The Empire Strikes Back Against Mexican President AMLO

The Economist urges Mexican voters to vote for anyone but AMLO and the US government is up to its old tricks: funneling money to political opposition groups. 

Andres Manuel López Obrador enjoys pride of place on the cover of the May 29-June 4 edition of The Economist. Above his picture is the headline “Mexico’s False Messiah.” An editorial inside the magazine compares AMLO, as the president is commonly known, to “authoritarian populists” such as Viktor Orbán of Hungary, Narendra Modi of India and Jair Bolsonaro of Brazil. But unlike them, AMLO has been able to escape the limelight, the newspaper said.

“This is partly because he lacks some of the vices of his populist peers. He does not deride gay people, bash Muslims or spur his supporters to torch the Amazon,” The Economist said. “To his credit, he speaks out loudly and often for Mexico’s have-nots, and he is not personally corrupt. Nonetheless, he is a danger to Mexican democracy.” As such, voters in each locality should “support whichever opposition party is best placed to win”.

President López Obrador responded to the article by describing it as “propagandistic” and highlighting the arrogance of a British weekly newspaper seeking to advise Mexicans on how to vote in next Sunday’s election:

“These foreign magazines and newspapers dedicated themselves to applauding the neoliberal policies [of past governments]; they’re in favor of privatizations, and they always kept quiet in the face of the corruption that reigned [in Mexico.]… It’s like me going to the United Kingdom and asking the English to vote for my friend [Jeremy] Corbyn of the Labour Party. I can’t do that because that’s a decision for the English. So why don’t they respect [us]?”

The Economist is not just a British newspaper. It has nearly a million subscribers in North America (far more than the 270,000 in Britain), and several hundred thousand in the rest of the world. Its readership has always comprised the crème de le crème of the financial and business elite. Within a decade of its founding, in 1843, Karl Marx described it as the organ of “the aristocracy of finance.” Not much has changed since then. As the New Yorker wrote in 2019, since the early nineties The Economist has served, alongside the Financial Times, as “the suavely British-accented voice of globalization.” And it is that voice that is now calling upon Mexican voters to frustrate AMLO’s electoral ambitions.

High-Stakes Election

This coming Sunday (June 6) Mexico will hold its biggest ever mid-term election. And the stakes could not be higher. As of six days ago 88 candidates had been killed by narco gangs. It’s a stark reminder of how strong a grip organized crime continues to hold on Mexican society.

According to the latest polls, MORENA, the umbrella movement led by AMLO, is likely to win both the congress and the senate with comfortable margins. But it’s unlikely to secure an absolute majority, which means it will still depend on other parties to pass new laws. And that is about the best result the financial and business elite, both inside and outside Mexico, could hope for.

The one thing they definitely don’t want is for AMLO to further strengthen his grip on political power in Mexico. If MORENA won an absolute majority in both legislative chambers, AMLO would be able to sign into law just about any bill. The opposition parties are exceptionally weak right now, largely because they have done such a bad job of governing in the past. Many of their members, including some of the most corrupt, have switched to MORENA, which has hardly helped MORENA’s popularity. As a friend told me, MORENA is like a garbage truck picking up old trash along the way.

The Economist cites a slew of reasons why AMLO represents a threat to Mexico’s democratic government. They include the legally questionable referendums he has held on infrastructure projects; the wide range of government tasks – including supervising large construction projects – he has entrusted to the military; his slashing of the budgets of public watchdogs; and his repeated clashes with the National Electoral Institute. 

There are plenty of other things the AMLO goverment has got wrong, as Kurt Hackbath reports in Jacobin magazine:

It has been too timid on a number of fronts, including reining in the privatized free-for-all of the mining and banking industries, attacking the nation’s grotesque wealth inequality, and defending migrants against US pressure.

It has been inactive on indigenous rights, insensitive to protests surrounding the plague of feminicides, and inadequate in creating a long-term environmental vision in the face of climate change. Its budget reductions have cut too close to the bone in a number of areas, including science and culture. And despite the fanfare of a new National Guard, the violence has not abated.

AMLO also failed to respond effectively to Covid-19. Like Trump, he played down the fears in the early days of the pandemic, with disastrous results. His government has partially made up for that in recent months by allowing the Institute of Social Security and Mexico City local authorities to recommend the use of ivermectin in the early treatment of Covid-19. According to the mayor of Mexico City, Claudia Scheinbaum, the medicine has reduced hospitalisations by as much as 76%.

AMLO’s Achievements

Even The Economist concedes that AMLO has done some good things along the way, “such as bumping up pensions and subsidizing apprenticeships for the young. Though a leftist, he has kept spending and debt under control, so Mexico’s credit rating remains tolerably firm.”

The AMLO administration has also helped to improve the lives of the millions of rural and urban poor who were essentially hung out to dry by previous administrations. But it has made powerful enemies as well. Some of the positive things it has done have hurt the profits of some of the world’s largest corporations. They have also threatened the power base and fortunes of some of Mexico’s political and financial elite. Here are a few examples:

  • The AMLO administration has strong-armed global corporations into finally settling their decades-long tax debts with the Mexican state. Coca-Cola bottler Femsa, and brewer Grupo Modelo, a division of the world’s largest brewer Anheuser-Busch InBev, last year paid hundreds of millions of dollars in current taxes and back taxes. As a result, the Government was able to raise more funds in 2020 than 2019, without raising taxes on the middle classes.
  • It has also passed one of the strictest food labeling laws on the planet, in a desperate bit to halt Mexico’s obesity epidemic. Many states have introduced legislation making it much more difficult for retailers to sell junk food and sugary drinks to children.
  • The government has sharply increased the minimum wage, which for decades had been one of the lowest in Latin America. It has also lowered the retirement age to qualify for pensions, increased governmental contributions and reduced commissions and reformed housing benefits to assist debtors and halt eviction.
  • It has also passed a bill to curtail the outsourcing of personnel to third party firms, which had enabled corporations to skirt health and safety regulations and avoid paying taxes and social security.
  • By rolling back some of the sweeping energy reforms unleashed by AMLO’s predecessor Enrique Peña Nieto, the government has tried to reducing the country’s reliance on gasoline imports from the US and strengthen Mexico’s energy independence.
  • AMLO has also passed a presidential decree phasing out the use of the herbicide glyphosate, Roundup’s active ingredient, and banning the cultivation and importation of genetically modified (GM) corn. The aim is not only to improve human health and protect the environment but also to bolster Mexico’s food sovereignty.

In foreign affairs AMLO has also charted a more independent course. As Jacobin magazine reports, in the last three years “Mexico has exchanged its former slavish devotion to Washington for a rigorous defense of its own national sovereignty. It has reined in the actions of US intelligence agencies, refused to recognize Juan Guaidó in Venezuela, called a coup a coup in Bolivia, bucked the Organization of American States, and sent a plane to rescue Evo Morales.”

The Empire Strikes Back

None of these policies will have endeared AMLO to the editorial board of The Economist. Or for that matter policymakers in Washington DC. In the name of safeguarding Mexican democracy, the magazine’s editorial board exhorts citizens participating in the June 6 municipal, state and federal elections to “support whichever opposition party is best placed to win, wherever they live… The opposition parties should work together to restrain the president. … They should learn from him too. He is popular partly because they did a poor job of helping those left behind during the long boom that followed economic liberalization in the 1980s.”

The Economist also urged the US government “to pay attention” to what is happening in Mexico, as if it wasn’t already.

“Donald Trump did not care about Mexican democracy. President Joe Biden should make clear that he does. He must be tactful: Mexicans are understandably allergic to being pushed around by their big neighbor. But America ought not to turn a blind eye to creeping authoritarianism in its backyard. As well as sending vaccines unconditionally, Mr. Biden should send quiet warnings”.

The US government is already doing a lot more than just issuing quiet warnings; it is also funding political opposition groups in Mexico. As the investigative magazine Contralinea recently reported, both the US Agency for International Development (USAID) and the National Endowment for Democracy (NED) have been financing the organization “Mexicans Against Corruption and Impunity” (MCCI). Founded by Claudio X. González Jr, the son of the long-serving president of Kimberley Clark Mexico, the MCCI investigates political corruption. But the Mexican government says it is also a political actor.

González Jr has publicly spearheaded the charge against MORENA in this year’s election by organizing the coalition of parties arrayed against it and funding candidates. He has also played a prominent role in efforts to block key pieces of AMLO’s legislative agenda in the courts.

In response to the revelations, Mexico dispatched a diplomatic note to the US on May 6 asking it to clarify the matter. At his press conference the next morning, AMLO described the US government’s funding of MCCI as a form of golpismo, or coup promotion, and likened it to the participation of US ambassador Henry Wilson in the overthrow of President Francisco Madero during the Mexican Revolution. “It’s an act of interventionism that violates our sovereignty … Our Constitution forbids it. You can’t receive money from another country for political ends.”

Given the role both USAID and NED have played in financing and organizing coups across Latin America, AMLO’s concerns are well-founded. An exposé last year by The Intercept revealed the extent to which the US Department of Justice orchestrated the now-disgraced Operation Car Wash in Brazil, which led to the downfall of Dilma Rousseff’s government, the imprisonment of former President Lula just as he was preparing to run for office again, and the eventual election of far-right president Jair Bolsonaro.

Like Lula, AMLO is trying to steer a more independent course for his country, both in the realms of economic policy and foreign policy. But in doing so he has threatened the economic and geopolitical interests of its giant neighbor to the north. And that neighbor also happens to be Mexico’s biggest trading partner, purchasing around 80% of its exports. 

Print Friendly, PDF & Email


  1. Nick Alcock

    None of these policies will have endeared AMLO to the editorial board of The Economist.

    Seeing something like this makes me wonder if the author has actually read any of the non-business sections of the Economist lately. The political sections are best described as centrist (a lot of their journos are lefties, speaking as a lefty myself). Even the economics section has repeatedly pushed higher minimum wages on the grounds that the prior belief that they imperil jobs appears to be wrong and they do make the lives of a great many people better. While it didn’t like AMLO’s energy reforms, it did note his tax debt push and considered it a good thing on the grounds that Mexico collects far too little tax and this stops the state doing a good job. So it seems that either the Economist editorial board has no influence over its content, or you’re simply wrong.

    The Economist also recommended against voting for Trump (both times) in extremely strong terms, far stronger than it used here to recommend against AMLO. I didn’t notice Naked Capitalism attacking it when it did that, even though most of its journalists are UK-based. Is it right for it to recommend voting for particular candidates only when it happens to agree with you?

    The Economist definitely has faults (i.e. I disagree with it on some points). It’s still wildly pro-outsourcing despite outsourcing’s almost complete failure in practice, and assumes without apparent need for evidence that throwing the market at anything will make it better as if by magic (even while noting with the other hand the increasing market concentration and lack of competition in many, perhaps most sectors, which would surely make even a magical market less effective).

    You don’t need to make up further problems with the Economist on the assumption that nothing about it has changed since the high days of Thatcher. It’s hardly a perfect paper, and as with most of these things, the more you know about an area, the less accurate it seems to be: but even in those few areas where I am an expert and it is not, it’s got a lot more accurate in the last decade or so. It has also posted articles — even front-cover articles — saying it was wrong in the not too distant past, even about very big things like its support for the Iraq war. I can think of perhaps two other papers that have done that, and one is Private Eye, which probably counts as political/press criticism as much as it does a newspaper.

    1. kiers

      generally speaking, the imperial press releases read: “______(insert name of local foreign popular election winner here) is a threat to ______(insert name of country) democracy”.

    2. JohnnyGL

      “As of six days ago 88 candidates had been killed by narco gangs.”
      Economist: This seems fine. It’s a long-standing tradition in Mexico that really ramped up post-NAFTA when cartel profits sky-rocketed and we should value local traditions such as these.

      “…legally questionable referendums he has held on infrastructure projects”
      Economist: WHAT!?!?!? Letting people vote on stuff?!!?!? Voting is anti-democratic!!! He’s gotta go!!!

      I also enjoyed the finger-wagging at the previous administrations because “they did a poor job of helping those left behind during the long boom that followed economic liberalization in the 1980s.” The monstrous level of understatement here is really something. We’re talking about the Economist here, so it’s not like they don’t know what Mexico’s economic record looks like from the 1980s, onward.

      Mexican growth (as was the case with pretty much all of Latin America) was much stronger during the Bretton Woods era from the 1950s through the 1970s. The 1980s were famously called a ‘lost decade’ and things didn’t improve much in the 1990s with the rolling series of crises across emerging markets (Mexico itself in 1994-5, Asia 1997-8, Brazil’s subsequent devaluation and then Argentina’s 2001 crisis). Things haven’t picked up much in the decades since China started eating into the low-cost labor arbitrage game (post-PNTR) that Mexico relied on for its competitive edge.

      In short, there was no “long boom” as described by the economist, there’s been flat real wages and sputtering, sclerotic growth, mostly gobbled up by the oligarchs who pilfered state owned assets cheaply during the big privatization fire-sale in the 1980s. Those assets were left as intact monopolies so the oligarchs could price-gouge the public.

      Along with the meagre economic gains, I’d be ignoring the elephant in the room if I didn’t bring up the massive increase in violence which seems to have permeated huge swaths of Mexican society which has ebbed and flowed in various localities depending on where the various cartels have chosen to contest and where they’ve come to an agreement. It’s hard not to point the finger straight at NAFTA for having enabled this situation.

      But, of course, the Economist can’t admit the neo-liberal project has been a massive failure and that the Mexican public is desperate for alternatives. It’s been a great time for elites! And that’s who really counts for the Economist!

      1. JTMcPhee

        C’mon, man — the neoliberal project has been a massive SUCCESS from the standpoint of those who designed it and profit from it… how many trillions of dollars and real assets have been hovered up by what is so disgustingly called the “elite?” Whose battle cry and leitmotif is, as it has always been, “Apres moi le deluge!”

    3. Mikel

      The word “democracy” when used by the establishment is code for “rentiers to do what they want to whoever they want whenever they want to”.
      So that’s how you get the complete sickness of mind that would think some politician – here today gone tomorrow – is a bigger threat than drug cartels.

  2. Geo

    “The US government is already doing a lot more than just issuing quiet warnings; it is also funding political opposition groups in Mexico.”

    Once more showing our Russiagate hysteria to be the pathetic projections of a selfish nation which holds no regard for sovereignty or democracy.

    As for of The Economist, here’s my favorite diacritics of that magazine:

    “The Economist, an excellent magazine which offers excellent analysis of complex political and economic questions, yet still manages to be on the wrong side of history every single time.”

  3. Bijou

    The most hilarious thing is The Economist think the credit ratings have any importance. They do for political window-dressing for sure, but Mexico issues the peso, they can sustain any public debt they like, the credit rating is operationally an irrelevance, if only AMLO knew.

    I did not really catch a hint here that maybe this sort of write-up helps MORENA & AMLO, with average voters. I rather suspect it might help him, or not do as much harm as we think. The real harm will come from insiders who spurred on by The Economist will attempt skulduggery and subvert Mexican democracy, such as it exists.

  4. John Ivens

    The American public is woefully uninformed of the funding and support that US foreign policy gives to meddling in the politics in other countries. USAID, NED, and various other “democracy promotion” programs need to be exposed for what they are and defunded.

  5. Michael Ismoe

    Let’s destabilize a narco-state with 127 million people in it that sits right on your southern border and has more weapons than people. What could go wrong?

  6. synoia

    I used to read the Economist avidly, at University and afterwards, until the early ’90s.

    Then Neo-Liberalism happened, and it was full tilt pro Neo Liberalism, which to me was a 180% pivot form its editorial policy in the ’60 and 70.

  7. Equitable > Equal

    All I can think of is Monty Python’s “What have the romans ever done for us?” scene in the Life Of Brian.

    AMLO must be restrained for his authoritarianism -> Definition of authoritarianism: ‘the use of a strong central power to preserve the political status quo’ -> AMLO’s actions: Crackdowns on tax evasion by corporates to prevent increased tax burden on individuals, use of cheap lifesaving medicine instead of bankrolling vaccine makers that would favour his richer neighbours, and ban on glysophates in light of clear evidence of risk.

    My conclusion: If this is what authoritarianism now means, we need more of it!

  8. lordkoos

    Luckily, it is doubtful that the great majority of Mexican voters reads The Economist.

  9. tegnost

    from 2018, the economist apparently was very, very concerned then as well…

    “A decade or two before the imposition of NAFTA, Mexico had appeared poised to transform from a developing to a developed country. New oil reserves had been discovered and a boom seemed imminent. Then instead of continuing a development model, Mexico bowed to international financial pressure and switched to a neoliberal model of deregulation and privatization.

    Rather than lifting Mexico’s economy through its deeper integration with the US economy, as NAFTA’s proponents promised, Mexico has fallen even further behind. After NAFTA and the neoliberal “reforms,” poverty went up in Mexico while per capita economic growth lagged compared to the rest of Latin America.”

  10. Blue Pilgrim

    So not only is Russia interfering in UK and US elections and threatening democracy there, but now in Mexico too? Wait — did I get that right? — I’d better read the article again.

  11. Harry

    For reasons which I would rather not go into, I came to the conclusion that the Economist was where British spooks who have left the business but still need to make a living turn up. It makes all sorts of editorial positions far easier to understand if you assume this.

    For example, a purely results-based analysis of AMLOs tenure would note that interest rates have come down and the peso has performed tolerably, in quite challenging conditions. And yet the Economist thinks he is a “threat to democracy”.

    1. Colonel Smithers

      Thank you, Harry.

      Having come across them, including conference panels in previous lives, I wondered the same. The owners like it that way, too.

      Most of the staff are from the same narrow elite, vide Zanny Minton Beddoes. Coggan seems a rare gem in their ranks.

  12. Kouros

    I was subscribed and used to read The Economist assiduously in the first decade of 2000s. And used to comment there a lot. newer readers might not know, but TE used to have on its online platform quite a large following with commenters from all over the world. Oh, the good days.

    But if one would have run the numbers, and I kind of did, a certain trend emerged through time. More and more of the comments related with the TE online articles were against the views expressed by TE. Sometimes in excess of 90% of the comments.

    In fact, as for any good site, one went there not only for the articles, but especially for the discussion forum it fostered. But all has been flushed down the toilet. I guess the decision makers have realized what a threat the forum represented to the overall narrative and pulled the plug and quieted any opposition.

    As Jerry-Lynd reminded us via an article wrote by The War Nerd, Amateurs Talk Cancel, Pros Talk Silence and the Brits are pros:

  13. Chris Herbert

    Sounds like my kind of guy. A socialist who believes in democracy. We get really pissed off when foreigners funnel bribe money into our campaigns. But it is OK if we do that to Mexico? He raised wages, is trying to pump money into infrastructure, and he’s forced big corp to actually pay some taxes. Heck, we don’t do that, but we should. Sounds to me like AMLO understands the worst thing he can do to his people is follow neo-liberal economics.

  14. Susan the other

    I’m wondering why this article didn’t mention anything about PEMEX and also wondering if AMLO didn’t cover all his bases with the US at least a year ago by giving our majors a share (or some rights) in PEMEX. And also too, it would be in our interest for Mexico to have a stable social safety net. He handled Venezuela’s Modero very carefully by offering him a place of exile but without guarantees. It seemed like a peculiar offer. By all accounts AMLO is a pretty reasonable guy politically. The one thing that happened just before his transition to power, wherein a busload of college students studying to be teachers (who were dependent on the proceeds of PEMEX for their own training) who had organized a protest about giving PEMEX away when they needed the money – were all murdered. They blamed it conveniently on “gangs”. And etc. But AMLO didn’t seem all that interested in bringing the perps to justice. And hardly a word was written about it in this country.

    1. Nick Corbishley Post author


      I think you’re getting your wires crossed a little and mixing up your Maderos with your Maduros and your Maduros with your Morales. AMLO didn’t offer Venezuela’s president Nicolás Maduro a place of exile; he offered it to Bolivia’s Evo Morales who was deposed in a coup d’etat in 2019. Morales stayed in Mexico for around three weeks before moving on to Argentina where he was also offered asylum. He’s now back in his native country after the coup regime lost elections in 2020.

      I believe the massacre you refer to (there have been so many…) is the Ayotzinapa Disaster, in which 43 student teachers were “disappeared”. This terrible tragedy, arguably the worst to have occurred so far, took place in 2014, four years before AMLO was elected president. As such, AMLO bears little in the way of responsibility though it will be interesting to see how far he’s willing to protect the army if more evidence is unearthed implicated it in the crime. As far as I’m aware it had nothing to do with Pemex. It was most probably drug related and it’s quite possible that the army was involved. El País reported in December 2020 that since the November 2020 arrest of an army captain, the Mexican army has not cooperated in the investigation.

      AS for AMLO giving US oil majors a share or rights in Pemex, that has almost certainly not happened. If anything, the exact opposite has occurred. Pemex has received lots of public funds from the government since AMLO’s election. As I mentioned in the article, the AMLO government has also reversed many of the oil reforms of his predecessor Peña Nieto. In December last year, the Houston Chronicle reported that US oil majors were facing a slow-rolling expropriation of their Mexican assets:

      Foreign energy companies that began flocking to Mexico six years ago after the government opened energy markets and ended a nearly century-old state-run monopoly are finding themselves increasingly unwelcome.

      Even after tens of billions of dollars in investment, U.S.-branded gasoline stations in Mexico are being cited for minor or nonexistent infractions, while fuel from U.S. refineries is being held up at the border, the trade group American Fuel and Petrochemical Manufacturers says. Government officials are withholding permits on fuel storage facilities without explanation. Laws have been changed to favor the state-owned oil company Pemex…

      1. Susan the other

        You’re probably right. You say Maderos and I say Maduro. Whatever. I do not follow the news on Mexico because it comes across more as propaganda than fact. But I do, in fact, remember AMLO offering Maduro a refuge in Mexico. Juan Guaido was doing his schtick all over the place. And AMLO’s offer went under the radar and was not accepted, but it was offered. I do remember this separately from Morales, who did go to Mexico for a while. I also distinctly remember a report on the demonstration and protest the 43 student teachers were organizing and it most certainly did have to do with cutting them out of the financial help they receive because they were getting it from former PEMEX proceeds. So something happened there. So information has been lost somewhere along the way. And it is disconcerting that, of all people, someone who seems like such a decent guy as AMLO would not push to resolve the murders of the students, and he still is not making much of it. I find that very offensive. And one other thing that remains unexplained about Mexico-US relations: What happened to Cienfuegos? And why?

  15. KFritz

    From “The Economist’s Dictionary”

    Democracy (di mock’ ra see): a form of government that enables corporate globalization and conforms to latest version of Neoliberal Economics

    1. Hayek's Heelbiter

      From me:
      Democracy (di mock ra see): An oligarchy papered over with ballots.

  16. Sound of the Suburbs

    Modi was once in their good books.
    Liberalisation sounds like a good idea.
    Let’s have a go in India.

    India was the last lamb to the slaughter.
    Why do they always start with financial liberalisation?
    The next thing you know, you’ve got a real estate ponzi scheme on your hands and it collapses.
    Now they need to recapitalize their banks.
    Their financial system is in a bad way, and recovery isn’t going to be easy.

    It’s been a complete disaster and now Modi needs to look for scapegoats to blame.

  17. Sound of the Suburbs

    I call it the curse of FT (the Financial Times).
    Any neoliberal is great and they will be ideal to run any country.
    They give them their full backing.

    It’s usually a complete disaster.
    FT support for any leader is like a curse; e.g. Macri Argentina, Macron France ….. etc ….

  18. Sound of the Suburbs

    What could possibly go wrong?

    Do you remember last time?
    What last time?
    This is new.

    The economics underneath isn’t, and it’s still got its old problems.
    Neoclassical economics does have a purpose, but it’s not to tell you how an economy really works.

    Any serious attempt to study the capitalist system always reveals the same inconvenient truth.
    Many at the top don’t create any wealth.
    That’s the problem.
    Confusing making money and creating wealth is the solution.
    Some dodgy economics was developed to perform this task, neoclassical economics.

    Neoclassical economics is a pseudo economics, which is more about hiding the inconvenient truths discovered by the classical economists than telling you how the economy works.
    The classical economists identified the constructive “earned” income and the parasitic “unearned” income. Most of the people at the top lived off the parasitic “unearned” income and they now had a big problem.
    This problem was solved with neoclassical economics, which hides this distinction.

    Not knowing how anything really works policymakers always seem to fall the economic growth model of the “Roaring Twenties”.
    Bank credit is pumped into activities that don’t add to GDP (create wealth).
    In the West this is inflating the price of existing financial assets, and in China they built empty cities.
    The money creation of bank credit makes the economy boom, but you are heading straight for a financial crisis as debt is rising faster than GDP.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    No one realises the problems that are building up in the economy as they use an economics that doesn’t look at debt, neoclassical economics.
    As you head towards the financial crisis, the economy booms due to the money creation of unproductive bank lending, as it did in the 1920s in the US.
    The financial crisis appears to come out of a clear blue sky when you use an economics that doesn’t consider debt, like neoclassical economics, as it did in 1929.
    1929 – US
    1991 – Japan
    2008 – US, UK and Euro-zone
    The PBoC saw the Chinese financial crisis coming and you can too by looking at the chart above.
    The Chinese were lucky; it was very late in the day.
    The Chinese had done the same thing as everyone else, but worked out what the problem was before the financial crisis.

    One economics, one ideology.
    Global groupthink.
    Everyone makes the same mistake; i.e. adopting the economic growth model of the US in the 1920s.

    1. Sound of the Suburbs

      Do you remember last time?
      What last time?

      At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
      The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth.
      1929 – Wakey, wakey time

      The use of neoclassical economics, and the belief in free markets, made them think that inflated asset prices represented real wealth, but it didn’t.
      It didn’t then, and it doesn’t now.

      Real estate – the wealth is there and then it’s gone.
      1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan, Philippines, Thailand
      2000s – Iceland, Dubai, US (2008), Vietnam
      2010s – Ireland, Spain, Greece, India
      Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.
      It wasn’t real wealth, just a ponzi scheme of inflated asset prices.

      Will they ever learn?
      It doesn’t look like it, does it?

      Asset prices go up.
      Asset prices go down.
      Don’t mistake this for a store of wealth.
      A whole new generation are going to have to learn the hard way.

      In the 1920s, the economy had been booming, the stock market had been soaring and nearly everyone had been making lots of money.
      In the 1930s, they were wondering what the hell had just happened as everything had appeared to be going so well in the 1920s and then it all just fell apart.
      They realised they needed a better guide as to what was actually going on in the economy.

      Where is the real wealth in an economy?
      It took them a long time to disentangle the hopelessly confused thinking of neoclassical economics in the 1930s.
      This is the second time around and it has already been done.
      The real wealth creation in the economy is measured by GDP.
      Real wealth creation involves real work, producing new goods and services in the economy.
      That’s where the real wealth in the economy lies.

      Any serious attempt to study the capitalist system always reveals the same inconvenient truth.
      Many at the top don’t create any wealth.
      That’s the problem.

      The rentiers had been exposed again.
      What they needed was to get neoclassical economics back again.

      In 1984, for the first time in American history, “unearned” income exceeded “earned” income.
      The rentiers are having a great time with neoclassical economics.
      They are making money, but not creating wealth.

      1. Sound of the Suburbs

        What is the purpose of the financial system Mr. Greenspan?

        Paul Ryan was a typically confused neoliberal and Alan Greenspan had to put him straight.
        Paul Ryan was worried about how the Government would pay for pensions.
        Alan Greenspan told Paul Ryan the Government can create all the money it wants, there is no need to save for pensions.
        What matters is whether the goods and services are there for them to buy with that money.
        That’s where the real wealth in the economy lies.

        Listen closely and you will hear Alan Greenspan reveal what the financial system is supposed to do.
        Ensure the goods are services are there for pensioners to buy with the money they have.

        Banks – What is the idea?
        The idea is that banks lend into business and industry to increase the productive capacity of the economy.
        Business and industry don’t have to wait until they have the money to expand. They can borrow the money and use it to expand today, and then pay that money back in the future.
        The economy can then grow more rapidly than it would without banks.
        Debt grows with GDP and there are no problems
        The banks create money and use it to create real wealth

Comments are closed.