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Bernie Sanders is Taking the Money Out of Politics

By Shlomo Maital

 Sanders

    Senator Bernie Sanders is running a long-shot campaign for the Democratic nomination for President.  Like all socialists, he has no chance of actually being elected, but very high probability that some of his ideas will be tamed and adopted by his rivals. 

     In today’s New York Times, a strong editorial reveals one other huge gift Sanders brings to the table.  He is raising money the old-fashioned way – one small gift at a time. The average donation to Sanders’ campaign is $31.30.   “It would be hard to buy any politician for $31.30”, says the Times.  Americans of ordinary means have given Sanders 400,000 donations, and 80 per cent of them were less than $200.  Now, contrast that with the fact that 400 of America’s wealthiest families, writing huge checks, account for half the money raised so far by both parties, Republicans and Democrats.  And Trump?  As a billionaire, he pays his own bills… and bought his way into the lead. 

     America’s Supreme Court, notes the Times, in its recent Citizens United decision, “has greatly boosted the buying power of corporate and special interest donors and made a casino frenzy of the (nomination) race”.     The Koch brothers, billionaires, organized 400 of their wealthy friends to create a super war chest of $889 million for Republican candidates.  Jeb Bush raised over $100 m. in big-check donations so far.  Even Hillary Clinton has raised over $20 m. in super-PAC money.

    When democracy is bought by the rich, who invariably seek (and get) favors in return from those whom they help elect,  it is no longer democracy.   So, good for you, Bernie!  Tear a strip off the big donors.  You bring honesty and sanity to this weird campaign. 

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Is Money the New Morality?

It is – And That’s Good!

By Shlomo  Maital

Russia capital flight

Really bad things are happening in the world today – and good people seem powerless to do anything about it.  Syria’s Assad bombs civilians.  Russia’s Putin grabs Crimea.  Unspeakable crimes occur in Central African Republic.  And that’s just a start.  The United Nations?  Deadlocked.  Obama?  Words, no deeds.  European Union?  Russia’s gas and Russian oligarchs’ money parked in London dominate. 

    But guess what.  Where good people fail, money succeeds.  Here is how.  When countries like Russia do bad things, money flees.  When money flees, the currency declines, inflation rises and economic growth plummets.  This is happening to Russia, according to the World Bank.  Putin is paying the price — not because of Obama sanctions, but because of market economics.  Here are the figures:

    “… the (World)  bank said Russia’s gross domestic product (GDP) might shrink by 1.8 percent in 2014. …. The Economy Ministry estimates net capital outflow (out of Russia) at up to $70 billion in the first quarter alone, compared with $63 billion in the whole of last year.  … the World Bank envisages capital outflow at $150 billion this year and $80 billion in 2015. This year’s forecast exceeds the $120 billion in capital flight that Russia saw in 2008 during the global financial crisis. … The outflow of money will put further pressure on the rouble, which despite its recent firming is still 7 percent down against the dollar this year.   The weakening of the currency is likely to put upward pressure on inflation, which the World Bank sees at 5.5 percent in 2014, higher than the upper end of the central bank’s targeted range of 4.0-5.0 percent.”  

    So, it’s very simple.  When countries’ leaders do bad things, money flees.  Flight of capital trashes the economy.  People suffer.  They protest.  And eventually, the bad leader leaves, is removed, flees, or is forced to adopt repressive measures, which ultimately fail.  Russia cannot afford to lose $150 b.

   This is the new morality.  Money and capital keep leaders in line, not ethics, values or Obama.   It’s the new ethics of globalization.

    Is it so bad?   The message is:  Run your country properly, treat your people well, or, the money will leave and go elsewhere, where leaders are smarter and more ethical.     And every country needs to keep its capital at home, rather than flee abroad.

    The morality of the new global system is money.  Let’s watch Russia closely to see if it really works.  

  Why Money Should Be Like Manure – But It Isn’t!

By Shlomo  Maital   

                  manure pile 

   Money, it is said, is like manure.  To do any good, it has to be spread around widely.

   But in today’s screwed-up post-global-crisis world,  it isn’t.  Money is increasingly concentrated in a very few hands.  And as a result it just sits there.   This is the nub of the problem.

   Consider these two pieces of data.

   *  A new study by Oxfam, the British philanthropic NGO, claims that  85 super-super-rich individuals in the world hold wealth worth $1.65 trillion!   This amount of wealth, held by fewer than 100 individuals, is equal to the value of all the wealth held by the poorest half of the whole world – 3.5 billion people.   The average wealth of the super-super-rich 85 is $19 b. per person. 

     Try this imaginary exercise.  Suppose, tomorrow, these 85 super-super-rich followed Warren Buffett and Bill Gates and gave away their wealth (gradually selling assets, in order not to depress the prices of stocks, bonds and real estate) and handed the proceeds to the world’s 3.5 billion poor people.  Each poor person would get $471.   This is a paltry sum. But it would change the lives of the poor.  They could start businesses, buy small pieces of land, buy a home.  And this spending would generate income for other poor people, who in turn would spend it…and end the global economic stagnation. 

     Imagine, as John Lennon says.. Imagine.  But it’s just a pipe-dream.  The wealth of the super-super-rich is the opposite of manure.  It sits in their safes and living rooms,  instead of spreading around the world.

   *  According to the Financial Times, Jan. 22,  “the pile of unspent corporate cash that has built up since the start of the financial crisis is being held by an increasingly concentrated pool of companies that will be crucial to hopes of a pick-up in business investment to stimulate the world economy.”   A study by the consulting firm Deloitte shows that globally,  “about a third of the world’s biggest non-financial companies are sitting on most of a $2.8tn gross cash pile of unspent corporate cash (retained earnings) !  And of that sum, fully 5 per cent is accounted for by Apple alone, with $150 b. in unspent cash! ”   “Looking ahead, the wave of cash [spending] that many are expecting will depend on the decisions of a few, rather than the many,” a Deloitte expert said.

  Why aren’t corporations spreading around their cash, like manure?  In a risk-averse world, with sluggish economies, there is no need to invest in more productive capacity.  Better to hold on to the money and play with it than invest it in real industry, in real job-creation, in real innovation.  This is what the handful of rich corporations believes.

    Why not impose a tax on unspent retained earnings, to create an incentive to invest it?  Why reward Apple for holding its cash abroad, instead of investing it in America? 

     So there you have it.   Billionaires and rich corporations. Both sit on huge piles of money.  And the money just sits there.  Until it starts to move, we won’t see true global economic recovery or more new jobs for those who really need them.  

Can China Conquer Its Mountain of Money?

By Shlomo   Maital 

        money mountain                  

   During the global financial crisis, China’s economy should have been hard hit.  As Western economies’ demand for exports collapsed, China should have imploded. But it didn’t.  After a short pause in its growth,  the near-double-digit growth resumed.

   One reason?  China’s Central Bank rapidly and massively expanded the money supply, making credit exceptionally cheap and easy to get.  China’s money supply (M2) grew by 30 per cent at the end of 2009.   Credit growth has slowed but is still very rapid.  M2 grew by 13.6 percent last year, about the same as in 2012 (13.8 per cent). 

    Overall, the amount of money in China has tripled since the end of 2006.  One result has been to create a huge housing bubble and asset inflation.  Hence, buying a very modest apartment in Wuhan, reports Keith Bradsher, in the Global New York Times, now costs about $100,000,  or 14 years of pay at $575 / m. for an average industrial worker.   Unaffordable.

     In the U.S. and U.K., central banks created easy money (quantitative easing) by buying bonds, thus injecting reserves into the system.  It was only partly effective, because banks chose to hold on to the cash rather than lend it, to shore up their ravaged balance sheets.

   In China, monetary policy works differently.  China buys huge amounts of U.S. dollars and Treasury Bonds and Bills, in return for renminbi, to keep the renminbi from growing stronger, and to maintain its undervalued exchange rate at about 6 RMB per buck (it probably be around 3.5,  based on purchasing power).  This keeps China’s exports cheap.   Currency manipulation is illegal, but – not much can be done.  If the U.S. screams too loudly, its multinationals will use their valuable cheap production sites in China and Apple, for instance, could cease to exist. 

    The problem China now faces? How to rein in that mountain of money, and keep it from generating inflation, or keep the housing bubble from bursting when the mountain starts to shrink (or grow more slowly)?   America has failed at a much smaller task – ending Wall St.’s addiction to quantitative easing and free money.  Will China do better?   We should all watch China closely, and hope that wily Zhou Xiaochuan, longtime People’s Bank of China governor, will succeed.  If he fails, we will all feel the pinch.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
June 2019
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