Sunday, May 12, 2013

Capital Complicity

G-7 leaders met this week to discuss tax evasion and currency manipulation.  Well, not really but I'm simplifying for those who didn't read the statements.  The former being an essential element in the illusory "recovery" of U.S. equities with countless U.S. corporations off-shoring their profits only to drip them back home in the form of dividends and corporate debt leverage basis.  The latter serving as the latest evidence of sanctioned collusion - currently a stimulation of last resort for the flagging Japanese Yen and Japanese corporations.  Against the backdrop of criminal conspiratorial allegations on LIBOR and CDS, I find it somewhat ironic that, as long as you meet in public to discuss inappropriate acts they cease to have their legal or moral consequence.  

Noteworthy, I think, that the finance ministers met in Aylesbury just outside of London.  During the English Civil War, Aylesbury served as a center for the Parliamentarians who sought to end the tyranny of a monarchy that was, in the best of days, oppressive and on the worst of days psychopathic.  Paradoxically, our modern metaphor for Charles I happens to be the tiny clutch of men who, armed with their divine right of economist acclaim, ignore the evidence of the futility of their outmoded models and, with patronizing contempt, steer the global economy into deeper ruin.

I am sympathetic to the struggle of the Japanese government and the businesses it seeks to support.  In the late 1990s, Japan's excessive consumption and opaque accountability triggered an economic collapse for which neither policy manipulation nor social reform has constructed an escape-hatch.  The Yen's further collapse will not aid in structural and social reform.  The G-7's willingness to go along with Bank of Japan Governor Haruhiko Kuroda's intervention is not because it's a good idea.  It's because those who are not already executing the same strategy want to know that they're complicity gives them a pass when they implement the same manipulation.  Kuroda's allegation that his intervention is to hit inflation targets by 2015 and not an attempt to "artificially help exporters" is a flagrant assault on integrity.

Base erosion, profit-shifting, currency manipulation and the like are all modern tools of accountability deferral.  The skullduggery in the legendary halls of William the Conqueror are no more beneficial today than they were nearly 950 years ago.  Tragically, while we go about our Hallmark-sponsored celebrations of matriarchal care, the very household stewardship we celebrate is being held in contempt.  This is hardly a surprise. 

Canada's Jim Flaherty is a career politician save his short stint as a lawyer specializing in personal injury cases.  France's Pierre Moscovici is a bureaucrat raised by a psychologist father and psychoanalyst mother who has no entrepreneurial credential.  Germany's accountancy tax lawyer turned minister Wolfgang Schäuble has a career that includes a little ethical hiccup when he resigned his post as Chairman of the Christian Democratic Union courtesy of a dubious donation from an arms dealer.  Italy's Frabrizio Saccomanni actually ran a bank (Italy's) for a considerable part of his career.  Japan's Tarō Asō worked in the Sierra Leone diamond mining business before becoming a politician.  The U.K.'s George Osborne pursued journalism and social research prior to entering politics.  United States Secretary of the Treasury Jack Lew studied the law and entered the political arena from the start and had that little stint at Citigroup where he invested in… uh oh, that little housing bet.  Oh, and did I mention that he also helped oversee the tax advantaged (avoiding) subsidiaries of Citi.  Nothing like experience to highlight how much profit-shifting and base erosion harms an economy. 

When you examine the biographies of those who are architects for the global economic reformation, it's little wonder that we're in pickle that besets us.  Like the Heads of State that appoint them, the G-7 ministers have not actually executed the strategies they believe to be efficacious.  They have accepted the dogma dished out by their affiliated Central Bankers who are not surprisingly interested in their member bank profits first and economic collateral implications remotely second.  It is amusing to see that the "Free Market Capitalist" doctrine is entirely based on central planning with socialist justification!  Amusing if it weren't so destructive.

Productive economic policies do not, at their foundation, start with currency manipulation and rate compression on bonds.  They start with an understanding of the enterprise mandate - to create and transact goods and services that have sufficient perceived value that producers and consumers will agree to their exchange.  Counter-productive regimes focus on the capital flow first and then seek to impose capital advantage to centrally-planned incumbencies.  Japan's present failure is not a capital failure and cannot be solved with capital intervention.  

I remember my early business interactions in Japan with remarkable alacrity.  I was a young business executive and found that my ideas - while accepted as prudent and productive - were constantly held to a critical review by 'experts' who themselves had never conceived of my approaches and had no competence upon which they could opine.  A few courageous firms in Tokyo finally realized that convention would smother them and they opted for innovative alternatives.  They were in the minority.  As the success of my endeavors manifested, my business expanded.  However, at no time did I ever experience decision makers who could react at the speed of the global market.  Defaulting to the 'safe' consensus is accepted.  Self-evident innovation is questioned and seldom reflexive.  In a Moore's Law world, the Meiji deliberative method is a friction that stymies adaptation.  Fixing inflation doesn't address that problem. 

While Japan got the spotlight this week, it's hardly the lead invalid with misdiagnosed maladies being treated with charlatan cures.  The ward is filled with ventilated comas.  Housing sales do not indicate economic growth - they indicate investors seeking to find 'safe' places to park money in a market where risk-free sovereigns are an oxymoron.  Employment statistics still do not reflect that actual employable base and still fail to demonstrate what economists predicted QE3 would deliver.  When William the Conqueror landed in England, he reportedly picked up sand and as it slipped through his fingers said, "See I grasp England in my hand."  Nearly a thousand years later, the G-7 ministers equally mired in the sodden muck held the elusive in their hands.  Unlike William, their solidarity to be complicit with one another so that none are held to account will earn them little quarter in march of history.  Emancipated from the divine right of arrogance, We the People need to build what our architects have never seen - productive, engaging enterprises worthy of transaction and accretion of value.

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Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave