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Hickey on the fall of capitalism

Written By: - Date published: 10:36 am, August 14th, 2011 - 33 comments
Categories: capitalism, class war - Tags:

Bernard Hickey writes compellingly on the coming fall of capitalism.  Click through and read the whole thing, here are some highlights.

Capitalism – top heavy and toppling

The last fortnight’s dramas on financial markets is really just the sound of investors waking up to some fundamental problems in the global economy.

It is now dawning on the world’s biggest fund managers that there is too much debt weighing on households and governments in the developed world.  More importantly, they realise there will not be enough economic growth and income to repay those debts over the next 10-20 years.

That means governments might default or print money to repay the debt. Bank shareholders and bondholders may have to realise enormous losses or face high inflation. Growth will be much slower and for longer than expected. Slower economic growth might mean lower corporate profits and lower share prices.

After nearly four years of urgent fixes, emergency measures, bank bail-outs, debt shuffles and government pump priming without any real improvement, there is a dawning realisation that something is broken at the heart of the global economy.

… Grantham has put his finger on the core problem with unfettered capitalism. It works to shift wealth to the richest but can eventually topple over under the weight of itself when that wealth is hoarded and not reinvested or spent.

… In New Zealand, the share of income going to the top 1 per cent also more than doubled after the mid-1980s to nearly 14 per cent of income by the early 2000s. Last year’s tax cuts will have worsened that.

The trickle-down theory will not be enough to save capitalism. Even the biggest capitalists are realising that now.

33 comments on “Hickey on the fall of capitalism”

  1. I enjoy Hickey’s writing and I agree that we are in for a scary time.  It seems that the attempts at stimulation have failed.

    I think that peak oil has a lot to do with what has happened.  It is clear that the world has been surviving on cheap supplies of petroleum for some time and this has had a fundamental effect on our lives.  Food and other goods are transferred huge distances over the world.  Locally people get into their cars and drive either to work or to shopping meccas where these goods are available for instant purchase.  The production of food is so compromised that the primary consideration is the price that can be achieved on the other side of the world, not what is required to keep the local population fed properly.

    Until peak oil occurred.  After that there was a dramatic rise in the price of oil until 2008 when the effects on the world’s economy became apparent.

    The price of housing in the United States stalled and those who had bought on the premise that prices would always increase became very disappointed.  The industry behind them that had been leveraged profits to the nth degree failed spectacularly.
    The prediction of peak oil is that it’s price would spike, recession would follow, the price would reduce, the world’s economy would get on its feet, the price would then spike …

    Unfortunately this seems to be exactly what is happening.  The world’s economy crashed in 2007-08, the western democracies replied Kensyan like and opened up the spending to counter, but in 2011 it seems that the extra spend only just kept the economies going but some states had got themselves into a major debt situation.

    Then when these states decided or realised they had to stop the shit hit the fan.  Basically the world had got to the situation where it is realising it cannot keep consumption up by going further into debt.  Our reliance on the purchasing of bigger and bigger flat screen TVs and more and more expensive branded clothing is not going to work.

    Europe has its problems.  Ireland drove itself into bankruptcy rather than allowing to fail the Bank of Ireland, plaything of the speculators.  Many ordinary Irish regret this decision.  Greece, Portugal and Spain also hit the skids.  The European Union has many benefits but the fixed exchange rate means that Germany benefits but Greece suffers.

    Then England decided to combust.  It came out of nowhere really, an innocent father of four being shot dead, an attempt to frame him, a protest against the treatment of his family and then hell breaks loose.  Disaffected youth decided that this justified the complete refusal to abide by accepted social norms.  The looting was not of food or essentials, rather it seems to be that flat screen TVs and branded clothing was most popular.  Their attitude was summed up perfectly in a quote in this morning’s Sunday Star Times:

    “Bankers have looted the country’s wealth and got away with it, so it’s not hard to see why these locked out of the gravy train think they are entitled to help themselves too”

    And the rest of the world must be looking on and wondering when is it their turn?  To avoid this they need to firstly look at the world that their youth are growing up in.  If it involves unemployment, no future and the bombardment of them of images of wealth they need to aspire to then they are in trouble.  But if it involves training and an acknowledgement that our young are important and that we need to make sure that our world is fit for them then I am sure we can get through this.  But we need to change things.  Now.
     

    • Draco T Bastard 1.1

      It seems that the attempts at stimulation have failed.

      Of course it failed – it was completely the wrong thing to do*. The entire “stimulation” was nothing more than a transfer of wealth from the community to the rich.

      * Stimulation wasn’t what was needed. All debt to be forgiven was. Of course, maintaining the capitalist system isn’t a good idea anyway as anthropogenic climate change proves.

    • mik e 1.2

      Oliphants cartoon on the trickle down theory sums it up perfectly! I think it was in the New Yorker.

  2. Colonial Viper 2

    See that in the sky? That’s a flock of black swans. Damn.

    Where are our political leaders who understand what is going on and can see a way to navigate NZ through it all. Selling our strategic energy assets for worthless USD and devaluing the worth of workers is NOT the answer. But what is.

    Society must be for the people, not the financial markets or the casino chiefs.

    • neoleftie 2.1

      when has society been for the people – the rise of globalism, continium of capitalism and break down of sociatal anchors is basically to shackle the masses to consumerism and unlock a growth mechansim that allow the age old elite class to generate more power.

  3. Draco T Bastard 3

    …Grantham has put his finger on the core problem with unfettered capitalism. It works to shift wealth to the richest but can eventually topple over under the weight of itself when that wealth is hoarded and not reinvested or spent.

    This is why we need to tax the bejeezus out of the rich and, in fact, why we need to get rid of them.

    For starters all the money ends up in their pockets, then it’s loaned out at interest through the fractional reserve banking system to workers and governments which increases the rate at which money ends up in their pockets. All of this transfer of wealth to the rich eventually results in recession and depression as the massive debt build up caused by capitalist accumulation “corrects” (although we haven’t actually allowed that correction to take place this time).

    We cannot afford the rich.

    • Afewknowthetruth 3.1

      DTB

      Three great revolutions – the American War of Indepedence, the French Revolution and the Russian Revolution – were instigated by a desire to correct the problem (the revolutions of 1848 failed).

      Note that the money-lenders and land-owners re-established their control every time.

      • Colonial Viper 3.1.1

        So a couple of things:

        1) Govt should be the major land owner in the country and lease that land back to the private sector (50 and 100 year leases). This certainly already happens with Crown Leases.

        2) Interest rate reform. No interest to be chargeable on loans. Just like the good old days.

      • Draco T Bastard 3.1.2

        Doesn’t mean that they have to do so again. We can prevent it but it does mean keeping everyone informed by getting rid of the secrecy that is endemic to the present socio-economic system.

    • Colonial Viper 3.2

      We cannot afford the rich.

      And as an aspect of that, we can’t afford capital accumulation and misallocation where capital is not put to use for the good of the wider community.

  4. Afewknowthetruth 4

    It is all very superficial, as we would expect from Bernhard Hickey in a mainstream publication.

    Increasing debt is inherent in the fractional reserve banking system, and has been pointed out before, if all debts were paid off most of the money in the systtem would vanish overnight.

    When interest rates are at historically low levels (0.1 to 1.5% in many nations) and even then there is no simulation of the economies involved you know it is very close to the end. Instead, Hickey writes about the next 10-20 years, providing readers with false hope that the system will persist for 20 years (as required by the corporate owners of the Herald).

    This statement is a small step in the right direction: ‘More importantly, they realise there will not be enough economic growth and income to repay those debts over the next 10-20 years.’

    Once Hickey says ‘There can only be economic contraction because we don’t have the increasing energy supply necessary for economic growth’ we will know he understands a major aspect of the problem. Once he says that economic growth is the problem we will know he understands a bit more.

    Present economic arangements are predicated on converting fossil fuels into waste which is ‘killing’ the planet we live on. Capitalism is a system for facilitating the rapid destruction of the Earth and transfering the proceeds to those at the top.

    I guess hell will freeze over before we see such truthful commentary published in the Herald.

  5. KJT 5

    Why should our elderly, sick and young people be living in poverty in one of the richest countries in history, just so the very rich can avoid a few% contribution to the society they benefit from.

    We tried letting the wealthy keep more. It has proven to be a disaster.
    1/3 decrease in investment, manufacturing almost gone, a relentless slide down the economic rankings, increasing inequality, massive hemorrhage of capital to financial gambling.

    The way to get new money in the system and keep what is there is to bring back workers bargaining power (so money they have earned stays here a wages instead of disappearing offshore), tax capital flows, tax speculation, tax the wealthy more and use that money to invest in New Zealand (Including research and development as well as the health and education of New Zealanders), stop paying overseas banks to add zeros to their electronic ledgers and lend capital to ourselves. (Gaddafi’s big crime). As that arch lefty Adam Smith said. Tax the owners of capital and leave the producers alone.

    Waiting for the private sector to re-allocate capital to benefit society has not worked, and never will!

  6. “Unfettered” capitalism? When was it ever “fettered”? Its been going downhill for a century at least. The short upturns are due to the grizzly downturns. Depressions and wars which killed multimillions. The welfare state means bosses’ welfare. Keynes mated inflation to stagnation. Capitalism is kept alive by the drip feed of the blood of the masses sacrificed to its barbarity. Capitalism is broke and can’t be fixed. Hickey is bright enough to read the writing in blood on the wall. He might become a Marxist yet.

    • Afewknowthetruth 6.1

      dave.

      There was a brief period in the late-70s when environmental catastrophes and energy starvation led to a slight fettering of western capitalism.

      I guess TPTB were not happy with the way things were going -all that nonsense about energy conservation and environmental protection- so they installed Reagan, Thatcher, Roger Douglas etc. to put the world on track for all the Friedman excesses we have witnessed over the past 25 years and the implosion that is now on the horizon.

  7. Capitalism hasn’t failed. It has some obvious failings and they need to be addressed, but like the imperfections of democracy there’s no better way of doing things, alongside a mix of social policies.

    • mik e 7.1

      Berlusconi has raised taxes on the rich.I can hear the out rage from the right.Osbourne Tory finance minister has admitted its social deprivation thats caused the riots in England!

    • KJT 7.2

      Yeah, right!

    • Afewknowthetruth 7.3

      I suppose you call half the population of the world living in poverty, a succession of environmental catastrophes -Exxon Valdez, Bohpal, Fukishima and dozens more, death of the oceans, blowing up mounatin tops, desecrating an area the size of England to get to tar sands, wiping out hundreds of indigenous cultures, a state of perpetual war, and a thoroughly sick society which is locked into consumerism that has no future a success.

      ‘there’s no better way of doing things’

      You have demonstrated you have an incredibly tiny imagination, a very poor knowledge of history and a closed mind, so I guess there is no point in further discussion

    • Colonial Viper 7.4

      there’s no better way of doing things, alongside a mix of social policies.

      BULLSHIT

      A better way of doing things would be to give workers and local communities the capital wealth they need to set things up and get things done for themselves and to reap the benefits of their hard work for themselves. Not for some major shareholder in a foreign country who adds no value to the operation or the community.

      In other words, democratic socialism.

      • Pete George 7.4.1

        Workers and local communities can do that if they want to. The key thing is for them not just to expect it to be handed to them, they have to make it happen.

        • Colonial Viper 7.4.1.1

          Sure. They need to make it work. And we can start them off with $10B. It takes money to make money, you know that.

        • Draco T Bastard 7.4.1.2

          The key thing is for them not just to expect it to be handed to them, they have to make it happen.

          Yep, I’m all in favour of expropriation of the wealth back into the communities hands – and jailing the fucking psychopaths that took it from the community in the first place.

        • mik e 7.4.1.3

          We did have regional development boards but National scraped them because it is easier to buy votes in Auckland. Building motorways while john Key builds cycle ways for the rest of the country

        • mik e 7.4.1.4

          PG yeah cycleways would be a good start.Or do you mean billionaire film makers, Mediaworks ,destiny Church, SCF,double dipping in Dipton by a dipstick!

      • neoleftie 7.4.2

        we would need a socio / eco shift for that to happen. yes spain has a few nice examples.
        So bring on the workers revolution and create co-ops within the work place…

  8. Afewknowthetruth 8

    Just seen this on growth. Independent UK.

    Growth stalls across the eurozone

    Investors braced for poor second-quarter figures

    By Margareta Pagano, Business Editor

    Sunday, 14 August 2011

    Investors are prepared for further evidence that recovery may be stalling across Europe as second-quarter growth figures are announced for the eurozone this week.

    City analysts predict a modest 0.3 per cent average growth – despite Germany’s continued strong performance. But investors were uneasy after Friday’s news that, in the three months to June, growth collapsed to zero in France. Greece also disclosed much worse figures than expected – with its economy shrinking by 6.9 per cent in the second quarter.

    • Colonial Viper 8.1

      Good old IMF/ECB neoliberal vandals.

      Has the EU not learnt anything about what to do from Malaysia, Argentina or Iceland. Or what not to do from Greece and Ireland.

      Madness.

  9. randal 9

    Its only words dude. Capitalism is still the only system that produces the goods. Sorry to talk down hickey but his is the view of every kiwi who only knows abou their own mortgage and not how things are actually made. When capitalism goes we all go. byeeeeeeeeeeeeeeeeee…

  10. Jenny 10


    I thought that the most important quote from Bernard Hickey’s article was the following which I have abridged:

    Hedge-fund manager Jeremy Grantham also picked up on this structural problem this week…..
    Grantham should know about how the rich work. His firm manages more than US$100 billion worth of funds and doesn’t accept any amounts less than US$10m. Yet even he is saying it is now time to reset capitalism…..

    He wants to see tax rates on the wealthiest rise back to the levels seen in the 1950s and 60s.

    Bernard Hickey

    In line with this call for a fairer tax system even from within the highest ranks of finance capital, was this press release in my inbox.

    Tax Justice media release
    14 August 2011

    Tax Justice to present 40,000 signatures to Parliament, Tuesday 16 August

    40,000 signatures calling for GST to be removed from food and a tax placed on financial speculation instead will be presented to Parliament at 12noon on Tuesday 16 August.

    The Tax Justice petition will be received on the steps of Parliament by Su’a William Sio, the Labour MP for Mangere, who will be presenting it to the House.

    Russel Norman, Green Party co-leader, and Hone Harawira, Mana leader, have also confirmed their attendance at the petition handover.

    “With round two of the Global Financial Crisis upon is, there’s more reason than ever to make changes to New Zealand’s unfair tax system,” says Vaughan Gunson, Tax Justice campaign coordinator.

    “Taking GST off food would give immediate relief to ordinary New Zealanders struggling to pay the bills. While introducing a Financial Transaction Tax that targets the pariahs of the financial world would generate much needed government revenue,” says Gunson.

    The organisations and individuals who have actively supported the Tax Justice campaign to date will be represented in a delegation on the steps of Parliament. Included in the delegation are: Aaron Edwards (Whangarei District Councilor), Alastair Duncan (Service & Food Workers Union), Ariana Paretutanganui-Tamati (Mana Movement), Kay Murray (Alliance Party co-leader), Mike Clark (Maritime Union of NZ), Peter Conway (Council of Trade Unions secretary), and Sheryl Cadman (National Distribution Union).

    Vaughan Gunson, Tax Justice campaign coordinator, is available to speak to the media about the Tax Justice campaign prior to, during, and after the presentation of the petition. He can be contacted on 021-0415 082.

    The MPs who will be receiving the petition, and members of the Tax Justice delegation, will be available to speak to the media on the steps of Parliament between 11.30am and 1pm.

    A group “photo opportunity” for photographers and TV cameras will be organised at the conclusion of the formal presentation of the Tax Justice petition to the MPs.

    For more information on the Tax Justice campaign go to http://www.nogstonfood.org

    For comment, contact:

    Vaughan Gunson
    Tax Justice campaign coordinator
    (09)433 8879
    021-0415 082
    svpl@xtra.co.nz

    Victor Billot
    Tax Justice media spokesperson
    021-482 219
    victor@victorbillot.com

    The successful Tax Justice petition has been a large, co-operative effort involving activists of many shades around New Zealand.

    Collective activity over four years (starting with RAM’s GST-off-food petition in 2008, going through the Bad Banks campaign and latterly the Tax Justice petition) has been extremely important in advancing tax justice policies within the Maori Party, Labour Party, Green Party and Mana.

    Together many different socialists, unionists and other activists, have helped to get neo-liberalism’s crumbling central pillar of financialisation onto the radar of all the left-leaning parliamentary parties, and into the consciousness of a growing number of the body politic.

    The scene is now set for all these forces to work together for the implementation of genuine Tax Justice in New Zealand.

    • mik e 10.1

      Berlusconi must be listening to maybe Joyce Key and English could take a leaf out of right winger Berlusconi’s book!

  11. AAMC 11

    don’t suppose anyone here can link to the Bill Gross and Jeremy Grantham articles Hicky is referencing?

    Have searched but to no avail…

    • joe90 11.1

      A snapshot of Grantham’s argument, along with his key points at the bottom of the article.

      http://www.businessinsider.com/jeremy-grantham-commodity-prices-2011-6##ixzz1V4amQiYlhttp://www.businessinsider.com/jeremy-grantham-commodity-prices-2011-6#

      GRANTHAM:
      Summary of the Summary
      The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value. We all need to adjust our behavior to this new environment. It would help if we did it quickly.
      Summary
       Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population.
       From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress.
       Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum.
       The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water.
       Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin.
       The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety).
       The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
       But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
       Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
       Climate change is associated with weather instability, but the last year was exceptionally bad. Near term it will surely get less bad.
       Excellent long-term investment opportunities in resources and resource efficiency are compromised by the high chance of an improvement in weather next year and by the possibility that China may stumble.
       From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.
       We all need to develop serious resource plans, particularly energy policies. There is little time to

      Read more: http://www.businessinsider.com/jeremy-grantham-commodity-prices-2011-6#heres-the-bottom-line-13#ixzz1V4cHrSW3

      Google: Bill Gross pimco newsletter

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