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Commentary by Reader Harun I.

Wal-Mart, disequilibria, Greenspan's Fraud and global economic dislocation
  (Sept. 4, 2006)

In my opinion Wal-Mart is not a cause it is an effect. Societies, which I analogize to ecological systems, must behave, as all ecological systems must. Each organism no matter how insignificant it is perceived performs a vital function in the support and maintenance of the system. There must be and will always be individuals willing to work in jobs at all levels and receive whatever wages offered that a societal system needs to function. I donıt know why but if something needs doing someone will appear willing to do it at the wage offered. In a society everyone will not be wealthy or middle class. Equally there are jobs that need very little in the way of intellect or physical skill that are vital to the efficient functioning of society.

Perhaps an understanding of this would make the idea of subsidizing low-income earners more palatable to higher income earners. It would be even more beneficial and sensible if corporations understood their connection to their employees and voluntarily offered wages that allow the most menial worker to provide for his/her basic needs without handouts; this goes to the very core of human dignity and independence. Not doing so will eventually give way to distortions that will grow until no longer sustainable. In other words a ³Let them eat cake² attitude has always proven to be costly.

As a sidebar, with all due respect, asking why people would show up in droves for employment at Wal-Mart is like asking why a starving man would eat a meal out of a garbage can. If meaningful employment is as plentiful as this administration espouses why are there long lines for Wal-Mart jobs?

Wage arbitrage is not new (Andrew Carnegie imported labor from Europe when Americans refused to work in his mills under the conditions and wages offered).

Imbalances that naturally occur in all natural systems are eventually culled out so that a new cycle can begin. As it pertains to human society the rise and fall of major and minor societies, revolutions (political/labor), social disorder, wars, etc., empirically appear to be attempts by the human psyche to achieve equilibrium at various levels. This equilibrium either doesnıt exist or is not fixed and therefore is unachievable. Distribution of wealth leads time and again to the concentration of wealth. Expansion leads to contraction.

The current disequilibria seems to be the effect of the global fiat currency/fractional reserve banking experiment where the constant injection/expansion of credit at an exponential rate is needed to keep the game going. As long as all partners to this experiment keep up their end of the bargain symbiosis is achieved, of course until the point of diminishing returns or when a party or parties no longer find the arrangement beneficial. At this point no matter what is done the system breaks down and the cycle renews.

The very fact that no one knows how this experiment will end implies the central banks of the world are not in control of anything. Since no fiat currency has survived history gives us the probability of 100% failure.

Without the global wage arbitrage currently underway I speculate that the U.S. credit binge (exponential debt expansion) in which cheap labor plays an integral role, which in turn has led to the illusory ³wealth effect² could exist. China probably would not be expanding at its current parabolic rate and Japan would probably be in a deep depression.

Ravi Battra, in his book Greenspan's Fraud, hypothesizes that the relationship of wages to profits on the balance sheet explains why companies can be profitable while wages lower or stagnate. I will not go into the math but to summarize, if wages no longer have to be expensed because the consumer/worker is borrowing to buy goods and services from the corporation then wages appear on the bottom line as earnings instead of an expense. If this relationship is true then corporations ability win at beat the number will disappear in direct proportion to consumers/employees ability or willingness to borrow to maintain a particular lifestyle (maintain rate of consumption). In other words the collapse credit expansion could cause corporate earnings decline suddenly and sharply. Perhaps your missive ³They canıt have it both ways² suggests we have arrived at an inflection point. Once again history doesnıt offer much evidence in the way of ³soft landings² or ³muddling through² in the aftermath of such large distortions.

I blame no one in particular because in order for the situation to exist there must be active or passive complicity by all parties (there must be individuals, governments or corporations willing to lend and those equally willing to borrow). At the point where credit can no longer be expanded at the rate necessary to support the system whether by a lack of willing lenders or borrowers the system goes into a positively reinforced feedback system of corrective movement. Are we at the point where hyperinflationary or deflationary collapse or one leading to the other is the only choices on the menu? I donıt know. Bon appetite.

Once again to sidebar: there are many seemingly independent forces at work that are actually functioning as one. Already we see countries positioning to secure and control energy resources. "No wars for oil" stickers may be well intentioned but are naïve. At least for the time being all industrialized countries rely on oil or face serious problems. Our ability to project militarily for national security concerns depends on oil. Iran knows this and in conjunction with its understanding of the tenuousness of the current economic climate will keep pressure on oil prices in hopes forcing a financial collapse. We must face the fact that there are not enough resources to go around to maintain highly consumptive economies worldwide. This alone will eventually lead to instability of some sort. Our military commanders are well aware of the potential for outbreaks of wars over vital resources and have war-plans in place for such occurrences.

In summary, Wal-Mart is filling the role it needs to at the moment but will reap what it sows. All corporations, large and small need to understand their inseparable connection to their employees and realize that their actions unfold in and shape the American economy, which affects the global economy, and act responsibly.

Probabilities are high that a serious prolonged global economic dislocation will occur. Since we cannot depend on our elected officials to have the courage and wisdom to act, perhaps we should all be preparing to take advantage of the situation even if for no other reason than to preserve purchasing power. In all disasters those who either recognize in advance and prepare appropriately or are able to effectively adapt flourish.

Best regards,


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