The public media has always been ahistorical, rushing toward the nearest flame like a moth oblivious to the surrounding darkness.
So it was when the TV networks pointed their cameras at the mesmerizing spectacle of President Bill Clinton perfecting his grovel and mounting a contrition offensive against the threat of impeachment in the wake of the Starr Report. Silently, in the background, momentous changes worthy of vastly more attention were occurring around the globe.
It was written of the Emperor Nero that he fiddled while Rome burned. It will be remembered of Clinton, provided he is remembered at all, that he diddled an intern with a cigar while world events accelerated down a treacherous path of deflation of stock and asset prices, devaluation of political reputation, and destruction of the New World Order.
There is something deliciously ironic in watching the collapse of a regime whose reputation has been largely a set of media props, camera tricks, and Hollywood illusions. For in this case the special effects crew seem as mystified as everyone else as to what has gone wrong. The President had surrounded himself with a slew of financial stars, academic luminaries, and national security jujuists whose basic incompetence was exceeded only by their arrogance, and whose sycophantic loyalties were secured by the unifying notion that they themselves constituted the heirs and standard bearers of a new vision, a bridge to the 21st century, a New World Order. The only tasks of the cognoscenti were to party, to get rich, and to whip the renegades into line around the world.
The End of History
The basic vision is described in Francis Fukuyama's The End of History and the Last Man (1992). After the collapse of the Soviet Union and the fall of communism in Eastern Europe, the argument went, the struggle for freedom had been won in both the political and economic spheres. There was now philosophical unity. All civilized people had accepted the idea of the twin pillars of liberal democracy and the market economy.
Fukuyama is a Hegelian. And, like Hegel, Fukuyama wondered if history were at an end because it had reached its logical conclusion. After all, the struggle for freedom and recognition had been won, at least in principle, he noted.
The international elites associated with the Trilateral Commission, the Council on Foreign Relations, and the annual Bilderberg conferences broadly concurred. Fundamental disagreement among nations with respect to political ideology and economic organization had disappeared. All civilized people wanted peace, prosperity, and economic growth. And now they could have these, the vision said, as long as there was international stability. Stability meant that civilized nations would join together to contain rogue states like Serbia, Iraq, and North Korea. (George Bush's invocation of the "New World Order" in the crusade against Saddam Hussein prior to the 1991 Gulf War was an example of the emerging view.) International terrorism would likewise be thwarted by international police surveillance mechanisms, which would raise population monitoring to a fine art.
With broad agreement on the outline, the principal task was filling in the economic boxes, it was thought. This meant working with the international economic organizations such as the IMF and the World Bank to bring the former communist countries and the peons of the Third World into the prosperity orbit, so they would count their blessings, shut up, and cease causing trouble. Important for accomplishing this economic growth would be international capital flows from the center to the periphery. These would, of course, occur naturally as the market economy spread throughout the earth.
The vision was quite analogous to elite conceptions of macroeconomics in the 1960s. The broad outline of the science of economics has all been worked out, MIT economist Robert Solow told his students, back then. Now it was only a matter of filling in the boxes, he claimed. But then came the 1970s, and a US Presidential crisis, along with a drop in the stock market to nearly one-half its previous value over 1973- 74. There was a worldwide "inflationary recession," along with a crisis in economic theory, and political upheaval as leaders of major nations were replaced one by one over a short period of time (Kohoutek was responsible, the astrologers said), and, not least, the proclamation of a "New International Economic Order" at the 1976 IMF annual meeting.
Today we are viewing a similar confluence of events, but--I would argue--on a much greater scale. Within little more than a year, in countries as diverse as Russia and Thailand, the middle classes and their moderating political influence have been financially destroyed through banking crisis, currency devaluation, and recession. Indonesia's economy is expected to contract 15 percent this year, while that of South Korea and Thailand will be down 5 to 7 percent. Economic crisis has driven from office Hashimoto in Japan and Suharto in Indonesia, as well as lesser figures such as Anwar Ibrahim in Malaysia. Elections have brought about new governments in South Korea and Thailand. In Russia the puppet-figure Yeltsin barely holds on, while the oligarchs have replaced Prime Minister Chernomyrdin with Kiriyenko, then Kiriyenko with Primakov, all within the space of a few months. In the U.S. the Dow Jones has plunged 17 percent from its peak in the course of a few weeks, and Clinton suddenly finds himself (at the time of writing) still clinging to his office only through a barrage of crocodile tears. Meanwhile, those financial pundits in the US who thought they could solve the Social Security crisis by investing retirement funds in the stock market, are already having second thoughts. As nuclear India faces nuclear Pakistan, Iranian troops gather at the Afghan border, and Turkey threatens the whole stability of the Middle East because of Russian missiles being delivered to Cyprus, the very notion of a harmonious "New World Order" has likewise come under attack. It's deja vu all over again.
Now, all this doesn't mean it is necessary to head for the hills, to run screaming off into the night like the worst of the "post-tribulation" millennialists and the Year 2000 kooks. While some self-defense is in order, it is important to keep in mind that an apocalypse now and then is good for us, however uncomfortable it might be in the interim. For the alternative is a universally-imposed gray global bureaucracy that relentless squeezes the last iota of individual initiative and freedom out of the system.
But the apocalypse that is now underway cannot be managed and contained and driven away by collectivist voodoo, for it represents precisely a collectivist breakdown. That's good news for those who value individual sovereignty, but bad news for the New World Order.
The Image of the Future
The coincidence of economic, political, and social deflation should come as no surprise once you consider the unifying roots. Neither the economic nor the political nor the social crisis is really the "cause" of the other two, but rather all stem from something else. Most human actions, and human decisions, are molded by an over-arching image of the future. The economist Kenneth Boulding described the process this way:
It has always been thus in recent millennia, as far as we can tell. Such future images do not have to be true in order to be powerfully influential. One prominent example is noted in the handbook of Western Civilization, the Bible, and occurred during the 1st century AD. In the Olivet prophecy of Matthew 24, Jesus relates to his disciples the signs of his "coming and the close of the age": false messiahs, wars, famine, pestilence, the abomination of desolation, and so on. He is asserted to have said, "Truly, I say to you, this generation will not pass away until all these things take place." Jesus is thus quoted as saying he would return within the lifetime of those hearing his words that particular day. "The normal meaning of this generation would be `men of our time,' and the words would refer to a period of 20-30 years" (footnote in The New Oxford Annotated Bible).
This image lead Jesus' disciples to evangelize the surrounding nations after his death, in the expectation of his imminent return. "Jesus did not teach His disciples to pray, `Thy Kingdom come,' in references to a far-off ultimate event. It had the implications of a total reversal soon to be revealed" (Fred Polak, The Image of the Future, 1973, p. 199). Jesus may have been wrong about his return, but the impact of his vision was unmistakable.
People do not behave differently today. The post- Soviet image of a New World Order was a catalyst for the global adoption of a vision of the "market economy". There is, of course, often a divergence between what people preach and what they practice, between the teachings of the prophets and the interpretations of the audience. And the economic message that seems to have accompanied the diffusion of the New World Order throughout the electronic village was the notion of a Global Free Lunch: We are all investment bankers now. Prepare yourself for quick riches via financial sleights-of-hand.
Free lunch strategies have a habit of self- destructing. The Swiss economist Eugene Boehler had the context of such false and unsustainable images in mind when he noted that the "modern economy is as much a dream factory as Hollywood." It is based only a small part on real needs, and for the greatest part on fantasy and myth, he claimed. The stock exchange, far from ruling economic life, is at the mercy of tides of collective make-believe. Depressions come about when there is a loss of economic myth (Eugene Boehler, "Der Mythus in der Wirtschaft," Industrielle Organization, XXXI, 1962.)
Bill Clinton, with his "policy team" intervening to buy up Dow Jones and S&P futures in an attempt to maintain a pumped-up pre-election stock market, understands what Boehler was saying perfectly. So do Hong Kong, and Malaysia, and all the other places where the disease of stock market manipulation--once unthinkable--has now become rampant. That such efforts are doomed to ultimate failure does not prevent their earnest practice. Yet nothing about the Hollywood dream factory could have been any more hokey than the popular interpretations of "market economy" that accompanied the spread of NWO ideas.
Let's see some examples.
The Asian Flu
China had not yet adopted the New World Order's liberal democracy, but the Chinese wanted a market economy and a booming business sector just like everyone else. That was obvious, right? So in nearby Hong Kong there was a clear appetite for red chips.
"Red chips" were stocks issued by mainland Chinese companies in the Hong Kong stock market. Everyone wanted red chips in May 1997, shortly before the transfer of Hong Kong from Britain to China. There was red chip mania, especially for a company called Beijing Enterprises. Chinese companies like it were considered a sure bet, as they had political connections to the Communist Party hierarchy in Beijing. The Beijing bureacrats would look after the company's welfare and would protect its share price, investors were saying. It would look bad if stock prices fell after the Chinese take-over of Hong Kong, the same investors whispered. Buying shares in Chinese companies was not only a good investment, it was good insurance. Everyone knew that.
There is nothing quite like the sight of Capitalists exercising their faith in Communism. For Beijing Enterprises was only three months old. It was the investment arm of the Beijing municipal government. And it owned, well, some McDonald's restaurants in Beijing. But never mind all that: the not-yet-issued shares had been oversubscribed by a factor of 1200. In fact, the issue attracted investment capital of about HK 200 billion, or about twice the Hong Kong money supply. People withdrew so much cash as a consequence of the issue, that Hong Kong banks asked Beijing Enterprises not to cash the checks it received--at least not until the banks can deal with their shortage of vault cash. That presumably would happen when 1199 of each 1200 would-be investors, who were not lucky enough to be awarded shares, redeposited the money in their Hong Kong bank accounts, and disappointedly awaited the arrival of the next new red chip.
What could be more Capitalist, more consonant with the New World Order, than buying stock in China? Get a piece of the world's largest consumer market! The road to riches was paved with stock certificates. And the shares of Beijing Enterprises performed as required: the price quadrupled in just the first day of dealing. But stocks that can quadruple in a day can also plunge to a quarter their previous valuation. If we jump ahead just five months, to Black Thursday, October 23, 1997, we find Hong Kong's Hang Seng index falling over 1200 points in a single day, plunging below 10,000. That was the largest point drop in the index's short 14-year history. The red chips were down 50 percent for the month. A new red chip, China Telecom, making its public debut on Black Thursday, failed to meet its issue price. There was no free lunch, it seemed, after all. This realization arrived as a gruesome shock to many.
Space does not permit, but similar stories can be told for Thailand, Indonesia, and South Korea. Today, less than a year and a half later, the economic crisis has generated widespread political and social unrest in Southeast Asia. Stock markets have declined between 70 and 90 percent in US dollar terms, while GDPs on the same basis are down 50 percent (80 percent in the case of Indonesia). Starvation has emerged in parts of the Philippines and Indonesia. War in the region, unthinkable a year ago, has now become thinkable. The main question is political risk, according to Hung Tran, the chief economist of Rabobank International. Governments have a huge problem, and their reactive instinct is political repression, including the imposed social regimentation that a war footing allows. Another Asian expert, Jean-Pierre Lehmann of the Swiss Asia Foundation in Lausanne, notes, "You're talking about haystacks which could go up in flames at any time" (Financial Times, Sept. 7, 1998).
Japan is the economic key to the region, of course. The New World Order calculations had considered what was occurring in Japan as temporary. In 1989 the Nikkei 225 had reached 39,000. At that time, the Tokyo stock market was valued at more than Yen 500 trillion ($3.6 trillion), or about 30 percent higher than the listed value of all U.S. companies. From that peak, it fell 64 percent by mid-1992. Each dollar invested had turned into thirty-six cents. (An equivalent fall in today's Dow Jones Industrial Average, say from its July 17, 1998, peak of 9338, would leave it around 3362. The carnage on Wall Street would be something to behold.) But everyone expected Japan to quickly recover. They didn't envision a recession continuing on and on for eight years, and worsening all along the way. That was only supposed to happen in the uncivilized peripheral economies of the Third World and the former Soviet Union.
Today it is clear there is nothing that can be done about Japan, from a New World Order standpoint. For eight full years, there has been continual "reform" and continual Western advice-giving, and essentially nothing has happened, despite all the gimmickry of macroeconomic policy fixes. Japanese assets, institutions, and habits are being relentlessly ground down to their barest essentials of default, reorganization, and change. The most recent pathetic gesture was the Bank of Japan's cutting its discount rate from .5% to .25%. Where next? Zero?
At some point the Japanese will make all the necessary decisions that bedrock reality forces them to make. What these will be, I don't know. But I suspect they will restructure their society, and in the process separate themselves politically and militarily from the US. The recent North Korean missile test (satellite launch) over Japanese territory comes at a fertile moment.
Meanwhile, as a side blessing, those of us in the US will no longer have to endure the sight of Deputy Treasury Secretary and international-finance illiterate Larry Summers lecturing Japan on the value of the yen, for he will likely be at home explaining why his own house is in such a mess.
Russia: All This Calm Reasonableness
In the New World Order scenario, since we all agreed on basic premises, and since the US had emerged as the only superpower, it followed that everyone would be happy with US leadership, including Russia. Russia, like everyone else, would warmly welcome US political input, as well as economic advice from the likes of the US Treasury, Credit Suisse First Boston, Goldman Sachs, MIT, and Harvard. Sure, Russia was a problem child in the emerging order. But it was too big and too nuclear to fail.
The architects of the New World Order apparently never read Fyodor Dostoyevsky. More than a hundred years ago the Russian novelist had one of his his characters describes a new (rational) economic world order:
Russia started out its NWO economic reform by turning state assets over to the Russian "oligarchs" or "tycoonocrats". From the beginning "market economy" largely meant enrichment for a few of those same oligarchs. Capital--whether from the IMF or from international investors--does not become productive when most of it is stolen, and the rest is employed inefficiently. Hard currency loans to Russia, to the extent one can tell, have been largely recycled by the oligarchs into their personal accounts in international banks outside Russia. Within the country itself, ordinary business commerce is hardly possible because there is no contract enforcement.
All this did not prevent Goldman Sachs telling investors they should gather round and partake of the free borscht. It sold them Russian bonds with attractive interest rates. Government securities at times bore yields of 100 percent, even 200 percent. Since the Russian economy was not growing at 100 percent per year, nor government revenues doubling at an annual rate, how the government would pay back these loans wasn't clear. But such lending was patriotic: Russia was an essential part of the NWO strategy.
The IMF arrived in July 1998 with a rescue loan of $22.3 billion. This would give them "breathing room," declared Stanley Fischer, First Deputy Managing Director of the IMF. But the first allotment of IMF cash was quickly exhausted in foreign exchange intervention to shore up the ruble's fixed exchange rate. "The ruble will not be devalued," Boris Yeltsin declared. But almost immediately it was, and his Prime Minister was also sacked. Tellingly, the orders came from the French Riviera, where Boris Berezovsky was vacationing. (Berezovsky, executive secretary of the Commonwealth of Independent States, and holder of extensive oil, airline, auto and media interests, generally serves as oligarch-in-chief.) The government also effectively defaulted on $33 billion in short-term debt. Now there is a new Prime Minister, Primokov, who was trained as an Oriental scholar by the KGB. The Goldman Sachs bonds trade at a steep discount.
The coming Russian fascism is visible. Recent weeks have seen a resurgence of the Communists, the largest party in the Duma, and calls for the return of state planning and wage and price controls. The non- Communist General Lebed, while saying "forget Moscow", is implementing exactly the same policies in his own territory. One doubts that there will be, or can be, a return to the old-style Stalinism of the past. But out of the melting pot of Communists, nationalists like Zhirinovsky, and oligarchs protecting their monopoly theft rights, surely something equally odious is in the offing. Where are the New World Order's logarithms now?
For a number of years, as analysts have sought to justify the mysterious rise in US stock prices, the "globalization of capital" has been brought forth as one of the most frequent explanations. But now, after the Asian crisis, and after the Russian crisis, and in the midst of a Latin American crisis--well, talk of global capital interconnectedness has disappeared. Suddenly, all these problems are said to be isolated occurrences with local causes. Surely what's happening in the NWO periphery will not feed back to the center. Yet, in the background, one keeps hearing the same whisper. The dreaded D word: Deflation.
Deflation is the ultimate subversive force, because if there is one thing the New World Order is supposed to know how to do, it is how to pump up demand. "This expansion will run forever," wrote MIT economist Rudi Dornbusch in the July 30, 1998, Wall Street Journal. Why? Why won't there be a recession for years to come? Because, he says: "We don't want one, we don't need one, and, as we have the tools to keep the current expansion going, we won't have one."
During the US Depression of the 1930s, wholesale prices fell 32 percent. The current fear, for those who do not share Dornbusch's arrogant feelings of omnipotence, is that a deflationary spiral may have already begun, and is gathering momentum. In a deflationary spiral, falling demand causes prices and sales to drop, which causes profits to fall and business inventories to pile up. This, in turn, leads companies to cut back on investment and employees, which causes demand to fall further. Back in 1931, John Maynard Keynes wrote that in "the fall of investment . . . I find--and I find without any doubt or reserves whatsoever--the whole of the explanation of the present state of affairs" ("An Economic Analysis of Unemployment," 1931).
Whatever the economic consequences of deflation may be (and sources as various as the Wall Street Journal and Business Week have assured us it's no problem--"we're all non-Keynesians now"), the world in 1998 is clearly on a deflationary course. This is evidenced by simultaneously falling wholesale prices, commodity prices, stock prices, and interest rates. Gold has fallen from $383 an ounce in late 1996 to around $275 now. In August 1998 US wholesale prices dropped 0.4 percent as measured by the Producer Price Index. Over in China, retail prices have fallen more than 20 percent in six months. An ultimate drop in the US retail price level, while hard to imagine, is not unthinkable.
The loss of confidence in one's image of the future can bring about sudden dramatic effects. What was once believed to be obviously true (steady or increasing real growth rates of GNP, record corporate earnings, low inflation, steady commodity prices, stable and sound financial institutions, and widespread peace under the New World Order) is suddenly viewed as obviously false in light of the "facts" (declining real GNP, falling corporate earnings, inflation in some sectors accompanied by deflation in others, wildly gyrating commodity prices, extended problems in the banking and insurance sectors, and "old world chaos" in Southeast Asia, the area of the former Soviet Union, and the Middle East). Not because reality has necessarily changed that much, but because perceptions of what is happening are suddenly radically different.
Just for fun, consider the stock market declines of 1929-1932 and 1973-1974. On September 3, 1929, the closing high on the Dow Jones Industrial average was 381.17. Three years later, on July 8, 1932, it reached a low of 41.22, or 10.81 percent of its previous level. In January 1973, the Dow Industrials reached a closing high of 1061.14. Less than two years later it closed at 572.20, or 53.92 percent of its previous level. Using a July 17, 1998, closing figure of 9338 for the Dow Jones Industrials, these same percentage drops imply Dow Industrial levels of 1009 by analogy with 1929, or 5035 by analogy with 1973. The first would imply a total drop of over 8329 Dow points, while the second would only imply a drop of 4303 points. Either would be serious.
A 90 percent drop in the Dow Jones? While we would all prefer to believe such an occurance is impossible, and to rule it out a priori, such 90 percent drops have taken place in Russia and in some countries of Southeast Asia with ferocious rapidity. Namely, within the span of a year. That, too, was considered impossible.
Such a view of the stock market is, of course, at variance with the prevailing doctrine of "rational expectations." Rational expectations began as an extremely useful view of price equilibrium created by John Muth ("Rational Expectations and the Theory of Price Movements," Econometrica, July 1961). But it grew into a cult view that all economic and financial decisions were "rational" in a quite different sense than originally proposed by Muth. Ultimately "rational expectations" turned into the mystical belief that images of the future were always formed in a particularly mechanistic way.
The essence of rational expectations can be grasped by imagining a long line of cars waiting for a traffic signal to turn green. When the light turns green, the entire line begins moving at once, uniformly accelerating through the intersection. And why not? After all, each person waiting in the line knows the light is about to change from red to green. Each person knows that each other person in the line knows this also. And they all know they will get through the intersection faster if they all move together. So each expects the other to rationally act as he himself does, and they all make it through the light before it turns red again.
People with these expectations are called "rational" in economics. In real life, they are known as "fender-benders". Because in real life, traffic doesn't behave this way, and neither do people. There will always be the curmudgeon who has just broken up with his girlfriend and is staring out the side window at the marquee of a topless bar, oblivious to the horns blowing behind him.
Current stock prices, which (except for a severe downturn in the first half of 1994) have been rising ever since the Gulf War, have ridden the vision of the American-led New World Order, of America's resurgence as the world's policeman, putting down the evil Saddam Hussein, and bringing lasting peace to Bosnia. With the demise of the Soviet Union, the vision saw the U.S. leading an enlightened United Nations to a political solution of all the world's ills. But this has only been an idea, a voluntary con, much like the precepts that led to the mania for red chips in the Hong Kong stock market.
In the U.S., the recent rise in stock prices has been fueled by a shifting of household assets into stocks and stock mutual funds. The average household exposure to stocks is the largest it has been in U.S. history--larger than before the 1929 crash. Clearly the stakes in the New World Order vision are high.
"Speculative excess, referred to concisely as a mania, and revulsion from such excess in the form of a crisis, crash, or panic can be shown to be, if not inevitable, at least historically common" (Charles P. Kindleberger, Manias, Panics, and Crashes: a History of Financial Crises, 1989).
But Kindleberger has been considered old hat in the New World Order scheme of things. Things like he wrote about only happened back then, before history reached its logical conclusion. So maybe Dornbusch is right. Maybe this expansion will last forever.
But I wouldn't count on it, any more than I would count on Bill Clinton being around to lead us out of Egypt, and across the 21st century bridge into the Promised Land.
September 13, 1998
Web Page: http://www.aci.net/kalliste/
This article appeared in Liberty, Vol. 12, No. 2, November 1998.