Deadlock

Why are we writing? Maybe we just missed it, or we freed up sometime, or we could be in a deadlock situation with our brain telling us to go left, while our heart is telling us to make a right. Its a deadlock situation because we can't make a decision, because one variable, is waiting for the other variable to make a decision. That's our current reality, but let see if we can use another example. "When two trains approach each other at a crossing, both shall come to a full stop and neither shall start up again until the other has gone." That actually was a statute passed by the Kansas legislature in early 20th century. Or we are just fed up with one of our Econ classes. Whatever the reason is, we are in front of our screen.

What we remember was in 2008, the global economy stopped breathing.  The cause? Very simple, real estate prices went up a lot at first, and then crashed. That's suppose to have a ripple effect in the economy, at least that's what the experts told us. Next big thing we can think of, hmm.. maybe U.S governments unwillingness or inability or not wanting or whatever word that fits you, but it's issue of its debt obligation. So far, the underlying cause, or the main issue, has not been the main cause, for the great recession. What caused housing prices to go up? A belief that house prices will go up forever, how did that belief turn into reality? Simply more people demanded and bought more houses. With what money, did they buy? They borrowed to finance a belief. When that belief wasn't true anymore, the cost of maintaining their belief was greater than, the utility they expected to gain from rising house prices. So what did the common inhabitants do? Simply walked away. Which also had a ripple effect, because not only they weren't paying back what they borrowed, but also they weren't mailing checks to the local tax authorities. This according to the experts was bad. On the other hand, our suspicion is that "Mr Market" detected a borrowing binge, which caused resources to shift in one sector, and gave false hope of ever rising house prices. Which led local governments to almost solely depend on property tax revenue, rather than industry or businesses. According to "Mr Market", a correction was needed to destroy the old model, and, create a new one.

So, not only was the real estate market in a bubble, but we suspect the feds on the federal level also have created a bubble of their own? After all they are spending more, than they take in. In other words deficit spending. Why is that? Maybe just a bad habit , after all they are all grownups, they should be able to balance a checkbook? As if that's not bad enough, you might say they might have some money saved up for a rainy day and conclude, they might be dipping from their savings account. But at last count, we noticed the feds were in the red, meaning negative balance. They owe the world trillions, in fact, so far the total amount due is somewhat a cool $16 trillion on the national account. The Feds are in a battle, to stop "Mr Market" from its natural course. The economy needs a cleansing from excessive debt, but the feds say, they can't let that happen, other wise, there won't be such thing as economy, they argue. So, first they cut interest rates to 0%, in the hope, people will spend, rather than save. Since that wasn't enough, they argued, there is a lack of demand from the private sector, so they said government spending can replace private demand. Thus they initiated a stimulus package, worth almost $800 billion. Of course they borrowed, and had to borrow even more for bailouts, to guarantee/subsidize loans, Unemployment checks, Food stamps, and too keep the lights on, in Washington D.C. Whats the return on investment so far? Or shall we ask in a different manner, did the marginal benefit exceeded, the marginal cost, to save the economy ?

         "U.S. Treasury debt held by China at the end of 2012 nearly equaled $3,887 per American citizen or $918 per Chinese citizen. A 2009 working paper from the Council on Foreign Relations called China's U.S. debt financing a "$1.7 trillion bet." They also noted that "never before has a country as poor as China provided so much financing to a country as rich as the United States."

 Keep in mind that's just your share for the Chinese, you also owe the Japanese, Saudis, Russians, and, the list goes on. What's new and interesting is, the new lender on the block, that's financing the U.S government.
                                 

                         

                               U.S. Treasury securities held by the Federal Reserve: All Maturities
  

What you see in the above is the central banks lending activity to the U.S government. In Just few short years, beginning from early 2009, the central banks, balance sheet grew from $800 billion to $2 trillion. Is that a good thing or a bad thing, we will let history judge that. What we know is that, no civilization in the past, has survived a debt crisis without some type of national pain. Especially if the medicine is the same as the poison. In other words the cause or the main cause of the issue is borrowing money we can't afford to pay back. And if the proposed solution is to borrow more, to solve a borrowing issue. Then, we are clueless as you might be. But then, the feds say if we don't do this, the economy will stop functioning, We aren't sure what they meant by that, so we speculated to see if there is any relationship or correlation between, the Federal Reserves activity of buying treasuries and unemployment rate. So we pulled up the chart below to compare, which according to the data, unemployment got worse and leveled at 8% recently.  

Clearly as the feds bought more bonds or let the US Government borrow more money, however the feds in the first place got the cash, there isn't any benefit to the average Joe, on Main Street. On the other hand, Wall Street is enjoying the life support system the feds have implemented on the economy. Low interest rates, Money printing, and calling it names such as Operation Twist,  QE1, QE2, and Then QE3, And now QE forever. How is Wall Street report card looking like? Take a look at the following charts.

Not the type of grade you get in the classroom, in case you thought we were looking for a F. More so, Wall streets measure of pass or fail is the Stock Market. Just looking at the chart below, The S&P 500 is up 44.81% YTD. If we compare it, from early 2009, which was when the index  hit the lowest point, which was also when the Feds began their money schemes. We aren't saying or suggesting the cause for the Stock Market boom is the Feds action or why unemployment is stuck at a high level . Instead, we are solely interested in knowing If the Feds policy is benefiting or even working, or maybe to know if there is a correlation between the feds action, and the real world economy.

Dow Jones Industrial Average is up 37.73% YTD. Compare to its lowest point in 2009, the index has more than doubled, and even tested new record highs!

            And last is the tech sector which is measured by the NASDAQ index, which is up, a cool 53.59% YTD. 

What we may able to conclude is that the trend in Main street is down, and up in Wall Street. In Simple terms, as Academia likes to simplify variables, by Ceteris paribus, meaning everything else held constant, we can measure progress of Main street using unemployment rate, and the Stock Markets investment return using the major Indexes performance. Result Main Street F, while Wall Street Report can be translated as an A. Relative to whats out there, meaning you earn zero-percent interest in the bank. You earn less than 3% interest if you're willing to lend money to the government for 10 years , but stocks today have a forward "earnings yield" of 7%-plus. Despite the economy being weak, the Stock market is heading higher. That's  till the feds recognize their policy is ineffective, and change course, which won't be the case for few more years, expect the Markets to keep climbing higher.


Regards,

Eskinder Haile


 

 

 

The East Asia Connection. Is History Repeating Or Just Rhyming? Part I

You may or may not know, but during the early 1960's, the ten largest sub-Saharan economies, such as Congo,Gabon,Ivory Coast,Madagascar, Mauritius,Mozambique, S.Africa, and Swaziland, on average had higher income level. Ranging from $1120 for Ivory coast, to $2800 for Mauritius in terms of per capital income. However, the growth rate of real GDP per capital, these few sub-Saharan Africans experienced, did not last long, economic growth performed negatively from 1970's and so on. Despite the Africans negative performance, The east Asians grew rapidly. GDP growth rates, such as Taiwan grew at an average rate of 6.7%, S.Korea 6.1, and, Singapore 6.1%, over a period of 40 years. That doesn't mean, some didn't experience double digit growth, weather that's true or not, we will let the history books rule.
Before we get in depth and details, there are few questions, some may have never heard of, or even did, but didn't clearly understood the answers. Therefore, we glanced at few history books, to see if there is any clarification. It isn't our foolish opinion, that's expressed in these pages. Rather its what the historians recorded of what happened in the past, that we are re writing. Enough with our confession, lets dive into whats important.
 
What is The Developmental State?

The basic reason to have an economy is to raise the individual consumer standard of living, say the westerners or the Anglo-American Model. The East-Asians argue with a big No! and say its to increase the collective national strength of society. From these two differences, we can derive or at least say there are different value systems culturally between the east and the west. Comparing the two, the East Asians seem to be collectivist or group oriented  whereas in the western model, economic development means, "more". If people have more choice, more leisure, more wealth, more opportunity to pursue happiness, society as a whole will be a success. For our purpose, we are only comparing two different models, not that there aren't any other economic systems, but maybe so far neither has been labeled completely as failed theories.


S.Korea, A Model For Ethiopia?

S. Korea's first concrete economic development strategy was launched when Park Chung Hee, assumed political power following the Coup d'etat in 1961, and inaugurated the first five year plan in 1962. Before Park, the S.Korean government was led by the first president, Rhee who clearly lacked a vision for his war torn  nation, mainly because he was pre occupied with taking over N. Korea by force. We are assuming Ethiopian troops, sent by the late emperor Hailesellase, under U.N mandate to help the S.Koreans, keep the N.Koreans at bay, are at the emperors palace receiving honors for their service. Never the less, directly after the Korean war, the S.Korean economy was heavily dependent on U.S aid. During Rhee's presidency (1953-60), Poor S. Koreans received $2.3 Billion in aid, 85% of it coming from the U.S.A. In other words, the aid accounted for 10% of S.Korea's economic activity. In April 1960, Rhee's government was ousted by student-led popular uprising, and was replaced by Chang Myun. Even though Mr Chang, made economic development numero uno, ten months later, a group of graduates from the Korean military academy, led by non other than Park, toppled Changs government.


Why Maestro Park Chose, " The Developmental State Mindset"

A look at Parks background may give us a clue, to understand why he may have thought N.Korea to be a cancer, rather than the solution. Instead he focused on the unity of the remainder of S.Koreans, and adopted, the state-led-developmental mindset. After graduating from teacher training school, Park was admitted to the Japanese Imperial military academy in Manchuria. Manchuria is a historical name given to a large geographic region in northeast Asia. Depending on the definition of its extent, Manchuria falls entirely within China, or is sometimes divided between China and Russia. Since he graduated top of his class, he was sent to Tokyo, for further training at the Tokyo Military Academy. After completing his studies, in the Japanese capital city, he was sent back to Manchuria, and served in the Japanese Imperial Army, Until the Japanese gave up and surrendered to allied forces in 1945.
During his service in Manchuria, Mr. Park observed, how the Japanese Army ran the Manchurian economy, supposedly it was according to a model developed in Japan. The Japanese theory was in line with the the model in which the state directs and utilizes enterprise to serve national economic development by controlling finance. When Mr. Park assumed political power, the clock was ticking, unless there is a dramatic shift in economic policy, he realized  he won't stay in power neither. Therefore he first setup an Economic Planning Board (EPB), with powers to draft economic plans, control national budget, and implementation of plans. The Ministry of trade (MOT) was responsible for export promotion, import control, industrial development plans, Investment application, and trade licensing. The Ministry of finance (MOF) was responsible for regulating financial institutions.
To achieve his vision for S.Korea, dear Park chose to be partners with the Japanese. Despite the opposition of the public, S. Korea normalized diplomatic relations with Japan in 1965. Many S.Koreans, remembering the brutal years of Japanese colonial period, and fearing renewed dominance by Japan, the public protested against the normalization of relations between the two countries. Parks government had couple of reasons, and was determined to proceed and ruthlessly repressed protesters  What were the reasons, you may wonder? Well after relations were normalized, S.Korea received a capital infusion of $800 million, from Japan. Most importantly, S. Korean enterprises took over the production of Japanese goods, and machinery used for lower value- added, and labor intensive production, as Japanese businesses moved into higher value-added, and more capital-intensive production.
From 1965-1973, S.Korea economic growth averaged 9.5%, and exports grew 44%. Manufactured exports rose from 8% of final demand in 1963 to 22% in 1966 and 40% by 1973. This economic growth miracle seemed to be working well, as the economy grew at a rapid pace. However that didn't come without unintended consequences for S.Korea or anyone else that adapted development first, democracy second. Collectively called the east Asian tigers had the following in common.

• Authoritarian leadership, with a clear vision, but almost zero respect for democracy. Journalist were more often in prison  rather than editing editorials. The remaining journalist that feared for their life had to present the questions first, before heads of state can be interviewed. Yes dear reader we aren't making this up, this was done in the East Asian countries, when they were emerging as the tigers.

• Ethnic divisions were common issues in these countries, taking Malaysia as an example, politics was dominated by ethnic consideration. In the first ever election, a coalition of three ethnic parties won the first election. The United Malay National Organization (UMNO), The Malayan Chinese Association (MCA), and the Malayan Indian Congress (MIC)

• Border Division, Singapore was once the same country as Malaysia, but politics didn't allow them to stick together. Today Singapore is the richest state when measured per capita income. Half a century ago, they couldn't even imagine comparing themselves to Sub-Sahara African economies. Also Singapore was ruled by one man for a very long time. We encourage you to find out for yourself.  http://internetwriter62.hubpages.com/hub/Singapores-Transformation-from-a-small-Struggling-Island-Nation-to-a-Thriving-Metropolis.

• Economic Policy of the east Asians was that the state directs capital, where it seems beneficial for society, and both the private sector and the state implement the project. The Chinese called it, capitalism with Chinese characteristic, the rest of us call it the Developmental State.

Hopefully, you the dear reader have began to make some connection, to Today's Ethiopia economic policy. If you haven't yet, we clearly need a new profession. But we are hoping you did make some connection, with the current Ethiopian government vision, and the former east Asian authoritarianism regimes. In part II, we will further discuss the unintended consequences of the growth first mentality. Our hope is that not just you the dear reader, but also the Ethiopian government will listen to us. Why? Because we do fear, if history is repeating or even just rhyming, one day Ethiopians will wake up, and notice their currency have just been devalued by 40%, for a reason they have no clue . Yes dear reader, in 1997 all of a sudden, the tigers transformed into cats, the Asian financial crisis began in Thailand in July 1997, and spread to the weakest tigers. S. Korea, Indonesia, and Thailand were effectively bankrupt. What led to the crisis? What lessons can the Ethiopian government learn? It seems like they only have borrowed the good, and forgotten the bad. For now please excuse us dear reader, we need some sleep, and rest so we can think before we have more to say.

Regards,
Eskinder Haile

The Birthday Gift, The Invisible Hand, And Molding Nature

“The prudent law of investment is you’re never supposed to make a complete decision, no or yes. It’s always a marginal one...” — James Grant

It has been over a month since our last hit. What happened to us you may be wondering.. We don't know where to start, dear reader. A lot has happened in the past month, it made us believe 24 hours isn't in enough in a day. First we received a package in the mail welcoming us to the university, we were stunned, then few days before our birthday our girlfriend whom we have spent half a decade with, gave us a gift. It wasn't in a gift wrapped paper as you may have expected, she told us, "we are done, i don't love you no more". We felt the electric shocks, then we checked the social networks, and saw her with what we suspect to be her new lover. As you can imagine dear reader, we still haven't relocated our heart, finally we figured we have emotions as well. Then after came a call that shocked us again. See dear reader for the past five years we have been working on project x, we gave up our life for it, we delayed pleasure, university, family, you name it, we lost weight, but finally we came to a conclusion. We have worked the in and the outs, then last week we received a call, suggesting us to change our theory into practice, and assured us no matter how complicated our formulas are, it will be quantified and coded as a software. At this time we were confused, we were sad, and so happy at the same time. Finally what was once a dream, is becoming our reality. As you can imagine we are heading to the university, come the new year. The software engineers from Dallas, Texas, tell us they are developing neural network for other clients, which is some sort of artificial intelligence that predicts the financial markets.We aren't declaring victory yet, but its a major milestone in our life. We don't know where this is taking us dear reader, but we know now not even the sky is the limit. So far we also learned our readers belong as far as in Australia, India, Brazil, basically each continent with the exception of the Arctic and Antarctica, we doubt they have a set of TV there. As always we are hoping this can pass as some sort of excuse, forgive us dear reader but we don't know what to feel. Happy or sad? Or a combination of both? So far we are down one point, and up three. Our birthday present wasn't what we expected it to be, but then nothing in life comes as you expect it to be. Maybe you the dear reader can help us, gives us some type of advice to understand our state of emotions. But our beat is politics or money, why bother with what happens in our backyard. We were asked our opinion on the following matter, few weeks ago.. and that's what we wanted to share today.

·         How efficient and effective is this system
·         To what extent is the system setup as a competition between the rich and poor
·         Should the winners be helping out the losers

Our earth compare to other planets seem to be a better place for humans and other creatures of nature. Despite being better, planet earth goes through turbulence's  such as hurricanes, earth quakes, tsunamis, climate change etc. It’s a self-correcting system; it creates, and destroys some. And yet, we claim earth to be our safe home. It took earth billions of years to figure out the troubles before becoming a much rather place to sustain life. Man might have 200k years’ worth of experience here on earth. Even so time to time earth destructs, and recreates, and there seems to be no regulator, that’s trying to stop nature’s course. How efficient is earth one may wonder?

We humans are as well nature’s gift, what separates us from other creatures, is the fact that we can say, “I think, therefore I am”.  If you think then you have a taught, and since every taught of every human being is different, is it safe to say that a single form of entity can control the needs and the wants of everyone?
Man for the most part of his history, didn't necessarily need an economic system. He hunted and gathered for his survival, used stone as a tool, then copper, and later iron. Each time he advanced technologically, he increased his odds of surviving, which also gave him the incentive to multiply his seeds. It wasn't until the industrial revolution man figured the use of energy, in which the history of the world changed radically. Living standards increased income of the masses shot up, and population growth exploded. At this point man understood his food can be grown by a farmer, his protein needs by the local butcher, and other goods and services by complete strangers trying to satisfy their greed.

Society became a more complex playground, and man began to ask, how do we provide the needs and the wants? How do we produce, to whom, what, and where? To answer these questions, two moral philosophers offered their opinion. Adam Smith and Karl Marx, both men wrote a book, the former suggesting, “The invisible hand”, while the latter argued, “by molding nature in desired ways”.

What is the invisible hand? According to Adam Smith, it is the unintended action of the self that brings the benefit to the mass.  In The Theory of Moral Sentiments (1759) in Part IV, Chapter 1, where he describes a selfish landlord as being led by an invisible hand to distribute his harvest to those who work for him: "The proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest. Yet the capacity of his stomach bears no proportion to the immensity of his desires  the rest he will be obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The rich are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society.” On the other hand Karl Marx wondered, if a single entity can control and mold nature so that we can achieve paradise on earth. In this case a government would act as a single entity, to decide what each member of society wants and needs are? Even if it is a rhetorical question, one can ask, how can a single entity read every single persons mind?

The Soviet Union is well known for embracing Marx’s ideas. The state acting as a single entity became the brain of society, by trying to mold nature, and suppressing the will of each individual thinking capability. In the Theory of Human Nature Marx assumes “that humans are capable of making or shaping their own nature to some extent”.  Therefore the state took over the means of production and began centralized planning to achieve the greater good. Comparatively the United States adopted the principles of Smiths invisible hand. In which self-thoughts generated from one being to satisfy his greed, leads to unintended benefits for society in general. So far ever since the industrial revolution, the world has tested both men’s theory in practice. A common principle in both theories is that not one is a perfect system to answer our wants and needs. While Smiths idea suggest capitalism to be a creative destruction process just like mother nature, Marx’s theory claim to bring equality by force against the will of nature. What we have today is a proof of Smiths free market principle to be much better off, than Marx’s control experiment. Earth for example destroys, and then creates, we are all grateful for the creative side of nature, but not the destruction. Same goes for the free market economy, whenever inefficiency or there is a waste in the system, it destroys the bad apples, in order to create fresh ones. Which means the invisible hand adjusts accordingly to the needs and wants of newly adjusted thoughts of society. History tells us any attempt to control this process will end badly, and it’s the reason the Soviet Union collapsed. Therefore it won’t be a sin to conclude capitalism to be more efficient and effective than any other economic system ever tried.

Since the Great depression, which was the destruction period for capitalism, the role of government in the economy has been increasing. English economist John Maynard Keynes sought to explain why depressions occurred and what could be done to prevent them.  Simply put, he thought government should use its massive financial power (taxing and spending) as a sort to stabilize the economy. Depressions, then, should be attacked with increased government spending at the bottom of the income pyramid.  Keynesian economists call this "counter-cyclical demand management," believing that the government's massive financial impact can be used as a counterweight to current market forces. In the Book of Genesis, Pharaoh had a dream. In it, he was standing by the river. Out came 7 fat cattle. Then, 7 lean cattle came up out of the river and ate the fat cattle. A similar dream involved ears of corn, with the good ones devoured by the thin ears. Pharaoh was troubled. His dream interpreters were stumped. So, they sent for the Hebrew man who was said to be good at this sort of thing — Joseph. Pharaoh described what had happened in his dreams. Without missing a beat, Joseph told him what they meant. The 7 fat cattle and 7 fat ears of corn represented years of plenty with bountiful harvests. The 7 lean cattle and thin ears of corn represented years of famine. Joseph wasn't asked his opinion, but he gave his advice anyway: Pharaoh should put into place an activist, counter-cyclical economic policy. He should tax 20% of the output during the fat years and then he would be ready with some grain to sell when the famine came. Genesis reports what happened next: the seven years of plenty ended and famine struck, and when Egypt was famished, Joseph opened the storehouses, and sold food to the Egyptians. People from all countries came to Egypt to buy grain, because the famine struck all the earth. There is no need to argue with the Biblical account. Besides, it sounds all too likely.

Franklin Roosevelt took Keynes advice and called it the new deal, initiating many programs to fight the depression. Unlike the pharaoh that saved in the good times, modern governments do not run surpluses. To comprehend what it means, when we say government role has increased, we have to understand, how economic activity is measured. Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period. GDP is calculated in the following format. GDP= Private consumption + Investments+ Government spending+ (exports-imports). As for example In the wake of the financial crisis of 2008, The GDP of United States fell dramatically, to counter this decline in private consumption, investments, export, and, import, the share of government spending rose substantially. Soon after the administration of Barack Obama claimed economic growth, but it was a fallacy. The United States government was spending more money in unproductive places like sending unemployment checks, feeding 47 million hungry souls that can’t feed themselves and a trillion dollar or so is allocated for empire building thru the military industrial complex. And also the government was bailing out companies the free market found to be weak and unnecessary. While everything was crumbling in the GDP formula, government spending went up, and according to the government that's growth. From the close of WWII until 2007 each downturn in the economy was met with more and easier credit, leading people and the government to borrow more and more money. 

The ‘neo-Keynesian’ economists argue government may be deeply in debt already, but it can go further into debt during the lean years, in order to offset the contraction in the private sector. An investment brings a revenue stream a result that justifies and pays for the investment. With a little luck, the investor recovers enough money to pay back the loan with interest and ends up with a little bit extra. That little bit extra is real ‘growth’ new wealth that didn't exist before. But there is no revenue stream coming from Social Security payments, fighter jets, the latest fashions, or other consumer items. The money is spent consumed keep up this borrowing and spending at some point it will be unable to continue. The suffering that comes to a market is known as a ‘correction.’ Sharp, dramatic corrections are called ‘crashes.’ In an economy, it is called a ‘‘recession.’ Severe cases are called ‘depressions.

The bigger the roles of government gets the wider the gap between the haves and have not’s get. In order for the government to do what it feels good or counter economic down turns, resources have to be extracted from the productive part of society. This usually happens in the form of taxing or borrowing, which means those funds that could be available for the private sector to generate wealth are confiscated and redistributed to the public by the government. What in reality is happening is a single entity trying to dictate the outcome of society. While the have not’s receive food stamps, and other similar transfers, the top class gets a subsidy or a bailout. This action by the government creates, “entitlement mentality”, in which societies morals for self-responsibility deteriorates.

As the above charts indicates citizen’s personal savings have been going down for the past 30 years, a contrarian indicator of entitlement mentality. So far the rich seems to be the beneficiary of the government’s untended action.  Widening the gap between the have and the have not’s.  To understand up to what extent the system is set up as a competition between the two classes, it’s important what the role of government should be in a society.

Imagine a world without traffic lights, would you feel safe or secure to drive in that environment? Or imagine a world where there is traffic lights, but you get rewarded for skipping red lights. Our modern government is setup where bad behavior is either encouraged or rewarded. If a corporation or a business makes bad decision, it shouldn't be rewarded by a subsidy or a bailout, if it is meant to die, let it be. The government’s role in society should be just like traffic lights, where everyone follows the rules, but if one violates the law, it should accept the consequences. If the owners of BMW’s, Mercedes Benz, Ferraris, and the like are being rewarded for skipping red lights, it automatically makes it unfair competition for the Honda owners. To date the United States government has borrowed $16 trillion, of which $5 trillion was borrowed in the past four years alone. Net result so far has been the growing gap between the rich and the poor. Instead what happened is the price of gold relative to the dollar went up in prices, as the state expanded its balance sheet to solve society’s ill.

 “Great empires, such as the Roman and British, were extractive,” economist Paul Craig Roberts observes. “The empires succeeded, because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”  But unlike empires of the past, the American Empire has a perverse logic all its own. The results from this turn of phrase are less than desirable. Again Roberts: “Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The US Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%. “That is how the American Empire functions,” concludes Roberts. Instead of plundering foreign resources to finance it, the American Empire is always looking to inflate the next financial bubble. Each of these serial bubbles has the effect of “extracting” wealth from the citizens by drawing both savings and credit into overly inflated asset classes that then implode. As the bubbles inflate, robust tax revenues flow to the federal government. As the bubbles implode, tax-payer dollars flow to the connected Wall Street elite. Thus, over time, savings pass from the wallets of citizens to the pockets of scoundrels in Washington and on Wall Street. Thus as in the past, when the Roman Empire began its decline, the first symptom was its currency.  Each consecutive emperor devalued the content of the currency, until it became worthless. If history can be a guide, it now becomes the question of when will the American empire collapse and leave no resources to compete for.

We all agree that the winners in society should help the losers. Most often what we don’t agree is on how the winners should help. If history can be a lesson worthy of learning, then we should all agree to leave the government out of the equation. If we let nature take her course, the best alternative we might have is ourselves. In which we all accept personal responsibility for the good and bad. There will be a period of pain, as well pleasure. After accepting this fact, we then can acknowledge we can help ourselves.

Regards,
Eskinder Haile