The Shadow Super­power. Sys­tem D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe par­tic­u­larly effec­tive and moti­vated peo­ple. They call them débrouil­lards. To say a man is a débrouil­lard is to tell peo­ple how resource­ful and inge­nious he is. The for­mer French colonies have sculpted this word to their own social and eco­nomic real­ity. They say that inven­tive, self-starting, entre­pre­neur­ial mer­chants who are doing busi­ness on their own, with­out reg­is­ter­ing or being reg­u­lated by the bureau­cracy and, for the most part, with­out pay­ing taxes, are part of “l’economie de la débrouil­lardise.” Or, sweet­ened for street use, “Sys­teme D.” This essen­tially trans­lates as the inge­nu­ity econ­omy, the econ­omy of impro­vi­sa­tion and self-reliance, the do-it-yourself, or DIY, economy.

[…]

Today, Sys­tem D is the econ­omy of aspi­ra­tion. It is where the jobs are. In 2009, the Organ­i­sa­tion for Eco­nomic Co-operation and Devel­op­ment (OECD), a think tank spon­sored by the gov­ern­ments of 30 of the most pow­er­ful cap­i­tal­ist coun­tries and ded­i­cated to pro­mot­ing free-market insti­tu­tions, con­cluded that half the work­ers of the world — close to 1.8 bil­lion peo­ple — were work­ing in Sys­tem D: off the books, in jobs that were nei­ther reg­is­tered nor reg­u­lated, get­ting paid in cash, and, most often, avoid­ing income taxes.

[…]

The total value of Sys­tem D as a global phe­nom­e­non is close to $10 tril­lion. Which makes for another aston­ish­ing rev­e­la­tion. If Sys­tem D were an inde­pen­dent nation, united in a sin­gle polit­i­cal struc­ture — call it the United Street Sell­ers Repub­lic (USSR) or, per­haps, Bazaaris­tan — it would be an eco­nomic super­power, the second-largest econ­omy in the world (the United States, with a GDP of $14 tril­lion, is número uno). The gap is nar­row­ing, though, and if the United States doesn’t snap out of its cur­rent funk, the USSR/Bazaaristan could con­ceiv­ably catch it some­time this cen­tury. [For­eign Pol­icy]

This arti­cle, pub­lished just six months ago, is gen­er­ally cred­ited with the wide­spread adop­tion of the term “Sys­tem D” in place of older terms such as “under­ground econ­omy” and “grey mar­ket” among English-speakers with an inter­est in the sub­ject. I expect it will become more promi­nent in the future, as the US becomes more oppres­sive and its “offi­cial” econ­omy heads down the drain.

The Immi­nent Dol­lar Col­lapse, Explained To An 8-Year-Old. It’s the ele­phant in the room. The United States is utterly bank­rupt and has been liv­ing off of bor­rowed money since 1971, when it defaulted on its loans — though of course, it wasn’t worded like that. Not even an income tax of 100% is enough to cover the expenses, and the US is about to go the way of the Soviet Union. [Falkvinge on Infopol­icy]

I came across this nice sim­pli­fied expla­na­tion of the cur­rent state of the US Dol­lar a while back. It was orig­i­nally writ­ten in Swedish, so it doesn’t have the “Amerika über alles” view­point that pretty much any­thing writ­ten in the US does. I thought it was rel­e­vant today given the cur­rent fuss in the main­stream media about whether the gov­ern­ment will have to “default” if they can’t bor­row yet more money.

When Destruc­tion Is the Cost of Denial. It is far from a novel obser­va­tion to note that most peo­ple live in vary­ing degrees of denial. We rarely encounter the per­son who is rig­or­ously hon­est about his own virtues and defects, who acknowl­edges the full truth con­cern­ing those indi­vid­u­als most impor­tant to him, and who actively ques­tions the valid­ity of his deep­est con­vic­tions. In part, this is due to social con­ven­tion; it often is an under­stand­able (if not desir­able or healthy) part of a sur­vival strategy.

If we rec­og­nize that denial rep­re­sents valu­ing delu­sion more than real­ity, the seri­ous­ness of the dan­ger car­ried by denial depends on the respec­tive pro­por­tions of denial and truth in our lives. Our par­tic­u­lar delu­sions may appear to pro­vide us com­fort and safety. As long as our lives con­tinue to be sus­tained in sig­nif­i­cant part by what is true and healthy, denial will not seri­ously threaten our sur­vival. But when what is true in our lives is over­whelmed by the lies we insist upon, our days grow shorter.

What is true for the indi­vid­ual is also true, in much more com­plex ways, of a nation and a cul­ture. Many of us may know the indi­vid­ual story from our own expe­ri­ences. We trag­i­cally may have encoun­tered the per­son who destroys him­self, his fam­ily, and per­haps a busi­ness and many other peo­ple, because he demands one more drink, or one more affair, or because he has to place one last bet. We hear that he has finally died alone in piti­ful cir­cum­stances. Maybe he suc­cumbs at last in an espe­cially awful and des­o­late man­ner. He dies in a filthy hovel, or on the street. The destruc­tion he causes may be ter­ri­ble, but it remains lim­ited. We may not be aware he has ceased to exist for months or even years after the fact.

The United States today is deter­mined to act out the final stages of denial and destruc­tion. Our rul­ing class refuses to pause and take stock, or to ask them­selves if the edi­fice they have erected on a huge body of lies must be painfully recon­structed on a foun­da­tion closer to the truth. A pat­tern that is piti­ful in the indi­vid­ual case is ter­ri­fy­ing when it occurs on this much vaster scale. In the case of the United States, the ter­ror is greatly increased. The accu­mu­lated reser­voir of power, includ­ing an arse­nal of weapons more pow­er­ful than the world has ever known, means that a last drink, or a last affair, or a final orgy of finan­cial bets and war may result in the ulti­mate destruc­tion of not only the United States itself, but of large parts of the rest of the world.

We may now have entered the final phase of this hideous drama. Because of the mul­ti­plic­ity of fac­tors involved, this phase may last for years, or even decades. But it could reach its dev­as­tat­ing end much more quickly. This is a time of immense his­toric peril, when any ves­tiges of a con­cern with truth would demand that the rul­ing class finally begin to loosen its death grip on delu­sion. Yet the rul­ing class con­tin­ues in its absolute refusal to sur­ren­der even one of the end­less lies it tells itself. Destruc­tion rushes ever closer, and the rul­ing class per­sists in its delu­sions, repeat­ing them with greater fre­quency and in a louder and louder voice. Noth­ing will stop them as they hur­tle them­selves toward dev­as­ta­tion. We have no choice but to be con­cerned with these mat­ters; as the rul­ing class destroys itself, it may destroy many of us as well.

We can observe this pat­tern in the two areas of great­est moment: the eco­nomic col­lapse of the United States, and the United States’ con­duct of for­eign affairs. Let us now con­sider each of these subjects.

As a start­ing point for a dis­cus­sion of the con­tin­u­ing eco­nomic col­lapse, try to make real to your­selves the over­whelm­ing mag­ni­tude of these fig­ures:

The stim­u­lus pack­age the U.S. Con­gress is com­plet­ing would raise the government’s com­mit­ment to solv­ing the finan­cial cri­sis to $9.7 tril­lion, enough to pay off more than 90 per­cent of the nation’s home mortgages.

The Fed­eral Reserve, Trea­sury Depart­ment and Fed­eral Deposit Insur­ance Cor­po­ra­tion have lent or spent almost $3 tril­lion over the past two years and pledged up to $5.7 tril­lion more. The Sen­ate is to vote this week on an economic-stimulus mea­sure of at least $780 bil­lion. It would need to be rec­on­ciled with an $819 bil­lion plan the House approved last month.

Only the stim­u­lus bill to be approved this week, the $700 bil­lion Trou­bled Asset Relief Pro­gram passed four months ago and $168 bil­lion in tax cuts and rebates enacted in 2008 have been voted on by law­mak­ers. The remain­ing $8 tril­lion is in lend­ing pro­grams and guar­an­tees, almost all under the Fed and FDIC. Recip­i­ents’ names have not been disclosed.

…

The pledges, amount­ing to almost two-thirds of the value of every­thing pro­duced in the U.S. last year, are intended to res­cue the finan­cial sys­tem after the credit mar­kets seized up about 18 months ago. The promises are com­posed of about $1 tril­lion in stim­u­lus pack­ages, around $3 tril­lion in lend­ing and spend­ing and $5.7 tril­lion in agree­ments to pro­vide aid. The total already tapped has decreased about 1 per­cent since Novem­ber, mostly because for­eign cen­tral banks are using fewer dol­lars in currency-exchange agree­ments called swaps.

Fed­eral Reserve lend­ing to banks peaked at a record $2.3 tril­lion in Decem­ber, drop­ping to $1.83 tril­lion by last week. The Fed bal­ance sheet is still more than dou­ble the $880 bil­lion it was in the week before Sept. 17 when it agreed to accept lower-quality collateral.

The worst finan­cial cri­sis in two gen­er­a­tions has erased $14.5 tril­lion, or 33 per­cent, of the value of the world’s com­pa­nies since Sept. 15; brought down Bear Stearns Cos. and Lehman Broth­ers Hold­ings Inc.; and led to the takeover of Mer­rill Lynch & Co. by Bank of Amer­ica Corp.

With this incom­pre­hen­si­ble amount of present and future debt fixed firmly in your mind, focus on this state­ment from Pres­i­dent Obama yes­ter­day, a state­ment which serves as the pri­mary jus­ti­fi­ca­tion for yet another increase in this stag­ger­ing amount of debt based on what is now hugely less than noth­ing:

It is absolutely true that we can’t depend on gov­ern­ment alone to cre­ate jobs or eco­nomic growth. That is and must be the role of the pri­vate sec­tor. But at this par­tic­u­lar moment, with the pri­vate sec­tor so weak­ened by this reces­sion, the fed­eral gov­ern­ment is the only entity left with the resources to jolt our econ­omy back into life. It is only gov­ern­ment that can break the vicious cycle where lost jobs lead to peo­ple spend­ing less money, which leads to even more lay­offs. And break­ing that cycle is exactly what the plan that’s mov­ing through Con­gress is designed to do.

Try to set aside the end­less lies told to you by almost every voice of alleged “author­ity.” Try to grasp the truth: the United States gov­ern­ment has no resources left. The full truth is far, far worse: the United States gov­ern­ment is bank­rupt and in debt for tril­lions of dol­lars. Almost all our lead­ers and major Estab­lish­ment voices tell us there is only way to solve this fright­en­ing prob­lem: increase the debt still more.

This is the final bet our delu­sional rul­ing class insists it “has” to place, even as their world shat­ters and flies apart. The rul­ing class still hopes, with the inten­sity of the deranged maniac who hopes that one more high will finally take him into the realm of unimag­in­able ecstasy, that the bet can be made good. What if it can’t?

This comes per­ilously close to clin­i­cal mad­ness. But it is not quite fully mad. To appre­ci­ate what I mean, you need to remem­ber two of the points I made in one of my first posts about the eco­nomic unrav­el­ing. In “The Vam­pire, Struck by Sun­light,” I explained these points as fol­lows:

Two: You, the “ordi­nary” Amer­i­can, are the one who finally pays for all of this. You are the ulti­mate sucker.

On this point, remem­ber Mike Whitney’s obser­va­tion, as well:

Keep in mind, the biggest source of Amer­i­can power is its access to cheap cap­i­tal via the US taxpayer.

The other point is this one:

Three: As with every other cri­sis, the rul­ing class, which cre­ated the cri­sis in the first place, will tell us how to “solve” it.

In that arti­cle, I also iden­ti­fied the ulti­mate pur­pose of this near-madness:

The cri­sis may be ame­lio­rated to a degree, and the worst of the con­se­quences may be post­poned for a while. But what­ever “solu­tions” are imple­mented, what­ever reor­ga­ni­za­tion and rereg­u­la­tion is imposed, it will all be done in accor­dance with the rul­ing class’s desires and goals. It will all be to pro­tect their own wealth and power to what­ever extent is pos­si­ble, and to expand their wealth and power still more, if that remains at all feasible.

For this, the rul­ing class will destroy the world.

In the last few months, I have seen two arti­cles that describe what is now hap­pen­ing with spe­cial accu­racy and power. Both writ­ers express what is essen­tially the same idea, and come to the iden­ti­cal con­clu­sion: at some point, per­haps very soon, this final bet will not be redeemed. This bet is very likely to be just that: the final one.

From the begin­ning of Jan­u­ary, a Paul Craig Roberts arti­cle, “Will There be a Recov­ery?”:

Econ­o­mists will scoff at the ques­tion in the title. But that’s because they are try­ing to fit the present into the past.

In the past recov­er­ies were rou­tine, because reces­sions were tem­po­rary restraints result­ing from the Fed­eral Reserve putting the brakes on an over­heat­ing economy. …

In those days when work­ers bor­rowed to spend, they were bor­row­ing against ris­ing real wages from ris­ing pro­duc­tiv­ity. In eco­nomic down­turns, few work­ers actu­ally lost their jobs. They were laid off from their jobs for tem­po­rary peri­ods. Work­ers sel­dom lost their homes or cars, thanks to union funds and unem­ploy­ment benefits.

Today the sit­u­a­tion is dif­fer­ent. In the 21^st cen­tury real wages have not risen. Work­ers have spent more by accept­ing dete­ri­o­rat­ing house­hold bal­ance sheets. They have maxed out their credit cards and spent the equity in their homes. Imi­ta­tors of the US gov­ern­ment, Amer­i­can con­sumers bor­row to pay their bills.

The expan­sion of house­hold debt rel­a­tive to income cre­ated the illu­sion that the econ­omy was sound. But the con­sumer econ­omy was as much of a credit-based bub­ble as the real estate bub­ble and the finan­cial sec­tor bub­ble. The econ­omy has lost its real basis.

Today it is dif­fi­cult to stim­u­late con­sumer demand by low­er­ing inter­est rates. Con­sumers are too heav­ily in debt to bor­row any more. Finan­cial insti­tu­tions are too impaired to want to lend to any­one except those who don’t need to borrow. …

And there’s another prob­lem. Much of what Amer­i­can con­sumers pur­chase today is made off­shore. Stim­u­lat­ing con­sumer demand in Amer­ica puts fac­to­ries back to work, but those fac­to­ries are located else­where in the world.

How does an econ­omy con­sume more than it pro­duces? Pre­vi­ously, this ques­tion applied only to poor third world coun­tries. These coun­tries would con­sume by the grace of World Bank loans. From time to time they would pay for their con­sump­tion by being put through an IMF restruc­tur­ing pro­gram that would cur­tail their con­sump­tion to make them repay their loans by forced saving.

The United States has so far avoided such humil­i­a­tion, because its cur­rency is the world money. The US has been able to bor­row end­lessly, because it can pay its debts in its own currency.

This abil­ity might be com­ing to an end. The US has been using up the bulk of the world’s sup­ply of sav­ing for years in order to finance its con­sump­tion. Con­sid­er­ing the out­look for the US econ­omy and dol­lar, the pro­duc­tive nations of the world and those with oil have more dol­lars and dollar-denominated assets than they want. The US, with its col­laps­ing econ­omy, its bailouts of finan­cial insti­tu­tions, and its wars, is fac­ing the largest gov­ern­ment bud­get deficit in its his­tory, both in absolute amount and as a per­cent­age of national income. The easy mon­e­tary pol­icy, which the Fed hopes will arrest defla­tion, threat­ens infla­tion and fur­ther dete­ri­o­ra­tion in the dol­lar. For­eign­ers sim­ply do not want to lend more large sums to a coun­try that, from all appear­ances, has no way to close its trade and bud­get deficits. They cer­tainly do not want to lend when the inter­est rate offered is close to zero and the reserve cur­rency sta­tus of the dol­lar is in doubt.

Econ­o­mists and the policy-makers they advise are think­ing in the past, a time when low inter­est rates stim­u­lated con­sumer and invest­ment demand, thus lift­ing the econ­omy. Today the low inter­est rates threaten the dol­lar, dis­cour­age for­eign­ers from lend­ing more to the US, and deprive Amer­i­cans of inter­est income nec­es­sary to their abil­ity to pay their bills.

…

The United States is walk­ing on quick­sand. It is depen­dent on for­eign­ers for the fund­ing to con­duct the day-to-day oper­a­tions of its gov­ern­ment. Its econ­omy is a hol­low shell reduced to depen­dence on a finan­cial sec­tor that is dis­cred­ited world­wide. America’s gov­ern­ment believes that its for­eign wars of aggres­sion are more impor­tant than any domes­tic needs, includ­ing the health care of its population.

…

What we are wit­ness­ing is a once great power engag­ing in fan­tasy to dis­guise from itself that it is a failed state.

The sec­ond arti­cle (via) is from the begin­ning of this month, and is by Willem Buiter:

On a num­ber of occa­sions I have cau­tioned against deficit-financed fis­cal stim­uli in coun­tries whose gov­ern­ments have weak fis­cal cred­i­bil­ity, that is, coun­tries where cur­rent tax cuts or pub­lic spend­ing increases can­not be cred­i­bly matched by com­mit­ments to future pub­lic spend­ing cuts and tax increases of equal present dis­counted value. I believe that both the US and the UK fall into this category.

…

For a fis­cal stim­u­lus (cur­rent tax cut or pub­lic spend­ing increase) to boost demand, it is nec­es­sary that the mar­kets and the pub­lic at large believe that sooner or later, mea­sures will be taken to reverse the tax cut or spend­ing increase in present value terms. If mar­kets and the pub­lic at large no longer believe that the author­i­ties will assure fis­cal sus­tain­abil­ity by rais­ing future taxes or cut­ting future pub­lic expen­di­ture by the nec­es­sary amounts, they will con­clude that the gov­ern­ment plans either to per­ma­nently mon­e­tise the increased amounts of pub­lic debt result­ing from the fis­cal stim­u­lus, or that it will default on its debt oblig­a­tions. Per­ma­nent mon­eti­sa­tion of the kind of gov­ern­ment deficits antic­i­pated for the next few years in the US and the UK would, sooner or later be highly infla­tion­ary. This would raise long-term nom­i­nal inter­est rates and prob­a­bly give risk to infla­tion risk pre­mia on pub­lic and pri­vate debt instru­ments as well. Default would build default risk pre­mia into sov­er­eign inter­est rates, and act as a break on demand.

Because I believe that nei­ther the US nor the UK author­i­ties have the polit­i­cal cred­i­bil­ity to com­mit them­selves to future tax increases and pub­lic spend­ing cuts com­men­su­rate with the up-front tax cuts and spend­ing increases they are con­tem­plat­ing, I believe that nei­ther the US nor the UK should engage in any sig­nif­i­cant dis­cre­tionary cycli­cal fis­cal stim­u­lus, whether through higher pub­lic spend­ing (con­sump­tion or invest­ment) or through tax cuts or increased trans­fer payments.

…

The US is helped by the absence of ‘orig­i­nal sin’ – its abil­ity to bor­row abroad in secu­ri­ties denom­i­nated in its own cur­rency – and the closely related sta­tus of the US dol­lar as the world’s lead­ing reserve cur­rency. But this elas­tic can­not be stretched indef­i­nitely. While it is hard to be sci­en­tif­i­cally pre­cise about this, I believe that the antic­i­pated future US Fed­eral deficits and the grow­ing con­tin­gent expo­sure of the US sov­er­eign to its finan­cial sys­tem (and to a grow­ing list of other more or less deserv­ing domes­tic indus­tries and other good causes) will cause the dol­lar in a cou­ple of years to look more like an emerg­ing mar­ket cur­rency than like the US dol­lar of old. The UK is already closer to that posi­tion than the US, because of the minor-league legacy reserve cur­rency sta­tus of sterling.

…

The only ele­ment of a clas­si­cal emerg­ing mar­ket cri­sis that is miss­ing from the US and UK expe­ri­ences since August 2007 is the ’sud­den stop’ — the ces­sa­tion of cap­i­tal inflows to both the pri­vate and pub­lic sec­tors. There has been a par­tial sud­den stop of finan­cial flows, both domes­tic and exter­nal, to the bank­ing sec­tor and the rest of the pri­vate sec­tor, but the exter­nal cap­i­tal accounts are still func­tion­ing for the sov­er­eigns and for the remain­ing cred­it­wor­thy bor­row­ers. But that should not be taken for granted, even for the US with its extra pro­tec­tion layer from the sta­tus of the US dol­lar as the world’s lead­ing reserve cur­rency. A large fis­cal stim­u­lus from a gov­ern­ment with­out fis­cal cred­i­bil­ity could be the trig­ger for a ’sud­den stop’.

So just don’t do it. Focus fis­cal resources on get­ting the credit mech­a­nism and other key parts of the finan­cial inter­me­di­a­tion process going again. Effec­tive Key­ne­sian fis­cal pol­icy requires a vir­tu­ous pol­icy maker, capa­ble of cred­i­ble com­mit­ment — that is, com­mit­ment capa­ble of resist­ing the future the siren calls of oppor­tunis­tic reneg­ing on past com­mit­ments. The Obama admin­is­tra­tion is new and has had but lim­ited oppor­tu­nity to abuse the trust placed in its promises and com­mit­ments. That puts it in a bet­ter posi­tion that the UK gov­ern­ment, which has been in office since May 1997. But many of the top play­ers in Obama’s eco­nomic team are strongly iden­ti­fied with the failed poli­cies, reg­u­la­tions and laws that brought us the dis­as­ter we are fac­ing. So the amount of cred­i­bil­ity cap­i­tal is severely lim­ited even for Obama. Use it to get credit flow­ing again. Tax cuts for friends and favoured con­stituen­cies, replac­ing clapped-out infra­struc­ture and even the fight against global warm­ing will have to wait until trust — pub­lic credit — is restored.

By their res­olute insis­tence on main­tain­ing their web of lies, our rul­ing class makes a “sud­den stop” vir­tu­ally inevitable. Much of the rest of the world now sees through those lies; only the United States rul­ing class refuses to give them up. To sur­ren­der them would threaten their own lives of power, wealth and com­fort. We may find out very soon, much sooner than we might hope, whether their com­mit­ment to what is now a hollowed-out shell of power and wealth, to, that is, a fan­tasy of immense destruc­tive force, is greater than their fear of the dimin­ish­ment of their own belief that they can con­tinue to make the rest of the world con­form to their own delusions.

On top of these con­tin­u­ing eco­nomic delu­sions, we have the rul­ing class’s delu­sions in the realm of for­eign pol­icy. We will look at those next. From the evi­dence already avail­able, it appears that the rul­ing class is deter­mined to place one last bet there as well. The destruc­tion that may result is more fright­en­ing that any of us would dare to imag­ine. But such con­cerns don’t mat­ter to the rul­ing class. They have lived in their delu­sions for so long that they can no longer tell the dif­fer­ence between their imag­in­ings and what is real. For them, their delu­sions are life; they have ren­dered them­selves inca­pable of see­ing that the delu­sions mean only destruc­tion, and death.

So the mad­ness and the destruc­tion come still closer. [Once Upon a Time…]

Unfor­tu­nately we can expect the over­whelm­ing major­ity of US cit­i­zens to believe those delu­sions with­out ques­tion, because the pub­lic schools have been such a bril­liant suc­cess at teach­ing them to mind­lessly obey author­ity and never think for themselves.

Finan­cial Mar­ket Deja Vu?. “The most seri­ous finan­cial prob­lem for the Nazi State is not the dan­ger of a break­down of the cur­rency and bank­ing sys­tem, but the grow­ing illiq­uid­ity of banks, insur­ance com­pa­nies, sav­ing insti­tu­tions, etc.… Germany’s finan­cial orga­ni­za­tions are again in a sit­u­a­tion where their assets which should be kept liq­uid have become ‘frozen’.… But the total­i­tar­ian State can tighten its con­trol over the whole finan­cial sys­tem and appro­pri­ate for itself all pri­vate funds which are essen­tial for the fur­ther exis­tence of a pri­vate econ­omy. Yet the insti­tu­tions which still exist as pri­vate enter­prises are not allowed to go bank­rupt. For an arti­fi­cial belief in cred­its and finan­cial oblig­a­tions has to be main­tained in open con­flict with realities.”

From Gunter Reimann, The Vam­pire Econ­omy: Doing Busi­ness Under Fas­cism (1939), p. 174, about Ger­man eco­nomic pol­icy under Hitler.
[LewRockwell.com Blog]

Of course this applies equally to US eco­nomic pol­icy under the Boot On Your Neck Party. And to think there are still igno­rant peo­ple in this coun­try who actu­ally believe fas­cism was defeated dur­ing World War Two.