict without mentioning what is happening to many EM currencies in the periphery that are in death spirals and how that will impact the battleground. Ultimately this will have a pandemic effect
Suggesting Russia as an alternative to the dollar standard because of their energy reserves is unlikely as their GDP is less than 10% of the U.S.
The real alternative will be the Yuan as its economy, military buildup and global aspirations is apparent, and as they are rapidly catching up to the patron of the reserve currency.
September 4, 2018 at 5:54 am |
Excellent analysis. Herbert Stein once said,” things will go on until they no longer can”. It is pretty clear to everyone that all the accumulated debt in the world will never be repaid. The moment of truth will come when the financial power players admit this and begin their run for the exits. What will life be like on the other side? Will society become resort to riots, war, or an orderly restructuring? What will be the new reserve currency. Do we even need a new world reserve currency or will barter, bitcoin, SDR’s or a new gold or oil backed unit become the standard? These are the questions, perhaps unanswerable, that need to be addressed.
September 4, 2018 at 7:50 am |
Yra, nice linking to the inspired writings of Keith Richards & Mick Jagger.
David — Not picking a beef with you, but if technology (robots, AI, or whatever form today) were to determine the outcome of labor, fire, the wheel, electricity, production lines, and countless other advances would already have made man extinct. What technology will do as it always has, is to force the ugliest part of man to rise to the top, fighting for their share of the spoils. Sympathy for the devil, indeed.
September 5, 2018 at 5:27 am |
Kevin, I’m not qualified to weigh in on the existential threat to humans of AI smart robots. But I believe they’ll boost both productivity and disruption in the workforce like major technological advance always has. Old jobs disappear but better new ones evolve, hopefully. However, the transition can be turbulent. This should affect everyone under the age of 60 or even more, as major life-extending, health-enhancing, anti-aging (even reverse-aging) technologies are around the corner. Expect to live healthily until at least 120+ yrs and perhaps many more eventually. So we’ll be working longer and retiring much later than currently expected, which means anything your financial planner is saying is both obsolete and dangerous – but no worries as you’ll replace him with an AI, haha.
September 4, 2018 at 10:12 am |
Rosin up your bow and play your fiddle hard…. The devil deals the cards.
September 4, 2018 at 5:14 pm |
Chicken–we are not fiddlin’ around here–so says Charlie D
September 4, 2018 at 10:27 pm
🙂
September 5, 2018 at 10:25 am |
Yra-
Wonderful allusion to one of the greatest rock parables, because as ever the Stones were playing the ‘dark side’ card to the max. And agree with much of the commentary from others that AI and the displacement of the working class that cannot keep up with the machines is the real culprit… not the similar workers in other countries that sometimes work for less than the relative equivalent value of their labor.
Yet none of the workers are keeping up because of benighted education policies that deprive them of a chance to integrate with the advanced services and (especially) manufacturing technology. It is interesting that the backlash is now also bubbling up in a Germany that has done a better job than almost anyone else in providing vocational training to ensure some portion of the workforce can indeed maintain a more reasonable life style.
That’s as opposed to the US and other developed economies where some time ago the elite’s egg-heads pointed out that statistically college graduates make more than others.. and pressed financially struggling school systems to abandon vocational training and put everyone on a college track regardless of their financial, psychological or academic ability to go that route.
This gets back to the basic problem with the Trump tariffs approach: he is trying to use them to make up for decades of misguided education policies. Of course, nobody in the elite will admit that this was THEIR massive failure as they move on to their next great idea:
Finally noting the success of the ‘German model’, they are pushing a return to vocational training for those not able to pursue the college track. Regardless of how many degrees they collectively hold, what a bunch of dummies!! While on style Trump stinks at times, the opposition has little standing to criticize his agenda.
September 12, 2018 at 7:28 pm |
Speaking of the Devil, I see the prestidigitatorial FED members were out in public congratulating themselves again today.