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    » 12/29/2009, 00.00

    ASIA

    As the world waits for hyperinflation and a world government, Bernanke becomes “Person of the Year

    Maurizio d'Orlando

    Time Magazine has made a premature choice. Economic recovery is either missing or else it is only due to spending cuts and layoffs. Unemployment in the United States and China is rising fast. A solution to the US public debt crisis can only come through hyperinflation, which will destabilise the world system.

    Milan (AsiaNews) – US newsmagazine Time chose Ben Shlomo Bernanke, chairman of the United States Federal Reserve, as its Person of the Year for 2009. At face value, the choice can be seen in a number of ways. In fact, it could be due to the return of stock and security markets to almost normal levels. The rebound of the US stock market, which gained almost 60 per cent in the last nine months, was especially noteworthy.

    From this angle, Time’s decision to put Bernanke on its front cover seems straightforward, in line with its official motivation. It recognises the man who, after Bear Stearns’ near death experience, the rescue of Fannie Mae, Freddie Mac, GMAC and AIG[1], and the isolated but traumatic collapse of financial services firm Lehman Brothers, saved with public monies[2] the bulk of the US (Citibank, Bank of America, etc.) and international banking systems from collapse (or the certainty that they would inevitably crumble). What better achievement to put in the resume of an otherwise average economics professor from Princeton, without much theoretical work or publications to his name. Hence, like Hector or Achilles in epic times, Bernanke is a hero of finance, a hero for our times, which is certainly not epic because it bases everything on economics and money.

    Stunted or non-existent economic recovery

    If this assumption is correct, Time’s choice is, to say the least, premature. The rebound of the US stock market makes little sense because, with few exceptions, most firms in the United States and the rest of the world are just limping alone. Corporate balance sheets have not yet been published, but few believe they will show such results as to justify the stock market rally.

    In developed nations, those sectors that did not get any public aid have seen their output decline, 20-30 per cent on average, with peaks of 50 per cent in some cases.[3] However creative one can be with a company’s accounts, it is hard to see how the real economy can generate such profits as to justify current stock market levels. Even when firms are able to limit losses, any good result is less likely the result of higher sales than of lower costs. In fact, aggregate (household, corporate and public) demand declined; spending by middle- and lower-income households dropped an estimated 20 per cent.[4]

    Unemployment in the United States and China

    Cutting costs has meant limiting losses by slashing operational costs and product research and development budgets. It has also meant laying off workers. Despite Obama’s much-vaunted stimulus package, US unemployment levels have risen to 9 per cent according to official figures; to over 20 per cent if the more rigorous econometric criteria applied in the pre-Clinton era are used.

    Things are not that much better in other countries. In China, for instance, migrant workers, who have borne the brunt of the crisis, have not benefitted in terms of employment. Their jobs were tied to high levels of exports made possible by a yuan renminbi deliberately undervalued against the US dollar and other convertible currencies.[5]

    The two main stimulus packages of 2009, that of the United States and that of China, have had no real impact, at least on employment levels, which was their ostensible goal. No surprise here, since the two countries are in a symbiotic relationship. One is the “world’s workshop” because of an exchange rate arbitrarily set by the Chinese Communist Party. The other one is the world’s largest consumer. With about 70 per cent of the US GDP going into consumption paid on borrowed money, no wonder that the US foreign trade, public treasury, household savings and corporate foreign debt are in the red.

    This was inevitable. On the surface, things might appear different and hopes rekindled because of the race of the new US president or the skyscrapers and modernisation of the Chinese regime. In reality, they are illusions created by the two countries’ propaganda machines for no one wanted or wants to change the system built-in distortions.

    This was inevitable because globalisation could only lead to an unbalanced interdependence, a Hegelian synthesis of two “modern” antitheses, a legacy of the 19th century that gave us two opposite but equally unbalanced materialisms.

    The ghost of hyperinflation

    If at one level, the rebound of the US stock market makes no sense, it makes sense at another. However, this one has sinister implications because it suggests that financial markets are expecting and anticipating hyperinflation.

    Let us be clear, a company’s worth is not only measured by its capacity to generate profits but also by the value of its tangible assets like land, buildings, etc. A company’s value in the stock market is thus a measure of its expected profits as well as its assets. Under the present circumstances, it is hard to imagine a 60 per cent rise in corporate profits in the near future; any rebound in the stock market can only make sense if the value of assets rises because of inflation. In that case, if market forecasts and stock market values are correct, inflation must jump quite a bit, much more than 60 per cent to meet current and future losses.

    From an overall economic point of view, this means that a period of double, triple and even quadruple digit inflation is likely to follow the current phase of great depression. This is one of the most destructive social phenomena: economists call it hyperinflation. Historically, this brings back memories of the Weimar Republic, which led to Hitler’s regime, as well as the more recent disasters that befell Zimbabwe. However, this is no unwarranted gloom-and-doom scenario, but rather a way to interpret rationally the rise of the stock market, which cannot be explained by company profits.

    If we assume that current stock values in the United States are inflated compared to profits, we might expect another great collapse just around the corner.

    The sinkhole of the US public debt

    Although AsiaNews does not pretend to be a journal of financial forecasting, this second proposition does not appear very convincing, and this even if we admit high market volatility. The reason lies in the abnormally high level of debt of the US financial system, both in terms of formally issued debt as well as debt covenants. In September 2008, after Bernanke’ initial financial rescue plans were put into place, AsiaNews estimated that the total US public debt, including state and local government as well public capital corporations, stood at “at 59.3 trillion dollars, meaning 200,060 in public debt per capita, including the elderly, disabled, and children: 429.37% of GDP.”[6] Other economists, like John Williams, have said the figure is even higher, around US$ 75 trillion[7], five times the US GDP.

    If we consider that US household debt is among the highest in the world, at about 99 per cent of GDP, that US corporate debt is also the highest in the world at 300 per cent of GDP, and that 95 per cent of US foreign debt is held by foreign residents, about half in Japan and China, it is very likely that the US Treasury will not be able to meet its commitments by raising taxes but will have to print more money instead. Thus, the conditions for hyperinflation are already in place. Any political event, however minor it might be, could act as the trigger.[8] It is hard to see how it can be avoided. Should this happen, it will have momentous political consequences not only for the United States, but also for Europe, Asia and the rest of the world.

    A world banking government to the “rescue”

    The current crisis is not only worse than that of 1929-33, but if it leads to hyperinflation, it will wipe out public debt and private savings. More importantly, it will undermine existing institutional structures. Perhaps, this is the real secret goal Federal Reserve chairmen, including Bernanke, have pursued in the past 20 years.[9] Perhaps, they sought all along to lay the ground for hyperinflation, in the bipolar world when the USSR still existed, and later unilaterally in order to secretly impose a world central bank and create a world government. With more than six billion people in the world, the creation of a world empire can only mean the end to all illusions we might have had about democracy or freedom, however modest they might have been. Except for some unlikely last minute Thermopylae, Xerxes’ dream of world order, tolerance and harmony can thus become reality in our times.

    Time’s decision to place Bernanke on its front cover could thus be seen as embodying a second proposition. Although not very likely, bestowing him such an honour is such a paradox that it leads one to think that it could be a warning to a world that has fallen under the dominion of deceit.

     

    [1] These are private capital but government-sponsored enterprises set up under President Roosevelt 70 years ago. They guarantee mortgages in the United States, whilst the AIG ensured loans on financial markets.

    [2] According Neil Barofsky, Special Treasury Department Inspector General in charge of Troubled Asset Relief Program, the total cost will reach US$ 23.7 trillion, or just under 165 per cent of the US GDP.

    [3] This means that if output dropped 30 per cent in some cases, it could be 70 per cent in other. Such losses mean almost inevitable closing or insolvency for any company.

    [4] See the latest Gallup poll, in Dennis Jacobe, “Upper-Income Spending Reverts to New Normal,” Gallup, 10 December 2009. Despite the rosy title, the author writes, “consumer spending by both income groups middle and lower-income continues to trail year-ago levels by 20 per cent. “

    [5] For more on China’s domestic purchasing power parity, see Maurizio d’Orlando, “G8, toxic securities, US and Chinese addictions, in AsiaNews.it, 7 July 2009.

    [6] See Maurizio d’Orlando, “Depth of the abyss of economic, social, political chaos,” in AsiaNews.it, 30 November 2008.

    [7] See Phil Maymin, “We're Screwed! Interview with John Williams,” in Fairfield County Weekly, 31 December 2009.

    [8] In the case of the Weimar Republic, the trigger was the occupation of the Ruhr Valley by French and Belgian troops, starting in March 1921, in reaction to Germany’s failure to pay war reparations as required by the Versailles Peace Treaty signed after the First World War.

    [9] See Maurizio d’Orlando, “War scenarios: Iran, oil embargo and the collapse of the world's financial system,” in AsiaNews.it, 07 August 2006.

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    19/12/2008 ASIA - UNITED STATES
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