stefan segal
01-23-2007, 12:09 PM
http://www.lewrockwell.com/orig6/faber2.html
Will the US Become a Banana Republic?
by Marc Faber
by Marc Faber
DIGG THIS
Thomas Friedman expressed the view that if the Republicans had remained in control of the House and the Senate, the US would have become a banana republic. But a banana republic isn't characterised only by a rotten political system, ruled by a small, wealthy, and corrupt clique usually put in power or supported by foreign interests (in the 20th century, in the case of several Central and Latin American countries, by the US), but also by huge wealth and income inequities, poor infrastructure, backwardness in many sectors of the economy, low capital spending, a reliance on foreign capital, money printing and budget deficits, and of course a weakening currency.
A banana republic is also characterised by a ruling class that curtails people's personal freedoms and is moving towards a heavyhanded military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn't a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.
Now, I am not insinuating that the US is already a banana republic, but the trend is undoubtedly there. The physical infrastructure is more often than not totally insufficient. Not a single flight I took in the US was on time, with one arriving 10 hours late, another 12 hours late, while two were cancelled altogether, resulting in delays of more than 4 hours. In Philadelphia, my US Air flight was delayed by three hours. The plane was on the ground in front of us, the pilots were all present, as well as one flight attendant (air hostess). But because a second flight attendant was unavailable in Philadelphia, one had to be flown in from Washington, so delaying my flight. Since there was no service provided on the flight, I wondered what purpose the additional attendant might have served.
I stayed at five different hotels on this trip. In three of them they couldn't locate the FedEx box that my assistant had sent me from Hong Kong and which had been signed for as having been received by the hotel. As I have written before, the productivity of corporations has risen, but the productivity of the consumer is down as he is constantly waiting in lines and has to suffer from insufficient service and support staff. Also, compared to Asian and European cities, the streets tend to be filthy, except, of course, in the "ghettos" where the super-rich live.
In the meantime, members of the American elite are enjoying the asset inflation, the printing of money, and the trade and current account deficits, because they keep the "lower classes" reasonably happy and content by allowing them to continue to consume and buy "cheap" foreign goods. In turn, this excessive consumption and lack of capital spending boosts corporate earnings and cash flows, which then benefit mostly the elite, through rising stock prices. Moreover, the weakening currency, which is also brought about by capital flight – another characteristic of banana republics – doesn't bother the elite much because they have the ability to easily transfer their wealth overseas or to fully hedge their exposure to the declining foreign exchange rate. (The aristocrats of banana republics are usually Swiss banks' best customers.)
This is particularly true in the case of moneyed elites, which are relatively fixed asset poor and hugely financial asset rich. Let me explain. Compare, say, a farmer who cultivates land that has been in his family for generations with a money shuffler on Wall Street. The farmer is far more tied to his land by tradition, and by his inability to transfer that land and his familiar environment overseas, than is the money shuffler, who will feel equally comfortable whether he lives in New York's Park Avenue, London's Belgravia, or Singapore's Nassim Road. Basically, what I am suggesting here is that the financial sector – and there are exceptions – really doesn't care much for the overall long-term health of an economy; it is only interested in asset prices moving up – no matter how unsound the economic policies might be that inflate those asset prices.
So, when things really turn bad and – to use Senator Webb's words – the "bifurcation of opportunities and advantages" along class lines leads to "a period of political unrest", the money shufflers – like so many former leaders of banana republics have done before them – just pack their bags, hop in their private jets, and move to another society where they can start playing the same game all over again! Now, this is not to say that there are no responsible people among the money shufflers, but the immense pressure to perform in order to make money as quickly as possible, and hence to enjoy a "high esteem" among their peers, which is now based solely on how much money an individual makes, has shifted the priorities of the money shufflers and the chief executive officers of companies in a way that is regrettable.
Will the US Become a Banana Republic?
by Marc Faber
by Marc Faber
DIGG THIS
Thomas Friedman expressed the view that if the Republicans had remained in control of the House and the Senate, the US would have become a banana republic. But a banana republic isn't characterised only by a rotten political system, ruled by a small, wealthy, and corrupt clique usually put in power or supported by foreign interests (in the 20th century, in the case of several Central and Latin American countries, by the US), but also by huge wealth and income inequities, poor infrastructure, backwardness in many sectors of the economy, low capital spending, a reliance on foreign capital, money printing and budget deficits, and of course a weakening currency.
A banana republic is also characterised by a ruling class that curtails people's personal freedoms and is moving towards a heavyhanded military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn't a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.
Now, I am not insinuating that the US is already a banana republic, but the trend is undoubtedly there. The physical infrastructure is more often than not totally insufficient. Not a single flight I took in the US was on time, with one arriving 10 hours late, another 12 hours late, while two were cancelled altogether, resulting in delays of more than 4 hours. In Philadelphia, my US Air flight was delayed by three hours. The plane was on the ground in front of us, the pilots were all present, as well as one flight attendant (air hostess). But because a second flight attendant was unavailable in Philadelphia, one had to be flown in from Washington, so delaying my flight. Since there was no service provided on the flight, I wondered what purpose the additional attendant might have served.
I stayed at five different hotels on this trip. In three of them they couldn't locate the FedEx box that my assistant had sent me from Hong Kong and which had been signed for as having been received by the hotel. As I have written before, the productivity of corporations has risen, but the productivity of the consumer is down as he is constantly waiting in lines and has to suffer from insufficient service and support staff. Also, compared to Asian and European cities, the streets tend to be filthy, except, of course, in the "ghettos" where the super-rich live.
In the meantime, members of the American elite are enjoying the asset inflation, the printing of money, and the trade and current account deficits, because they keep the "lower classes" reasonably happy and content by allowing them to continue to consume and buy "cheap" foreign goods. In turn, this excessive consumption and lack of capital spending boosts corporate earnings and cash flows, which then benefit mostly the elite, through rising stock prices. Moreover, the weakening currency, which is also brought about by capital flight – another characteristic of banana republics – doesn't bother the elite much because they have the ability to easily transfer their wealth overseas or to fully hedge their exposure to the declining foreign exchange rate. (The aristocrats of banana republics are usually Swiss banks' best customers.)
This is particularly true in the case of moneyed elites, which are relatively fixed asset poor and hugely financial asset rich. Let me explain. Compare, say, a farmer who cultivates land that has been in his family for generations with a money shuffler on Wall Street. The farmer is far more tied to his land by tradition, and by his inability to transfer that land and his familiar environment overseas, than is the money shuffler, who will feel equally comfortable whether he lives in New York's Park Avenue, London's Belgravia, or Singapore's Nassim Road. Basically, what I am suggesting here is that the financial sector – and there are exceptions – really doesn't care much for the overall long-term health of an economy; it is only interested in asset prices moving up – no matter how unsound the economic policies might be that inflate those asset prices.
So, when things really turn bad and – to use Senator Webb's words – the "bifurcation of opportunities and advantages" along class lines leads to "a period of political unrest", the money shufflers – like so many former leaders of banana republics have done before them – just pack their bags, hop in their private jets, and move to another society where they can start playing the same game all over again! Now, this is not to say that there are no responsible people among the money shufflers, but the immense pressure to perform in order to make money as quickly as possible, and hence to enjoy a "high esteem" among their peers, which is now based solely on how much money an individual makes, has shifted the priorities of the money shufflers and the chief executive officers of companies in a way that is regrettable.