The Estimable Yves Smith posted an insightful article this morning by Matt Stoller describing the ‘Big Picture’:

Matt Stoller: The Egyptian Labor Uprising Against Rubinites

By Matt Stoller, the former Senior Policy Advisor for Rep. Alan Grayson. His Twitter feed is @matthewstoller

Via Wikileaks, we learned that the son of the former President of Egypt, Gamal Mubarak, had an interesting conversation in 2009 with Senator Joe Lieberman on the banking crisis. Gamal is a key figure in the forces buffeting Egypt, global forces of labor arbitrage, torture, and financial corruption. Gamal believed that the bailouts of the banks weren’t big enough – “you need to inject even more money into the system than you have”. Gamal, a former investment banker trained at Bank of America, helped craft Egypt’s industrial policy earlier in the decade.

Our purpose is to improve Egyptians’ living standards. We have a three-pronged plan to achieve this: favoring Egypt’s insertion into the global economy, reducing the state’s role in the economy, and giving the private sector greater freedom.

Deregulation, globalization, and privatization. This should be a familiar American recipe, commonly associated with former Treasury Secretary and Goldman Sachs chief Bob Rubin. That Rubinite rhetoric has been adopted by the children of strongmen shows the influence of Davos, the global annual conference of power brokers. Gamal, far more polished than his father, understood that the profit and power for his family lay in cooperating with foreign investors to squeeze labor as hard as possible.

This strategy was targeted at the global labor arbitrage going on since the 1970s, with Egypt’s role as one cheap labor in-sourcer. It’s no surprise that the Mubarak family has $40-70B stashed away in the global tax safe havens coddling the superrich. This wealth was extracted from the youth and women in Egypt’s new factories making low-cost goods for export.

Doesn’t this sound familiar? It should, as it is part of a piece with the Neo- liberal ‘New-ish Deal’ that includes wage- debt slavery and life long peonage to the uber- class of interconnected billionaires. Hello, kids … this means you!

Tunisian and Egyptian American elites view the country’s population as a resource to strip mine. Suppressing wages by throttling labor is the only way Egyptian business activity can provide the returns elite demand. Higher wages and better working conditions mean more demand which would in turn increases input costs.

The US government fights unemployment the exact same way the Chinese government fights inflation. Both activities are complete frauds; consider the hiring of ‘Mr. Outsource’ Jeffrey Immelt as Obama’s chief jobs advisor.

Obama’s fools whom, exactly? China’s 0.0000025% interest rate hike is a joke. China is actually pumping cheap money into its economy because its rates are so far short of GDP.

Here is a viewpoint from Citigroup analysts Minggao Shen, Shuang Ding, Ken Peng and Ben Wei:

Why is the property fever so hard to cure?

This could be explained by the half-hearted tightening as the Chinese authorities worry about the adverse consequences of a bubble bust. First, the above-8% GDP growth could be threatened if the property sector collapses. Second, local governments that are deeply indebted would face liquidity crises, and many public policies (e.g., public housing) would not be carried out without revenues generated from land sales. Third, non-performing loans in the banking sector would skyrocket if property price falls sharply.

Right, Chinese elites would take it in the neck if loans stopped performing …

Inflation: Going Higher but Under Control

The sole risk this year is hyper-inflation to many investors. Higher inflation may invite over-tightening and a hard landing. In our view, this should remain a risk rather than a reality. The key reason is that, barring extreme weather, China’s inflation will stay higher but under control this year.

The worry over hyper-inflation originates from excessive liquidity and its consequences. Liquidity will likely stay loose this year as the government is keen to maintain faster economic growth. However, for hyper-inflation to be true, we need to know where the inflation will come from. In other words, we need to establish a channel between loose liquidity and high inflation.

The channel Citi is looking for is the massive Chinese underground or Loan Shark Economy (LSE) which functions the same way Shadow Banking did for Wall Street prior to Lehman’s immolation. It buys up dollars with whatever yuan it can get its hands on causing an apparent liquidity shortage.The LSE prices Chinese currency at a discount to the central bank and F/X. The tug of war is between the carry trade in dollars, the oil trade which is also in dollars, the loan sharks and the Peoples Bank of China. The loan sharks are winning because they can keep the price of yuan low and support the big manufacturers who are destroyed by a rising yuan. The more the PBOC tries to push up the yuan the more currency exchange business flows to the loan sharks.

The more yuan flowing to the sharks, the fewer are in official circulation. Some remain as mandated reserves so the central bank must put more and more into circulation to keep up with (virtual) demand. The loan sharks cannot print yuan but must buy them with dollars, euros and yen. The central bank can print yuan and stoke hyperinflation or it can cut the sharks off and crash the Chinese manufacturing economy.

What a choice! I’m glad I don’t have to manage this mess. The solution is sharp energy conservation and an immediate reduction in dollars held. They should lend dollars to America for energy conservation and thereby cure two problems @ the same time: revive their #1 customer and eliminate a surplus that is bankrupting their own country.

The high price of oil is effecting the value of the yuan just like it is effecting the high(ish) price of Egyptian labor and the consequent failure of Middle East governments.

Guess what: Chinese labor is becoming overpriced exactly the way Cairo and before that US labor was. It will be monstrously difficult for the Chinese to adjust to this new reality and for the world as well. China has a vast (mis)investment in manufacturing. What if labor plus energy together become too expensive for China’s factories to earn a profit?

China’s rush toward a waste- based economy means a bid for fuel which prices the offer out of reach.

Increased input costs that are unraveling the neo- liberal concept from the bottom up. What has been happening in the US since ‘Dollar Peak Oil’ in 1998 is taking place world- wide. Rising inputs squeeze profits or labor. The Middle Eastern uprising is the outcome to the squeeze on labor. Business must either cut profits, cut wages, create inflation or some combination of the three. Because profits are sacrosanct, the losers are the workers: higher input costs come out of the workers’ hides either as low wages or increasing prices.

Both cut final demand and kill economies. Low wages over long periods unravel the confidence of workers in their political systems. The elites are now living the wrath of the workers and the consequence of high fuel prices.

Meanwhile, from the ‘Paul Krugman Lives in a Parallel Universe’ department:

What’s extraordinary about all this is that stimulus can’t have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending. Here’s total (all levels) government spending over the past 10 years:

Looking at this graph, if you didn’t know there had been a “massive” stimulus, would you even have suspected that there had been any stimulus at all?

And yet the failure of the stimulus that never happened has become conventional wisdom — which is what I feared would happen, two years ago, when I was tearing my hair out over the inadequacy of the original plan.

I don’t know how to laff or cry. The blue line on the graph looks to me that the entire period from 2000 onward is one unbelievably gigantic surge! Does Paul want even more of a surge? Would he be happy if the blue line was vertical, blowing out the top of the chart? There are too many people using the word ‘bankruptcy’ in polite conversation for Paul Krugman to be right about this.

The red line is what ‘NOT a surge’ looks like, BTW.

Meanwhile, the President’s latest surge proposal suggests the Ponzi scheme economy is all that’s left; everything is a failure in waiting, so says Paul Sullivan @ Atlantic:

Obama To The Next Generation: Screw You, Suckers

Sullivan notes that the demands of retirees will consume 64% of Federal spending in 9 years. Meanwhile, Treasury Secretary Geithner suggests that  government’s borrowing costs that are also on track to consume another 20% of Federal spending. What’s left? What happens if the healthcare mafias and the banksters become more greedy in 9 years?

We don’t necessarily need people with great courage and statesmen to be leaders but some folks who can count would be a step in the right direction.

Meanwhile, here is Max Keiser’s recent interview with the estimable Chris Cook who explains crude prices for you:

There are three vids in all, worth the watch! Meanwhile, pay attention to Cook’s bilateral approach to (energy) trading that eliminates the middlemen.