By Kumar David –
Year 2016 has been a dance with death! – Let’s make 2017 better than 2016
There have been very few years since the end of the war that have been as repugnant as 2016, mainly internationally but the domestic front too has been exasperating. The year will be remembered for Brexit, Trump, impeachment of Dilma Rousseff, economic calamity in Venezuela, Modi’s well-intentioned but poorly managed demonetisation and the carnage in Aleppo. On the domestic side 2016 is the year in which the Sirisena-Wickremesinghe government blundered time and again. How Brexit and Trump will pan out is discouraging and my money is on the negative side. In India my crisp new Rs 500 note is stacked on a positive bet for the long range. (Australia, Pakistan and Venezuela too have decided to demonetise though on a smaller scale than Modi but for similar reasons). In Aleppo the smell of death stalks the streets and the conscience of the world has not been so tarnished since it stood idly by and watched genocide in Rwanda.
In the medium term Donald Trump is nasty news. The dynamic is that the US has entered an era of conflict between modern America, not just liberals, and its primordial and primitivistic remnants. Trump will not entirely backs-off on his trade mark policies. Nationwide protests that greeted his election gave notice that a divided nation is arming for political and ethical war. Blood may literally be spilt if Trump and his billionaire Cabinet prune wages, cut social welfare and benefits, or go ahead with measures like an abortion ban, deporting Mexicans, or curbing imports causing prices to rise.
Another Vietnam War- Civil Rights Movement era on campuses and cities may be Trump’s legacy. A fringe group has called for independence for California, an absurdity, but what this points to is that there are in reality two Americas in educational attainment, intellectual ethos and economic structure. Trump has been constitutionally elected but three million more votes were cast for Hilary Clinton. The point is that his bizarre policies have been rejected by the modernised half of society and his moral right to lead has been spurned by the educated and intellectual classes. It is this extraordinary dynamic that will play itself out in the next four years. The United Sates will emerge from Trump’s first term a divided and weakened nation.
Don’t be fooled by US markets
Well-heeled crabs will dance for a few more months while the water warms. The stock-market is smoking weed and on a high that is remote from reality. Dow Industrial P/E ratio was 22 at the end of the months (Dow Utilities a staggering 28). P/E ratios are calibrated in different ways, an S&P P/E ratio called “Cyclically Adjusted” stood at 26 last week as opposed to its long-term average of 17. To put it simply the market is way overpriced. [A P/E ratio of say 25 means it takes 25 years dividends to earn back an investment; that is 4% return on capital]
Worse still, prices are driven up by companies “buying-back” their own shares. There could be many reasons why a company intervenes to buy its own shares and raise their price. One is that corporate managers can crow “see how well our stock is doing” and inflate their bonuses; another is that there is excess liquidity around for reasons like Quantitative Easing, so investors borrow cheap and pump up a share price bubble. Investors are borrowing at low interest not to “invest” but to speculate. This is crucial to perceiving the breakdown in economic confidence.
I have reproduced two diagrams, typical of many, from the web to portray the pyric boom in the US stock market. Figure 1 says that of late, in every quarter, over $150 billion (vertical bars) of “own” shares were bought back by about 380 companies (top line) each quarter. Figure 2 shows that margin debt (borrowed money) in in the New York Stock Exchange (NYSE) at a four times higher ratio than at the trough of the 2009 recession. This means the so-called Trump rally is artificial and ephemeral. American capitalism and with it Europe, Japan and China are in a self-inflated, borrowed money bubble set to burst in a year or two. The ensuing recession will be severe. The similarity of the current trend to the 2001 and 2009 recessions is eerie (fig1 does not include the 2001 recession, but trust me).
I have written at some length (13 and 20 November) that the Trump presidency will usher in a period of domestic social and political disquiet as well as instability in US foreign relations. In the foregoing paragraphs I have supplemented this with a warning that the medium term economic outlook too seems negative after a year of artificial Trump buoyancy passes.
The message from Aleppo
The brutality of Russian airpower and Assad’s army has been documented so I don’t need to add anything. What does this brutality this say for countries that become proxy battlefields for global powers? Thomas Hobbs come to mind; “Life is nasty, brutish and short” and “Force and fraud are in war the two cardinal virtues”. In the late twentieth century and the first decade and a half of the twenty-first the world was exposed to human rights rhetoric and an effort was made by the UN and HR bodies to pursue these goals. War-crimes probes pertaining to the last phase of the Lankan civil-war is a welcome outcome of these trends.
There is reason to fear that concern for human rights and protection of civilians may become a thing of the past. Putin-Assad brutalisation of Aleppo while the UN, the West and the ‘non-aligned’ world stood by is a harbinger of things to come. What is on the horizon is a world where the powerful look after themselves and say “Each for himself and the devil take the hindmost”. Trump, Putin, Netanyahu and Xi Jinping agree that human and democratic rights are for suckers like Angela Merkel who in any case, isolated by bigots in her own country, is now beating a retreat. The Putin-Trump thesis turns the world into a human rights dystopia. No surprise that President Sirisena beseeched Trump to squash Lanka’s war-crimes tribunal.
We will need to fight these barbarians at the gate. To this resolve we must fully commit this New Year’s Day alongside a pledge to fight another no less important Trump threat to the planet, climate sabotage. Again it is the world’s poor who will pay the price of global warming.
Sirisena-Ranil’s unforced errors
Grant the devil his due; this government is not an authoritarian monster like the Rajapaksa regime. I no longer awake each Sunday wondering whether the white-van will come. Nor do incensed family members phone and thunder “Kumar, shut up will you!” There have been no more Lasanthas and Ekneligodas; which is reassuring for those who dare to dissent. We have emerged from the valley of the shadow of death.
The problem is that if S&R continue mucking things up, practically, they will prepare the ground for the return of the Rajapaksas. And a Rajapaksa come-back it will be curtains us small potatoes; we cannot evade the white-van a second time. Big shots will cut a deal and make a getaway; small fry will fry. So there is more reason then “the good of the country” and such like lyrics for kicking the S&R butt before they drag us all down into the drain. This is why on practical concerns like electricity sector reforms, though I have extended my cooperation and technical expertise, I am also harshly critical.
There are two big worries; the new constitution and the inability of RW to force his lot to zero in on a consistent economic direction. Next week I will deal with the economy in the context of RW’s Development (Special Provisions) Bill gazetted on 25 November. Here I will express concern about what is happening, or rather not happening to the constitution. What are they discussing, what are the options on the table? My fear is that any, even half decent constitution, will be strangled by the Rajapaksa rump of the SLFP, denying it the requisite two-thirds majority. That is I fear that the new constitution may be altogether aborted?
I cannot here recount all the individual cock-ups the Sirisena-Ranil outfit has managed; I will make do with just one. The President’s interference in electric power sector decisions and his fouling up of the CEB’s long term expansion plans is like a monkey performing delicate brain surgery. The henchmen who drove the President to scrap the clean-coal option in Sampoor don’t recognise the difference between a kilo-volt and a milliamp, figuratively speaking. In a piece on 25 September 2016 (‘Short-circuit at Sampoor’) I estimated the cumulative loss from this blunder at Rs. 220 billion. It now seems power cuts may start earlier than thought and the cumulative financial loss will be greater – perhaps much greater if the rains too fail.
If the left is to make more than minimal impact in 2017 its central task is to unify itself. At present it is fragmented into bits and pieces, sects and shards. Fragments are picked up, used for specific tasks, then to be discarded; “Jayampathy write a constitution! Bahu celebrate the centenary of the Russian Revolution! JVP block some Rajapaksa treachery!” Good on a one-of basis, but to achieve macro-impact on the big picture the sects and fragments, bits and pieces must fuse into a single entity. A rational constitution, breaking the imbroglio on the national question, countering the factions in society that are gung-ho on a near neo-liberal economic programme, and a stronger anti-corruption focus, all need a unified left. Unification into a single entity “omitted, the voyage of their life will drown in shallows and in miseries”.
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