Thursday, December 11, 2014

A Tale of Two Countries

Suppose there is a world consisting of only two countries, one rich and powerful and the other relatively poor and not very powerful, but with many natural resources. The powerful country has been calling the shots for some time due to its power and wealth. All trading has been done in the currency of the powerful country, but most of the consumer goods produced are made in the poor country where they can be produced much more cheaply. The rich country also has a sizeable gold hoard which used to back its currency, but not longer does. The poor country has accumulated a lot of the currency of the rich country, which it has used to buy bonds issued by the rich country in their currency. Along with the consumer goods purchased from the poor country is a sizeable quantity of natural resources needed to support the lifestyles of the people in the rich country.

Things seem to be working out okay, the poor country is prospering from the trade and the interest on the bonds and slowly getting richer, while the rich country enjoys the cheap goods manufactured by the poor county and its natural resources power the lavish lifestyle in the rich country. But, then the bottom drops out of the interest on the rich country’s bonds. So the poor country decides to take the payments for its resources and goods in gold rather than currency, gold being a very thin market, but nevertheless required for some critical manufacturing processes and is highly sought after by affluent people in the rich country for jewelry and art objects. All of a sudden gold becomes the medium of exchange (indirectly, see how below) rather than the currency of the rich country. The demand for the rich country’s currency tanks relative to the demand for gold. Over time the gold hoard in the rich country diminishes and piles up in the poor country. So how does this scenario end? Is war the only alternative for the rich country? Maybe the rich country only slaps sanctions on the poor country. Or do the countries stop trading with each other and become isolated? Or do they develop a mutual respect for each other and work something out?

Now consider that the rich country is the West and the poor country is the BRICS, led by Russia and China. So how could this happen? The US will only pay for what it buys in its own currency. So that’s what the BRICS accept. But they turn around and buy gold with it on the open market, driving up the price of gold and driving down the price of the dollar. China has already said they’re not going to buy any more US bonds. The BRICS have already come to some agreements to trade in their own currencies, possibly using their values in gold to arrive at an equitable exchange rate. Russia is already replacing purchases of Western goods with purchases from other BRICS countries. China has worked out an agreement to buy oil and gas from Russia. If the West were to refuse to buy oil and gas from Russia the price of these commodities would skyrocket since the Russian supply is absolutely needed to meet world demand.

So, in the long run, who is in the drivers seat here, the countries with the natural resources and a pile of gold or the consuming West with their paper currency. This is already happening. See the link below. I’ve posted or sent this link before, but no one in the West seems to get it. Or, they do get it and keep quiet about it, realizing their jeopardy, hence their sabre rattling and attempts to destabilize Russia and eventually China and the rest of the BRICs.

Sunday, October 19, 2014

Inequality, Why and How to Fix it

When most of the rewards of productivity go to a few people they control the economy for their own benefit. They create a labor surplus to drive to wages down by offshoring and mechanizing production. There would be nothing wrong with offshoring and mechanization if the benefits were not going to just a few people. With wages down for the great majority of people, demand is reduced and the economy tanks. With excess wealth at the disposal of capital owners and managers, and little wealth available to the great mass of people, the owners and managers of capital can buy the government through lobbying and campaign financing. It’s a vicious circle that can only be turned around by direct steps to reduce inequality.

So, how can this be done? Right now the efforts to make changes are thwarted by too many different proposals: increased government regulation, changes in the structure of taxation, subsidizing low wage and impoverished people, etc. There are too many ideological elements in all of these proposals.

Instead, only two simple proposals need be implemented initially: increase the minimum weekly wage and shorten the work week. Raising the weekly minimum wage would put more money in the hands of working people and shortening the work week will employ more people, creating a greater demand for labor.

Once the demand is up, more money will flow into the pockets of labor and less into the pockets of the capitalists, reducing inequality and providing more resources for the great mass of people to influence their government, taking power away from the owners and managers of capital.

This solution is largely market driven, taking subsidies, welfare, and government size out of the argument. The only thing that must be recognized is that government has a role in protecting the general welfare of the people.

Once the people again have control of their government, changes can be made in other aspects of government, like balancing domestic and military spending, creating a fairer tax system where taxes on labor and capital are more uniform, etc. It’s just a matter of giving the great mass of the people a larger voice in their government through increases in their wealth relative to that of the owners and managers of capital.

Sunday, April 20, 2014

Are Americans losing control of their country?

After watching a president I voted for twice, I have to conclude that Obama is the Democrat's version of George W. Bush. Both are weak presidents who don't have the experience or temperament for the job. Both have knuckled under to entrenched Washington interests that have been around through several administrations, Bush to Cheney and his neocon crowd who are bent on the US dominating the world, and Obama, first to the Wall Street and corporate oligarchs determined to increase their stranglehold on the control of the economy, and now to the same neocons supported by the guy he defeated to become president, John McCain.

Not much has changed and there is not much hope that it will.

The US still opts for military might as a foreign policy cudgel to throw its weight around in the world and domestic surveillance and militarizing of the police to ensure that any attempt by the populace to counter its moves is kept in check. The use of drones and sanctions is war by other means to send a message to the world about who is in charge. Sanctions only work for a country whose currency is the world reserve currency, and use of them is an abuse of the trust the world has placed in the dollar as the world reserve currency.

We truly are living in troubled times where the government is no longer responsive to rule of the people. It has taken on a life of its own to serve the interests of an elite few who are consolidating their hold on the countries resources and an entrenched old Washington guard that has been around through several administrations urging the use of covert subterfuge and military power to achieve hegemonic ends. I see nothing on the horizon that will restore the country to the greatness it achieved in the fifties and sixties when inequality was at a minimum and people pulled together to land a man on the moon.