Monday, February 16, 2009

Will American Capitalism Survive?


As the modern system of capitalism faces the most serious challenge of its existence since Adam Smith, the name of John Maynard Keynes (1883-1946) is being regularly invoked by economists, politicians, bankers, and the media. And with good reason. Born in Cambridge, England, in 1883, the year Karl Marx died, Keynes probably saved capitalism from itself and kept Communists at bay. Keynesian Economics advocates the use of government monetary and fiscal policy to maintain full employment with low inflation.

Keynes described Capitalism in the following words: "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."

A well-known anti-Semite, Keynes once said, "It is not agreeable to see civilization so under the ugly thumbs of its impure Jews who have all the money and the power and brains." As in the past financial crises, powerful Jews on Wall Street and in Washington are being held responsible by many as the culprits of the current economic collapse.

In response to a severe recession or possible depression, Keynes suggested: "The government should pay people to dig holes in the ground and then fill them up." He advocated massive spending by government to stimulate demand when all else fails.

Who was Keynes? Here is how UC Berkeley's Robert Reich described him a few years ago: "A Cambridge University don with a flair for making money, a graduate of England's exclusive Eton prep school, a collector of modern art, the darling of Virginia Woolf and her intellectually avant-garde Bloomsbury Group, the chairman of a life-insurance company, later a director of the Bank of England, married to a ballerina, John Maynard Keynes--tall, charming and self-confident--nonetheless transformed the dismal science into a revolutionary engine of social progress."

Keynes was clearly a very smart man. His ideas of modern Capitalism have created unprecedented wealth and lifted hundreds of millions of people out of poverty. And his ideas may still help save capitalism yet again. At least, that is the hope of the Obama administration and the backers of the massive stimulus package of about $800 billion recently passed by the US Congress. However, what Keynes couldn't have imagined are the new heights of avarice and wickedness of the modern political-industrial elite in America that has threatened the very foundations of the system that brought them wealth and power. During the last decade, the behavior of American capitalists and politicians has been unbelievably self-destructive.

Even Alan Greenspan, the icon of modern US capitalism, was forced to show contrition in October, 2008. The former Federal Reserve Chairman told a House committee that the banking and housing crisis is a "once-in-a-century credit tsunami." When asked if his ideology pushed him to make bad decisions, Greenspan said he found a "flaw" in his governing ideology that has led him to re-examine his thinking. There has, however, been no acceptance of any responsibility for the current crisis by the members of US Congress and powerful finance, banking and appropriations committees responsible for overseeing the US finance and economy.

The American economy continues to deteriorate rapidly with the devastating credit crunch and major loss of confidence by consumers, businesses and investors. At this point, tax cuts or just handing out cash to banks or big infrastructure projects or re-regulation are not likely to help hasten economic recovery. The Obama administration will need to take more drastic measures, including nationalization and recapitalization of major banks to ensure that the much needed credit to businesses and consumers starts flowing again. Ideological aversion to nationalization will only delay recovery and take a much heavier toll on ordinary Americans in terms of job losses, home foreclosures and loss of other basic necessities of life.

The problem that some of the the critics of the Obama economic team and their Congressional overseers, derived mainly from the Clinton administration and the hold-overs from Bush-era, point out is articulated well by Nassim Taleb, the author of Black Swan. “We have the same people in charge, those who did not see the crisis coming,” he said recently on CNBC.

The roots of the current crisis can be traced to the Reagan revolution. Beginning in the early 1980s, Reaganomics transformed the United States in fundamental ways. Since the world saw the fall of the Soviet Union and collapse of Communism, the Conservative Republican ideas of less government and more deregulation have continued to change the economic landscape in America and the rest of the world. This revolution has now lasted almost three decades under various US administrations including Bush 41, Clinton and Bush 43. The Reagan ideas have also been adopted and preached by international financial institutions like the World Bank and the International Monetary Fund.

The continued wave of deregulation engineered and supported by America's predominantly Jewish political-industrial elite has led to the creation and trading of what Warren Buffet describes as "financial weapons of mass destruction". Such newfangled, unregulated financial derivative products as some mortgage-backed securities, credit default swaps and other wildly speculative futures and commodities contracts have produced hundreds of billions of dollars worth of personal gains for the financial industry executives and hundreds of millions of dollars in political contributions for American politicians who are now grand-standing as saviors of the American and the world economy.

The fate of many new-comers from the emerging economies of the world is closely tied to the success or failure of capitalism in America. It appears that some of the countries such as Brazil, Russia, China and India, who embraced the conservative American ideas of "economic reform" and "deregulation", may already be too late for the party. However, the European and Asian nations with substantial population of savers and entrepreneurs will recover rapidly and thrive again, as long as they keep their banks and financial institutions on a tight leash. In particular, the world's top creditor nations such as China , Japan and Germany with high savings rates, massive trade surpluses and large central bank cash reserves are likely to come out ahead at the end of the current crisis. Others may not be so lucky. But all the follower nations that have essentially been copying the US model will have to develop their own original ideas with financial systems and economic models to move forward in uncharted waters. Clearly, any new models will require a deep understanding and introspection of what has worked and where has the American capitalism gone wrong.

Related Links:

China's Nuclear Option

Senator Schumer: The Champion of Wall Street on the Hill

Pay to Play is the Name of the Game in Washington

Are Jews Culprits of Collapse on Wall Street?

Keynes on Jews

Democrats and Republicans Share Blame for Financial Collapse

Jewish Network in US Congress

Jewish Power Dominates at Vanity Fair

13 comments:

Anonymous said...

To better understand the reasons for the credit crisis, one needs to understand the basics of the present day economic system, ie, the post industrial revolution human resource based systems as against the pre-industrial revolution natural resource and agriculture based systems. Easiest to understand is the simplified basis in Marxist writings, see the link
http://www.marxists.org/archive/marx/works/1867-c1/ch04.htm

This simplistic rendering of M-C-M shows the ways in which the theory is out-dated, but works well for the credit crisis example. The banks did end up lending money without proper criteria based on the forecast of higher price for the same commodity which is why it all came tumbling down. Europe avoided the real estate bust because they never let go of their historical criteria to get a mortgage for property.. the most basic being 20% downpayment. Now with derivatives like futures, options, swaps, hedgings etc, the problem as stated by Marx has increased multifolds.

The post industrial revolution system is characterized by the addition of M-C-M relationship that was not present in the previous systems, which were C-M-C based. This system comprises of two main types of activities, as follows:
a) the manufacturing/ service sector activity where, in the M-C-M relationship, human labor and services are bought as a commodity and the value added products sold at a higher value. The workforce on its part generally sells its services for a value which is more than their subsistence needs and thus generate savings.
b) for the above to be accomplished, it is necessary to build factories, service centers, commercial centers, housing etc which require funds to build. These funds are concentrated from the savings of the people by the financial sector, the second important link of the system. These funds, surplus to spendings on human sustenance/ pleasures and available for investment are called capital and hence the definition of the system as capitalism. So firstly one must understand capitalism as it is, and not as a negative connotation as done by most people nowadays.

In the M-C-M relationship, the financial sector uses money as commodity which it buys from one source at a lower value and sells to others at a higher value (in very basic terms called interest). However, since the available funds generally exceed the demand and with more and more demand for quick profits, the financial system gets dominated by what can be called the "carpetbaggers", the advent of which is the root problem with the capitalist system. Government controls are always there to some extent but the tactics of the carpetbaggers find ways to circumvent these, and financial crises arise.
To control the damage to economy by carpetbaggers, Marx's solution is state control of the financial sector. With Democrats in power in the US for the next many years, the nationalization being done through bailouts can become irreversible. This will be a definite shift towards socialism even if the term is not used officially or in the media.

Another control mechanism is Islamic Finance which is probably better suited to the American political economic perception. This essentially works on the principle that interest (or profit) is only to be offered by banks on money which the bank lends directly for setting up projects or for purchase of commodities for human sustenance, ie limiting investment to the extent of the financial requirements of the economic system. In practical terms, not every one wishing to invest will be able to do so like happens now, in which case interest rates can go down to near zero levels. This system demands a strict state regulation on the financial sector, but not state control as in socialism.

Anonymous said...

Nice, thanks for your astute (and anti-semitic) economic analysis. I notice that you have been talking about economics, coffee tea and pee in your recent posts. The elephant in the room, however, is the fact that your country has shamefully surrendered to the Taliban in Swat. Congrats. I would love to hear your thoughts on it.

Riaz Haq said...

Anon:

You suggest, "The elephant in the room, however, is the fact that your country has shamefully surrendered to the Taliban in Swat. Congrats. I would love to hear your thoughts on it."

As you can imagine, I am not happy about what I consider appeasement in Swat. Please read my post and comments about the Swat situation in a recent post titled "Pakistan's Growing Insurgency"

Riaz Haq said...

Nobel Laureate Paul Krugman has argued in favor of bank nationalization in his NY Times column today. Here's an excerpt from it:

The case for nationalization rests on three observations.

First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

Let’s be concrete here. There’s a reasonable chance — not a certainty — that Citi and BofA, together, will lose hundreds of billions over the next few years. And their capital, the excess of their assets over their liabilities, isn’t remotely large enough to cover those potential losses.

Arguably, the only reason they haven’t already failed is that the government is acting as a backstop, implicitly guaranteeing their obligations. But they’re zombie banks, unable to supply the credit the economy needs.

To end their zombiehood the banks need more capital. But they can’t raise more capital from private investors. So the government has to supply the necessary funds.

But here’s the thing: the funds needed to bring these banks fully back to life would greatly exceed what they’re currently worth. Citi and BofA have a combined market value of less than $30 billion, and even that value is mainly if not entirely based on the hope that stockholders will get a piece of a government handout. And if it’s basically putting up all the money, the government should get ownership in return.

Still, isn’t nationalization un-American? No, it’s as American as apple pie.

Lately the Federal Deposit Insurance Corporation has been seizing banks it deems insolvent at the rate of about two a week. When the F.D.I.C. seizes a bank, it takes over the bank’s bad assets, pays off some of its debt, and resells the cleaned-up institution to private investors. And that’s exactly what advocates of temporary nationalization want to see happen, not just to the small banks the F.D.I.C. has been seizing, but to major banks that are similarly insolvent.

Riaz Haq said...

Here's Alan Greenspan's explanation as carried in Newsweek by columnist Robert J. Samuelson:

Greenspan is in part contrite. He admits to trusting private markets too much, as he already had in congressional testimony in late 2008. He concedes lapses in regulation. But mainly, he pleads innocent and makes three arguments.

First, the end of the Cold War inspired an economic euphoria that ultimately caused the housing boom. Capitalism had triumphed. China and other developing countries became major trading nations. From the fall of the Berlin Wall to 2005, the number of workers engaged in global trade rose by 500 million. Competition suppressed inflation. Interest rates around the world declined; as this occurred, housing prices rose in many countries (not just the United States) because borrowers could afford to pay more.

Second, the Fed's easy credit didn't cause the housing bubble because home prices are affected by long-term mortgage rates, not the short-term rates that the Fed influences. From early 2001 to June 2003, the Fed cut the overnight fed-funds rate from 6.5 percent to 1 percent. The idea was to prevent a brutal recession following the "tech bubble"—a policy Greenspan still supports. The trouble arose when the Fed started raising the funds rate in mid-2004 and mortgage rates didn't follow as they usually did. What unexpectedly kept rates down, Greenspan says, were huge flows of foreign money, generated partially by trade surpluses, into U.S. bonds and mortgages.

Third, regulators aren't superhuman. They can't anticipate most crises, and even miss some massive frauds when evidence is shoved in their face: Bernie Madoff is Exhibit A.

Given regulators' shortcomings, Greenspan favors tougher capital requirements for banks. These would provide a larger cushion to absorb losses and would bolster market confidence against serial financial failures. Before the crisis, banks' shareholder equity was about 10 percent: $1 in shareholders' money for every $10 of bank loans and investments. Greenspan would go as high as 14 percent.

Riaz Haq said...

Here's an excerpt from a story in the Guardian about growing wealth gap between whites and blacks in America:

"A huge wealth gap has opened up between black and white people in the US over the past quarter of a century – a difference sufficient to put two children through university – because of racial discrimination and economic policies that favour the affluent.

A typical white family is now five times richer than its African-American counterpart of the same class, according to a report released today by Brandeis University in Massachusetts.

White families typically have assets worth $100,000 (£69,000), up from $22,000 in the mid-1980s. African-American families' assets stand at just $5,000, up from around $2,000.

A quarter of black families have no assets at all. The study monitored more than 2,000 families since 1984.

"We walk that through essentially a generation and what we see is that the racial wealth gap has galloped, it's escalated to $95,000," said Tom Shapiro, one of the authors of the report by the university's Institute on Assets and Social Policy.

"That's primarily because the whites in the sample were able to accumulate financial assets from their $22,000 all the way to $100,000 and the African-Americans' wealth essentially flatlined."

The survey does not include housing equity, because it is not readily accessible and is rarely realised as cash. But if property were included it would further widen the wealth divide.

Shapiro says the gap remains wide even between blacks and whites of similar classes and with similar jobs and incomes.

"How do we explain the wealth gap among equally-achieving African-American and white families? The same ratio holds up even among low income groups. Finding ways to accumulate financial resources for all low and moderate income families in the United States has been a huge challenge and that challenge keeps getting steeper and steeper.

"But there are greater opportunities and less challenges for low and moderate income families if they're white in comparison to if they're African-American or Hispanic," he said.

America has long lived with vast inequality, although 40 years ago the disparity was lower than in Britain.

Today, the richest 1% of the US population owns close to 40% of its wealth. The top 25% of US households own 87%.

The rest is divided up among middle and low income Americans. In that competition white people come out far ahead.

Only one in 10 African-Americans owns any shares. A third do not have a pension plan, and among those who do the value is on average a fifth of plans held by whites.

The report shows that a typical white middle income family, earning
about $30,000 a year, has accumulated $74,000 in assets, five times that of a black family in the same class which has only about $14,000
in wealth.

The gap is even wider when it comes to families with an income above $50,000 a year."

Riaz Haq said...

Here's an interesting Guardian report with UN Drug Czar suggesting that drug money kept the financial system afloat during 2008 financial meltdown:

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.

Riaz Haq said...

Here is an interesting analysis by Eric Margolis of the consequenes of weak US economy:

One day, the king of ancient Babylon summoned his treasury overseer and exclaimed, “I need more money to wage war on those Hittite terrorists! “I looked in the great treasure chest and it’s nearly empty. There are hardly any gold coins left,” he thundered.
“Oh Light of the Euphrates,” groveled his terrified minister, “we are out of gold. Your wars have become too expensive.”

“But I have a solution, your celestial greatness. We will quietly trim the amount of gold in our imperial gold coins to make them go further. No one will notice.”

Fast forward to Washington, 2010. It’s no longer called “clipping coins.” Today, the name for debauching a nation’s currency is called “quantitative easing(QE),” but it’s still the same old fraud committed by financial flim-flam men.

Washington is flooding financial markets with $600 billion of worthless dollars, hoping a rising tide of Monopoly money will somehow lift America out of recession. The Fed’s first QE effort was a fizzle.

The US government is stoking worldwide inflation in order to lower its outstanding debt by repaying creditors with depreciated dollars. The rest of the world is boiling angry at Washington.

Just before last week’s G20 economic summit in South Korea, China’s state credit agency publicly downgraded America’s credit rating and questioned US leadership of the world’s economy.

In an unprecedented, stinging rebuke, China scolded Washington for “deteriorating debt repayment capability,” and predicted quantitative easing would lead to “fundamentally lowering the national solvency.”

Wow! This was a real slap in the face heard around the globe. China is the largest holder of US government debt. I remember the day when New York financiers used to sneer at iffy stock or bond issues as, “Chinese paper.” Now, it’s “American paper.” How the world has turned.

Washington has been blasting China for manipulating its currency to keep the value low – which is quite true. Embarrassingly, Germany and Brazil just accused the US of being as big a currency manipulator as China – which is also quite true.

A depreciated dollar boosts US exports and hurts nations exporting to the US. Economists call it, “beggar thy neighbor,” a destructive trade practice that played a key role in the 1930’s world depression.

This money flood is eroding the value of the dollar, the world’s premier medium of exchange. In the past two months, the US dollar has dropped 6% against other major currencies. Frightened investors are piling into gold, now up 17% in 60 days.

The Obama administration, just “shellacked” by voters in mid-term elections, and desperate to lower unemployment, is gambling more debt shock therapy will spark the economy back to life. But massive, unsustainable debt caused the US financial meltdown in 2008.....

Riaz Haq said...

Here's an excerpt from Michael Lewis's The Big Short on how Dr. Michael Burry made a fortune by buying credit default swaps (CDS) to bet against the sub-prime mortgages:

“You just have to watch for the level at which even nearly unlimited or unprecedented credit can no longer drive the [housing] market higher,” he wrote. “I am extremely bearish, and feel the consequences could very easily be a 50% drop in residential real estate in the U.S.…A large portion of current [housing] demand at current prices would disappear if only people became convinced that prices weren’t rising. The collateral damage is likely to be orders of magnitude worse than anyone now considers.”

On May 19, 2005, Mike Burry did his first subprime-mortgage deals. He bought $60 million of credit-default swaps from Deutsche Bank—$10 million each on six different bonds. “The reference securities,” these were called. You didn’t buy insurance on the entire subprime-mortgage-bond market but on a particular bond, and Burry had devoted himself to finding exactly the right ones to bet against. He likely became the only investor to do the sort of old-fashioned bank credit analysis on the home loans that should have been done before they were made. He was the opposite of an old-fashioned banker, however. He was looking not for the best loans to make but the worst loans—so that he could bet against them. He analyzed the relative importance of the loan-to-value ratios of the home loans, of second liens on the homes, of the location of the homes, of the absence of loan documentation and proof of income of the borrower, and a dozen or so other factors to determine the likelihood that a home loan made in America circa 2005 would go bad. Then he went looking for the bonds backed by the worst of the loans.

It surprised him that Deutsche Bank didn’t seem to care which bonds he picked to bet against. From their point of view, so far as he could tell, all subprime-mortgage bonds were the same. The price of insurance was driven not by any independent analysis but by the ratings placed on the bond by Moody’s and Standard & Poor’s. If he wanted to buy insurance on the supposedly riskless triple-A-rated tranche, he might pay 20 basis points (0.20 percent); on the riskier, A-rated tranches, he might pay 50 basis points (0.50 percent); and on the even less safe, triple-B-rated tranches, 200 basis points—that is, 2 percent. (A basis point is one-hundredth of one percentage point.) The triple-B-rated tranches—the ones that would be worth zero if the underlying mortgage pool experienced a loss of just 7 percent—were what he was after. He felt this to be a very conservative bet, which he was able, through analysis, to turn into even more of a sure thing. Anyone who even glanced at the prospectuses could see that there were many critical differences between one triple-B bond and the next—the percentage of interest-only loans contained in their underlying pool of mortgages, for example. He set out to cherry-pick the absolute worst ones and was a bit worried that the investment banks would catch on to just how much he knew about specific mortgage bonds, and adjust their prices.

Once again they shocked and delighted him: Goldman Sachs e-mailed him a great long list of crappy mortgage bonds to choose from. “This was shocking to me, actually,” he says. “They were all priced according to the lowest rating from one of the big-three ratings agencies.” He could pick from the list without alerting them to the depth of his knowledge. It was as if you could buy flood insurance on the house in the valley for the same price as flood insurance on the house on the mountaintop.

The market made no sense, but that didn’t stop other Wall Street firms from jumping into it, in part because Mike Burry was pestering them.

Riaz Haq said...

Here's a report of a Swiss journalist forecasting doomsday for US dollar:

The United States greenback has become the biggest speculative bubble in history and will soon go the way of the dinosaurs, warns Swiss financial journalist Myret Zaki.

In her latest book, Zaki says that the euro’s future is much brighter and that attacks against the currency are just a smokescreen aimed at hiding the collapse of the American economy.

“The collapse of the American dollar… is inevitable. The world’s biggest economy is nothing but an illusion. To produce $14,000 billion of nation income, the United States has created over $50,000 billion of debt that costs it $4,000 billion in interest payments each year.”

There can be little doubt about Myret Zaki’s opinion of the American dollar and economy, which she considers technically bankrupt, an opinion she backs up in her new book, La fin du dollar (The end of the dollar).

Over the past few years, she has become one of Switzerland’s best known business journalists, with a book about the UBS debacle in the US and another about tax evasion.

swissinfo.ch: You say in your book that the end of the dollar will be the major event of the 21st century. Aren’t you painting the situation more catastrophic than it really is?

Myret Zaki: I realise that predicting such a huge event when there are no tangible warning signs of a violent crisis may seem all doom and gloom. But I reached those conclusions based on extremely rational and factual criteria.

More and more American authors believe that their country’s monetary policy will lead to such a situation. It is simply impossible that it will happen any other way.

swissinfo.ch: It’s not the first time the end of the dollar has been foreseen. What makes the situation different in 2011?

M.Z.: It’s true that it has been announced since the 1970s. But never have so many different factors come together, letting us fear the worst. American debt has reached a record level, the dollar is at a historic low against the Swiss franc and most new American bond issues are being bought by the US Federal Reserve. Other central banks have also been criticising the US, creating a hostile front against American monetary policy.

swissinfo.ch: Besides the end of the dollar, you are also announcing the end of the US as an economic superpower. Isn’t America simply too big to fail?

M.Z.: Everybody has an interest in the US economy staying afloat, so everyone is in denial for the time being. But it won’t last forever. No one will be able to save the Americans. They will have to carry the burden of their bankruptcy alone.

They can expect a very long period of austerity, which has already begun. Forty-five million Americans have already lost their homes, 20 per cent of the population is out of the economic system and is not spending, while a third of states are bankrupt. No-one is investing their money in the country any more. Everything is built on debt.
-----------
swissinfo.ch: What will happen if the dollar collapses as predicted?

M.Z.: Europe is the planet’s biggest economic power and it has a strong reference currency. Unlike the United States, it is also expanding. In Asia, the Chinese yuan will become the reference and China is Europe’s biggest ally.

It has an interest in supporting a strong euro so it can diversify its investments. China also needs an ally within the World Trade Organization and the G20 so it can avoid a re-evaluation of its currency. Today, Europe and China are two gravitational forces that are attracting two former US allies, Britain and Japan....

Riaz Haq said...

Here's an excerpt from a piece by Pankaj Mishra published in Businessweek:

Nov. 18 (Bloomberg) -- During the worldwide depression of the mid-1930s, the poet and Islamic modernist Muhammad Iqbal, often called Pakistan’s spiritual founder, wrote a poem dramatizing the inadequacies of Western political and economic systems.

Democracy and capitalism had empowered a privileged elite in the name of the people, Iqbal felt. But he was not much fonder of Marxism, which was then coming into vogue among anti- colonial activists across South Asia and the Middle East:

But what’s the answer to the mischief of that wise Jew That Moses without light, that cross-less Jesus Not a prophet, but with a book under his arm For what could be more dangerous than this That the serfs uproot the tents of their masters

(Rooh-e-Sultani Rahe Baqi To Phir Kya Iztarab
Hai Magar Kya Uss Yahoodi Ki Shararat Ka Jawab?

Woh Kaleem Be-Tajalli, Woh Maseeh Be-Saleeb
Neest Peghambar Wa Lekin Dar Baghal Darad Kitab

Iss Se Barh Kar Aur Kya Ho Ga Tabiat Ka Fasad
Torh Di Bandon Ne Aaqaon Ke Khaimon Ki Tanab!)
------------
In any case, Tunisians voting for Ghannouchi and Pakistanis flocking to Khan’s rallies are not the radical revolutionaries or closet theocrats they are often made out to be by a paranoid local elite and a global liberal intelligentsia. Rather, these are people who have simply failed to develop the habit of seeing Islam as a purely religious phenomenon, separate from economics, politics, law and other aspects of collective life.

Whether liberal and secular elites like it or not, there are a large number of socially conservative Muslims who wish to see the ethical principles of Islam play a more active role in public life. The mind-numbing division between “moderates” and “extremists” that often passes for profound understanding of Islamic societies in the West simply fails to account for this invisible majority of Muslims, who are unlikely to plump for secular liberalism either now or in the near future.

For many nationalist and reflexively conservative Pakistanis, Imran Khan’s belief that “if we follow Iqbal’s teaching, we can reverse the growing gap between Westernized rich and traditional poor that helps fuel fundamentalism” is not the empty rhetoric it may sound to a Westernized Pakistani.

Indeed, the history of South Asia and the Middle East has repeatedly shown that the failure of modernizing endeavors, and the widespread suffering it unleashes, has always enhanced the moral prestige of Islam. In the eyes of its victims, the debacle of modernization and secularization has also diminished the credibility and authority of local elites as well as their Western sponsors.

The classic example, of course, was Iran. Visiting the Islamic Revolution after the fall of the secularizing Shah, the French philosopher Michel Foucault claimed that “Islam -- which is not simply a religion, but an entire way of life, an adherence to a history and a civilization -- has a good chance to become a gigantic powder keg, at the level of hundreds of millions of men.”

The 1979 Islamic Revolution in Iran that Foucault rashly cheered on has, in another generational shift, run its course. And revolution per se may be far from the minds of young Pakistanis and Tunisians trying to regain control of their national destiny. But the powder keg of political Islam that Foucault spoke of remains dry elsewhere in the Muslim world; and its potency is only likely to increase as Western political and economic systems and ideologies seem, to many Muslims, feeble, and yet so malign.


http://www.businessweek.com/news/2011-11-17/islam-offers-a-third-way-in-pakistan-and-tunisia-pankaj-mishra.html

Riaz Haq said...

Here's a piece in The Atlantic on Davos WEF forum on the West emulating Chinese model of capitalism:

A Modest Proposal to Solve Global Economic Woes: The China Model

Scrambling to boost the economy before the 2012 presidential elections, Obama has failed to explore one potential response to a recession that Davos experts are saying may last for years--a China-style economic dictatorship with free market tendencies.

China has come out of the global economic recession with a slowed growth rate, but remains relatively unscathed. Why? Beijing's one party has no heavy-handed congress through which it must pass legislation to recover the Chinese economy.

When rampant informal lending left China's export hub city of Wenzhou in its own mini-debt crisis late last year, China quickly capped interest rates for informal loans and set up an emergency fund to help indebted small business people settle the score with loan sharks, according to this article from China Daily.

This article from the Associated Press quotes WEF participants saying that "leaders must work fast to overcome the current crisis or else different models of capitalism, such as the form practiced in China, may win the day."

Latin America Unscathed By Eurozone Crisis

Latin American economies continue to expand, even as Europe struggles with a sovereign debt crisis, according to this article from the AP. The Latin American participants at the WEF say that their continent's economy -- traditionally rocked by the ebb and flow of the E.U. -- is well poised to move past the global recession.

"This is really the decade for Latin America," Guillermo Ortiz, former governor of the Bank of Mexico told the AP, "We don't have to worry about inflation shooting up to 100 percent next year."

Merkel Asks for Time

German Chancellor Angela Merkel asked investors at the WEF to give European policymakers the time and space necessary to tackle the Union's sovereign debt crisis.

"Please take the long-drawn-out process with a degree of acceptance," Merkel was quoted as saying in this Bloomberg article.

Merkel also backed down from a demand that bondholders contribute to bailouts, Bloomberg reported.

Soros Knows it All--But He Won't Tell

81-year-old billionaire financier George Soros - what some may call the Davos Man incarnate - gave Barron's his impression of the Eurozone at Davos yesterday.

"With individual countries under strict fiscal constraints," Soros said, "the stimulus will have to come from the European Union and it will have to be guaranteed jointly and severally."

While Soros refused to give specific investment advice, he did say that stimulus plan "will require Eurobonds in one guise or another."....


http://www.theatlantic.com/business/archive/2012/01/davos-takes-lessons-from-china-and-latin-america/252004/

Riaz Haq said...

Only 15% of the capital on Wall Street goes into investments in real businesses on Main Street. #US #Capitalism

http://www.theguardian.com/commentisfree/2016/may/21/crisis-in-capitalism-and-role-of-wall-street

risis always brings opportunity. And right now, we are having a crisis of capitalism unlike anything experienced during the last four decades, if not longer. The evidence is everywhere – in rising inequality, in the division of fortunes between companies and workers, and in lethargic economic growth despite unprecedented infusions of monetary stimulus by the world’s governments (a huge $29tn in total since 2008). Eight years on from the financial crisis and great recession, the US, UK and many other countries are still experiencing the longest, slowest economic recoveries in memory.

This has, of course, diametrically shifted the political climate, creating a paradigm of insiders versus outsiders. In the US, Donald Trump and Bernie Sanders are different sides of the same coin; in Britain, Jeremy Corbyn is an equally dramatic response to establishment politics. The challenges to the political and economic status quo are not going away anytime soon. A recent Harvard study shows that only 19% of American millennials call themselves capitalist, and only 30% support the system as a whole. Perhaps more shocking, the numbers are not much better among the over-30 set. A mere half of Americans believe in the system of capitalism as practised today in the US, which is quite something for a nation that brought us the “greed is good” culture.

In some ways that is no surprise because, as I explore in my new book, Makers and Takers: The Rise of Finance and the Fall of American Business, the system of market capitalism as envisioned by Adam Smith is broken – the markets no longer support the economy, as a wealth of academic research shows. Market capitalism was set up to funnel worker savings into new businesses via the financial system. But only 15% of the capital in the financial institutions today goes towards that goal – the rest exists in a closed loop of trading and speculation.

The result is much slower than normal growth, which holds true not just in the US but in most advanced economies and many emerging ones. The politics of the day – populist, angry, divisive – reflect this, in the US, Europe and many parts of the developing world as well.

But the bifurcation of our economy and the resulting fractiousness in politics has become so extreme that we are now at a tipping point. And as a result, we have a rare, second chance to change the economic paradigm – to rewrite the rules of capitalism and create a more inclusive, sustainable economic growth .