OSAKA – What in the world is happening to this fragile planet Earth?
The situation has become so bad that Jeremy Grantham, one of the most respected global investors with $100 billion under management, warns that “our global economy, reckless in its use of all resources and natural systems, shows many of the indicators of potential failure that brought down so many civilizations before ours.”
He sees just two optimistic factors that could save the planet: declining fertility rates that on present trends may lead to the global population falling from a peak of just over 8 billion in 2045 to almost 6 billion by 2100; and progress in alternative energy. (Note: The United Nations has not yet picked up on the declining fertility and sees global population rising to 11 billion.)
Grantham, who is British but based in the United States in Boston, says in his April letter that our world is following the pattern of previous lost civilizations, including mismanagement, overuse and depletion of resources; costly, unnecessary wars; a failure of moral spirit and the replacement of pioneering attitudes by softer and more cynical ways; increasing and expensive complexity in growing empires with limited resources that become vulnerable to small shocks; and the hubris and overconfidence of being too smart to fail.
He is worth listening to because he built his investment reputation by being cautious and steering clear of bubbles and their inevitable bursting.
He warns that vested interests always defend the status-quo and people prefer “optimistic propaganda to uncomfortable truths, wishful thinking rather than tough action. What is less common is what we have today: the near complete control of the government by the powerful beneficiaries of the current system.”
Grantham put a title on his essay, “The Race of Our Lives.” He believes it will be a close-run thing whether rescue can come before our world commits suicide through the combination of rising temperatures, ocean acidification and destabilized weather for farming.
Some of the most powerful vested interests are the too-big-to-fail (TBTF) banks, which have gotten bigger since the last financial crisis. The issues are exacerbated by the weight of meta-money, principally derivatives, compared to the real economy. The world’s total gross domestic product is about $60 trillion. Traditional financial assets, such as shares, bonds and bank debt total $250 trillion, with the value of land adding another $100 trillion.
But derivatives dwarf all of this, worth $700 trillion, according to the Bank for International Settlements.
There are two linked worries here. One is obviously that this giant casino is so much bigger than the real economy, our jobs, homes and lives, that the gambling money could destroy us all. But who’s checking and who will bring the gamblers to account?
Last month Eric Holder, the U.S. attorney general, admitted that the big banks were not only TBTF, but were also too big for him to handle.
He told the U.S. Senate Judiciary Committee that he was afraid of prosecuting crime in the biggest banks for fear of undermining confidence in the U.S. and world economy. But that is equivalent to the referee abdicating and handing the game over to the players. It should be shameful for the chief law official of the U.S. to make such an admission and we should expect to hear what he is planning to do about it. Don’t hold your breath.
Agents of the big financial institutions are among the biggest lobbyists in the U.S., and they make sure that they massage the egos and the funds of lawmakers, so that the TBTF banks can keep their gambling machines.
There is also a revolving door with senior White House officials retiring to take lucrative jobs on Wall Street, so that the banks preserve their interest in high places.
But for all this, bankers are complaining that they find it hard to make ends meet. Should we feel sorry for the investment bankers who claim that they are on the point of bankruptcy in earning only a million pounds or a million dollars a year?
In eFinancialCareers, bankers and their friends have been lamenting that a million pounds or a million dollars is really only worth 600,000 when tax has eaten into it, and they have to pay for a house in the Hamptons or Woking, private schooling for the kids and skiing and holidays you can talk about with your peers.
Pity poor souls working for Barclays, who have heavily deferred bonuses, so have to live on 400,000, less after tax.
It has gotten so bad that bankers are sharing tips on how to cut spending. Among the top 20 ideas: go on a clothes diet; sell your old stuff; cook your own food; start ironing; send your teenagers out to work; buy a Prius or cycle to work; and even, horror, enroll the children in the state school system.
In the United Kingdom only the top 1 percent earn more than £150,000 a year; in the U.S., the 1 percent start at $370,000.
According to the U.K. Home Office, the biggest earners outside banking are telecommunications directors with £78.6k a year, consultant-level medical practitioners, who earn almost £75k, ordinary doctors, £53.8k, and airline pilots £49.5k.
Weep for the poor bankers, weep for the world that they dominate.
As Robert Johnson, executive director of the Institute for New Economic Thinking, laments, “The system of society in the United States is a money politics system.” About 97 percent of the derivatives system is controlled by six banks, which make $35 billion a year from it. There is so much money whirling around that it is only a matter of time before there is another crash.
Grantham hopes that China will ride to the world’s rescue by slimming its wasteful infrastructure investment from 50 to 35 percent of GDP and starting a massive 25-year commitment to alternative energy.
In this I fear he is guilty of wishful thinking. The new leadership of Xi Jinping has not shown much ability to think globally except to demonstrate that China will not be pushed around.
Some of the latest assertions came across icy Himalayan wastes in Ladakh where 30 Chinese soldiers were camped 19 km inside disputed territory claimed by India — to howls of protest from Indian press and opposition. It seemed an odd advance guard for the visit of Premier Li Keqiang to Delhi this month. The Chinese soldiers eventually withdrew after agreement between the commanders.
But early in May, China appeared to be stirring things up on the other side of its empire. A long article in The People’s Daily, the mouthpiece of the Communist Party, by two researchers from the leading government think tank challenged the right of Japan to sovereignty over Okinawa, the southern part of the Japanese islands.
The professors claimed that China had rights to the territory because the Ryukyu chain, including Okinawa, had been a “vassal state” of China, paying tribute to Beijing until Japan took control of Okinawa in the 19th century.
When Japan protested to China about the article, Beijing claimed that it was merely the view of the two researchers. This was typically disingenuous of China, because the article appeared in the main ruling party organ, though it is true that a signed article does not carry the weight of an unsigned editorial. It seemed designed to keep the pressure on over the disputed Senkaku Islands.
But the message is clear enough: China is evidently not interested in a global vision, except one of itself.
Kevin Rafferty is a professor at the Institute for Academic Initiatives at Osaka University.