Endgame for Global Mercantilism

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In a great article published 28 March on why the European Union is doomed to collapse or total transformation – into what? - Charles Hugh Smith shows the explain-it-all chart, below. One important fact is this economic model is a convergent and globalized “no alternative”. Countries that don’t play this game are almost inexistent, for example the paranoid police state of North Korea.


The EU collapse-or-transform endgame of today only reflects the harsh realities of this one-only model and is only a subset of the bigger game: the globalized no alternative economy. This has its own subset components. First we have the 30-member OECD group of rich nations including the EU27 countries. These countries are furthest along the development path to the single goal of urban “postindustrial” economies and their consumer society.

For more than 25 years this development path is founded only on a strategy of debt and debt servicing, including and increasingly featuring monetary devaluation. In other words cutting the value of a nation's money or the money of a group of countries like the Eurozone 16 countries using the euro, to reduce debt costs and supposedly lever trading advantages with countries whose moneys are not devalued.

Facing the “postindustrial” countries - whose mature consumer societies buy and use every conceivable industrial product - we have the mercantilist economic and trade partners, or supposed partners of the first group: China, India, Brazil, Russia, the Arab petro states, and a few other countries with either structural trade surpluses or large foreign exchange cash and metallic gold reserves, or both.


As Smith's flowchart above shows, the natural result of this process of debt-based “postindustrialism” for the developed countries, and accumulated gold and paper money reserves for the trade surplus countries is debt and insolvency for the first group – and global economic collapse. The result is only and certainly lose-lose.

We can also bring in a third group of countries, formerly called the Third World, counting more than 100 mostly small, low income undeveloped countries. 25 years ago, the Third World itself was synonymous with debt, default and insolvency. Exporters of non-oil raw materials and food commodities, this third group of countries has benefitted from the rise of real asset hard commodity prices, like the Arab petro states, Russia, Brazil, Argentina, Indonesia and a few other large non-OECD countries of the G20 Group. The major mercantilist new industrial countries running so-called structural trade surpluses are in fact few in number, essentially China, South Korea and India, also key members of the G20 Group

This model and its endgame can also be called late stage capitalist with several avatars stretching back in history. In all previous versions this endgame only terminated in so-called Great Nation rivalry, war, mass migration, ethnocide, genocide and colonial pillage, that is global lose-lose. The present and largest-ever avatar is being played out right now, with the paper money in your own pocket.

The combined national debts, trade deficits and budget deficits of the big consumer deficit nations – often called “postindustrial” because all or most of their industries have been outplaced and delocalised as part of the so-called globalizing imperative – are now massive. It is hard to give even approximate numbers, and any figure can only be wrong.

Why ? Because the combined total for almost any country, in almost any forward period of time you set, say 2011-2014, will be growing – usually fast. Also, the rate of debt growth is hard to forecast because of increasingly desperate attempts at austerity programmes on one hand, and because the value of the moneys used to denominate debt (like USD, EUR and JPY) can change very fast – always down – in a period of 3 years forward, a period of time we have to call so far ahead.


This underlines one basic fact: so-called economic “management” by governments, central banks, corporate leaders and media chiefs running government-friendly disinformation outlets have a single mission: keep the party going. The consumer mass needs at all times to be incited to more and further overconsumption in the so-called wealth societies. The forward time span is short: this can be one more day, a week, or several months, but beyond about 6 months out from now there is only the void. Nobody knows. Even worse nobody wants to know.

Examples of this concern us right now.

The EU's increasingly desperate debt-juggling, called bail outs, concerns printing enough new cash to keep the weakest, most indebted, most vulnerable EU governments “afloat” for at most 1 year ahead. In the case of the recent Ireland bailout, 85 billion Euro had to be printed to cover the Irish national finance deficit and borrowing need for 1 year ahead. Ireland has a population of 4.4 million, so the extra debt per head of population, taken onboard to cover 1 year of national deficit financing, is easy to calculate.

With no surprise the numbers get more lurid when we move up the scale. Greece's notoriously corrupt government of a country with around 10 million inhabitants has needed, since its debt crisis became too big to hide, about 135 billion EUR of new printed cash. When we move up to countries like the UK and Italy (about 60 million population, each), Japan (125 million) and then the USA (300 million) the scale factor stays pretty constant. In the US case, for example, its We can do it Obama administration and State level counterparts are increasing total Federal and State debt by around 2000 billion US dollars a year, only to cover 1 year forward.

The sooner-or-later default story is played out by governments and their media friends with later tunes while the so-called “finance community” plays anytime soon on world 24/7 finance, commodity, equity and foreign exchange markets, operated strictly like casinos. The strategy for buying time and muddling through is simple: dishonour or dilute debt through devaluing the money used to denominate debt, and continue the farce of supposedly repaying both old debt and accumulating new debt, in the process called debt servicing.


Why there is no way out and no alternative is simple to explain. The endgame for this economic model is well known in economic history, and is described and analyzed by many economists stretching back over 100 years. The early 20thC economist Veblen described what can be called the pre-crisis stage. With already fast growing mega corporations, this stage is sometimes also called late Victorian capitalism. By the 1920s and specially after the 1929 crash, economists like Schumpeter analyzed the totalitarian oriented state-corporate models born out of the late Victorian crisis era and the economic wreckage of 1929. Convergence, under starkly different labels of capitalist and communist was rapid and seamless. Both the Hitler economy, the Stalin economy and 1930s capitalism in the USA and Europe conformed to this model – it was the only game in town.

Today's version is simply much bigger, more uniform and more certain to crash. It can be called less totalitarian but for average citizens the choices offered by consumer culture and the global supermarket are only superficial, not real. Corporate power, through public relations, advertising and publicity plays the same role that was played by the clumsy and hysterical propaganda in the 1930s totalitarian models of Hitler and Stalin. For state-friendly corporate capitalists of today – whether in so-called communist China or so-called capitalist USA - the end is the same. Citizens consume the products of selected Big Brother corporations and rubber stamp the seamless, identical political views promoted by state and corporate controlled media, and materialized by identical glove puppet candidates in liberal democratic no-choice elections.

From the 1880s for 30 years forward, culminating in World War 1, the so-called Great Powers of the time increasingly operated mercantilist aggression to carve themselves Eminent Domain based on the strategy of achieving constant trade surpluses, buying gold, and hoarding gold to weaken the moneys of their rivals. Defeated rivals, like Kaiser Wilhelm's Germany collapsed into hyper-inflation in 1922-1923 following the shooting war, their money ruined and debased to zero value. In this process capitalism mutates into the one-only late stage state-corporatist totalitarian model. Hallmarks of the process, well described by Joseph Schumpeter in the 1930s, include ever closer relations between governments and their favoured mega corporations, the defeat and decline of innovation, social segmentation, mass unemployment and social injustice – and other standard daily news of the year 2011.

The classic trigger for change to the endgame of monetary default is massive inflation – but this is far from the most likely outcome, this time around. The other classic trigger – global economic collapse into deep recession as in 1929 – is a lot more credible and possible.


The real world of today is far along the default trajectory but the phase or stage of massive inflation tending to hyper-inflation could be skipped. Consumer and citizen ignorance, and the guile of no alternative political and corporate leaders prevent recognition of late stage capitalist fundamentals. The present global economic, social and political format we can call neoliberal globalism itself prevents widespread concern or any serious action about the coming last stage.

Mercantilism started as a conditioned reflex kneejerk response to money losing its value – a long time ago, in 16thC Elizabethan England. Saving the absolute monarch of 16thC England, like Saudi Arabia's absolute monarchy and China's or India's state-corporate power elite today, needed gold. This sets an immediate problem: gold supply. In Elizabethan English times the strategy failed despite massively abundant gold supplies due to Conquistador pillage of Central and South America bringing huge tonnages of gold to Europe. Today there is no prospect of a sudden upsurge in gold supplies – even if shale gas and coming shale oil production will likely produce abundant lower cost gas and oil supplies.

The mercantilist strategy of generating permanent trade surpluses and turning them into gold reserves is not possible today, setting the no alternative solution for the world's few creditor nations, like China and the Arab petro states. That is: accumulate vast piles of confetti paper money – mostly US dollars, but also Euro and Yen – hoping they will hold on to some of their value in the meantime.

The mercantilist game plan in the times of Elizabeth 1 of England failed quite fast. Elizabeth 1 died, perhaps by poisoning, and her absolute monarchy collapsed within a few decades, becoming the military dictatorship of Oliver Cromwell. Between times, the Elizabethan power system and its two-only succeeding Kings were on a debt driven one-way economic down slope, with Conquistador gold itself used to undermine official royal moneys – the counterfeit money being richer in gold and better quality than the national specie. This shrunk the strategy choice for Elizabeth 1 and her two succeeding Kings to internal or domestic repression and the lure of colonial conquest, to build short-lived bursts of optimism, or what we call consumer confidence today.

Today, the lure of relatively cheap oil in Libya might be called a downsized colonial conquest surrogate but the size of the prize – oil booty in Libya – has little or no relation to the size of the global debt pile and its growth rate. The debt default, monetary devaluation and insolvency solution is therefore the only rational result, necessarily imploding the fragile edifice of the no alternative globalized economy.

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About Andrew McKillop