New Grandson

Our fourth grandchild Eli David McKenzie was born this morning.

Things to Let Go

To understand God’s plans for history, three passages of scripture that Christians cling to must be taken of the mix, because they have already been fulfilled. Applying them to the future causes confusion.

1. Jesus Big Prophecy (Matt 24:3-35, Mark 13:3-31; Luke 21:5-33)
   This prophecy was fulfilled within the lifetime of those who heard Jesus speak.
   

   Truly I tell you, this generation will certainly not pass away until all these things have happened (Matt 24:34).

   Jesus statement is very clear. This passage was fulfilled in AD 70, so it should not be used to explain the future (see Jesus Big Prophecy for more).

2. The Seventy Weeks of Daniel (Dan 9:20-27)
   Daniel’s was praying for the end of the exile in Babylon. The angel told him what would happen in the next 490 years.
   

   Seventy ‘sevens’ are decreed for your people (Dan 9:24).

   These 490 years ended at the time of Jesus, so Daniel’s prophecy has been fulfilled. Some Christians insert a gap before the last week, but there is no biblical justification for this practice. Assuming that part of this vision still has to be fulfilled will produce confusion (see Seventy Sevens for more).

3. The Woman and the Dragon (Revelation 12)
   The book of Revelation covers all of New Testament. The birth and resurrection of Jesus are described in the vision of the Woman and the Dragon.
   

   And her child was snatched up to God and to his throne (Rev 12:5).

   The vision ends with Israel being scattered among the nations by the Roman Empire. Christians have confused themselves by applying this passage to the future (see Woman and the Dragon).

These passages are favourites of Christians who want to understand the future. They have been fulfilled, so it is time to let them go. We will not lose anything by doing this, as there are plenty of other passages that have not been fulfilled. Those who want to understand God’s plan for history should focus on these.

As long as Christians keep trying to push these three scriptures that have been fulfilled into the future, but ignore other like Daniel 11 that are for more relevant, confusion is bound to continue.

I explain this issue more in Times and Seasons.

The Mystery

In his letter to the Ephesians, Paul often speaks about the “mystery” that has been kept hidden in past ages.

Paul explains the mystery in Ephesians 3:6. Jews and the Gentiles will be heirs together and members of one body to share the promises of Jesus. Paul had already explained that the Gentiles had been aliens, shut out of God’s people and God’s household (Eph 2:19), but Jesus broke down the barrier and the dividing wall (Eph 2:14,16). His purpose was to create peace and make one new man of the two (Eph 2:15). The two are being built together to become a building in which God can live by the Spirit (Eph 2:22).

This is the mystery. God’s plan for the future is to join Jews and Gentiles into one body in which all the fullness of the Spirit can dwell. It has two important implications.

1. Christian infatuation with the state of Israel is misguided. The mystery is not Israel living in a separate nation ruled by a secular government (or and ultra-orthodox government) shut off from the church and the gospel.

2. The body of Christ cannot be complete until the children of Israel are fully part of it. A Gentile church is a truncated church that cannot be a dwelling place for the fullness of the Holy Spirit. The next big even in human history is the fullness of Israel, when huge numbers of Jews come to faith in Jesus and are grafted into his body. That is the mystery of God that got Paul excited. It is what Christians should be praying and working for. My book called Times and Seasons explains how this will happen.

Business Socialism

I find the persistent sniping between socialists and conservatives rather boring. The reality is that socialism died fifty years ago. The experiment in Soviet Russia proved that state ownership of the means of production leads to disaster (this was not a surprise for people who understood Ludwig von Mises teaching on the role of prices). The post mortem was complete when the Chinese Socialist Party embraced capitalist activity.

All that is left in most western countries of socialism is a social welfare system to support the poor and debates about how much resource should be channel to it.. These systems are far from ideal, but the conservatives do not have anything better, and society is not willing to jettison the poor. (Christians do have a better system, but they have never been that serious about trying it).

The predominant species of socialism these days is business socialism, and conservatives are strangely silent about it. In the last few decades, businesses have captured the political process and milked it fairly effectively. The biggest dole out to bludgers of taxpayer largess have gone to finance companies and participants in the banking system. These businesses have made huge mistakes over the last few decades, but they are protected from the consequences by a myriad of laws, regulations and hand-outs. If a person on the unemployment benefit does not turn up for a job interview, they get their benefit docked for several weeks. If a business fails, limited liability kicks in and assets in the family trust are protected.

I do not like socialism, but the most virulent form of socialism these days is business socialism. David Stockman’s book explains how strong it has got in the United States. He calls it "crony capitalism", but that gives capital a bad name. It would be more telling to call it as it is: business socialism.

The garden-variety socialism uses political power to shift resources towers the poor and weak. Business socialism using political influence to shift resources and legal privilege towards business.

Stockman (10) Price of Gold

David Stockman notes that in 1832, the dollar’s gold content was set at $20.67 per ounce and it was not altered for a century. There had been zero dollar deflation for a century, and the dollar’s gold value in international commerce had never varied except during war.

Why do we assume that inflation is normal.

Under a regime of sound money, it is not possible for public debt to appreciate for long stretches of time.

This truth is illustrated by the glorious reign of the 23 percent British console, a perpetual bond of the British government. First issued in 1757, it remained in circulation until 1888. Other than temporary wartime fluctuations, the price of the 3 percent console did not change for 131 years. Accordingly, no punter got rich riding the console on leverage, yet no saver lost his shirt by owning it for it yield. The console was a sound public bond denominated and payable in sound money.

The Darkness has Shifted

Something interesting happened in the month of June. The weather forecasters announced on a Monday that we would have the worst snowfall in Christchurch for the last twenty years. In the end, it did not happen. There was heavy snow in the high country, and lots of cold rain, but we did not get any snow in Christchurch. On the other hand, Wellington had terrible gales and rain that did considerable damage. Railway lines washed out and trees came down. 20,000 houses were without electricity overnight. Some did not get electricity back for a week. The inter-island ferry broke free from its moorings and spent the night sheltering in the harbour

I was in Wellington for a meeting for my work on the day of the storm, but it was cancelled, because half of the people from Wellington could not get to it. It was frustrating have travelled for a meeting that was cancelled, and then having difficulty getting home. The airport was closed until midday. The plane I flew home on took no luggage, because it was too windy to open the baggage doors on the plane.

When I was praying about what was going on, I felt the Lord saying, “The darkness has shifted”. That is why the expected storm did not come to Christchurch, whereas it unexpectedly did serious damage in Wellington. Whereas the enemy has really been attacking Christchurch over the last three or four years, I sense that he has now shifted his attentions to Wellington. It is not so much because of victory in prayer, it is just that he thinks that he can get better returns for his efforts there.

Nor is it that Wellington is worse than Christchurch. When the people of city or nation turn away from God, they lose their protection from evil (see Discerning Seasons). However, the enemy does not strike immediately, because he does not enough resources to attack every place that is vulnerable. The devil is not comparable to the Holy Spirit. He is just an angel, supported by a bunch of rebellious angels. He can only attack by concentrating his forces, because he cannot be everywhere at once, like the Holy Spirit. So when the spiritual protection of a city goes, he does not move in immediately, because he does not have sufficient resources at his disposal. He will only attack when he thinks he can get a good bang of his buck.

Christchurch has been hammered by the forces of evil over the last three or four years. It is not because this city is worse than every other spiritually unprotected city, but that he has chosen to concentrate his attacks, because he thinks he can achieve something there. Maybe, he had heard that God is wanting to do something big in Christchurch and he wanted to stop it. Now he has failed, he is going off somewhere else to be a nuisance.

The enemy seems to have done most of the physical damage in Christchurch that he is capable of doing, and is now seems to be turning the attention of his smashers to Wellington, where the pickings are easier. If I am right about this, we may see more disasters in Wellington, and less in Christchurch over the next few years. Christchurch will continue to have leadership problems, and as its flaws are exposed, financial problems will follow, but the smashers have moved on. The recent earthquakes off the coast of Wellington show where they have gone. The darkness has shifted from Christchurch to Wellington

The storm was a warning event for Wellington. The city was cut off from the rest of the nation. The Inter-islander ferry was seriously damaged and could not be moored. The railway line going north was seriously damaged. Homes were without electricity for several days, some for more than a week. Buildings were destroyed. People could not get to work. What happened during the storm is indicative of what will happen when, the real attack of evil comes.

• The city will be cut off from the rest of the nation.
• Ferries will not be able to sail.
• Rail traffic will not be able to move.
• Electricity supplies will be cut off
• Buildings will be damaged.
• Houses will be destroyed

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Stockman (9) Bank Reserves

Milton Friedman has blamed the Fed for tightening money too much following the 1929 share market crash. David Stockman disagrees. He notes that Excessive reserves in the banking system rose from $35 million in 1935 to $100 million in 1931 and ultimately to $525 million in 1933. The tenfold expansion of excessive reserves in the banking system was proof that banking system had not been parched with liquidity, but was actually awash in it.

M1 money did drop by about 25 percent over the same period as excess reserves soared tenfold. This meant the money multiplier had crashed. It was merely the arithmetic effect of a nearly 50 percent decline of the commercial loan book, as billions of loans were liquidated.

David Stockman

Stockman (8) Money

The way that banks create demand deposits is to first issue loans credits to their customers. In the modern world, money supply follows credit, and rarely do central bankers inordinately restrict the growth of the latter.

In other words, money grows mainly when commercial bank credit expands, and no amount of Fed bond buying can force member bands to lend into a debt-saturated marketplace.

David Stockman

Stockman (7) Agriculture

David Stockman says that small state senators have a disproportionate weight in American governance. The farm programs are anachronistic and economically stupid and could not survive without this raw power politics. It has been ineffective in preventing the shrinking of the agriculture sector.

In 1935, there were 35 million people on 7 million farms, who accounted for about a quarter of national output. Today there are few than 2 million Americas on the farm, there are less than 250,000 remaining commercial-scale agricultural enterprises and farm outputs represent a mere 4 percent of GDP. The New Deal did not restore farm prosperity. Instead it conferred undeserved windfall rents on a privileged segment of rural crony capitalists for generations to come.

Stockman (6) GMAC

In his book The Great Deformation, David Stockman suggests that crony capitalism reached its zenith in the government response to the crisis in commercial paper market. The worst example was General Motors Acceptance Corporation (GMAC).

When a financial company lends long and illiquid and funds itself with short-term hot money, it needs to regularly charge its income statement with a lost reserve for the inevitable, violent moments of financial crisis when short-term money rates spike or funding dries up complete. GMAC had not done this, although it was leveraged at more than 10 to 1 and funded with massive amounts of short-term commercial paper. Although it was a purveyor of subprime auto loans, it had no ability to absorb even minor losses on its loans.

When the crisis hit, GMAC had to write down $25 billion of its loans. By every rule of capitalism, an enterprise as foolish, dangerous, predatory, and insolvent as GMAC should have been completely liquidated. Instead it remained on federal life support due to taxpayer funds and guarantees.

The economy did not benefit. There was no shortage of solvent banks, thrifts, and finance companies to serve the author and housing finance needs of creditworthy borrowers.

Stockman (5) Main Street Banks

In his book The Great Deformation, David Stockman argues that the Main Street Banks were not at risk during the GFC. The Treasury and the Fed had claimed that if they had not acted, business pay rolls would be skipped and ATMs would go dark. This was a false panic.

The Main street commercial banking system was well insulated from the contagion on Wall Street. They held about $2 trillion of residential mortgages, but these were mostly prime quality, and they stayed in the loan book, rather than being sliced and diced into tradable securities. Any losses would be charged to loan reserves, not sold at fire-sale prices on the crashing market for securitised paper. Most of their business loans occupied the senior slot, or the highest ranking, in the borrowers business. The risk of less was modest.

The heart of the false panic was rooted in the money market mutual funds sector. Total short-term deposits at the time of the crisis had reached $3.8 trillion, so the run on these funds was scary. In practice, the run amounted to little more than movement of cash between different types of money market funds. The money flowed out of the funds that operated in commercial paper into the government only money market funds. The rest went into CDs and other band deposits, so the money remained in the banking system, not under the mattress.

Stockman (4) Banking Crisis 1933

In his book The Great Deformation, David Stockman argues that Franklin Roosevelt created the banking crisis of 1933. On the eve of his inauguration, most of the US banking system was still solvent, including the great money center banks of New York: the Chase Nation Bank, First National Bank, and the Morgan Bank. There had been no bank runs on Wall Street, because the great banks had been fully and adequately collateralised on the stock loans and were sitting on cash reserves up to 20 percent of their deposits.

The run of bank failures was largely contained within the border of the oversized agricultural industrial export economy. When they collapsed, over-loaned banks in industrial boom towns like Chicago , Detroit Toledo, Youngstown Cleveland and Pittsburgh had taken heavy hits.

In the agricultural hinterlands, the problems went back to the agricultural boom caused by the disruption of European agriculture during the 1914-18 war. This resulted in an orgy of land speculation. Once the agricultural lands in Europe came back into production in 1920, farm prices dropped dramatically and continued sinking for the rest of the decade. Thousands of small banks that had been caught up into the land boom failed. Most of these were small rural banks located in small towns. This was partly the result of anti-branch laws that rural legislators had forced on the state. These small banks were insolvent and had to be closed.

After the 1929 share market crash, the rate of bank failure increased significantly, but were not national in scope. They were concentrated in the agriculture and industrial interior and were centred on cities or banking chains which had indulged heavily in speculative real estate lending and other unsound practices. In contrast, the Great Loop banks remained solvent and experienced no lines at their teller windows. When banks failures shifted eastward, it was among newly formed “trust banks” which had been charted under state law with far less stringent requirements for capital and cash reserves than was the case with the nation banks. By the time of the election, bank failure had slowed significantly.

Prior to his inauguration Roosevelt created uncertainty by remaining silent about his plans for gold and the currency. Twenty percent of the nation’s gold stock was withdrawn. Once in power he announced a four-day bank holiday. However, when the banks were opened, they continued operating without any significant changes. Within the following ten days, nearly all of the hoarded currency had flowed back into the banking system, and the Feds gold reserves soon reached pre-crisis levels.

Stockman (3) Great Depression

In his book The Great Deformation, David Stockman gives some interesting background on the 1930s Depression. He argues that Ben Bernanke does not understand its cause.

The Great Depression was not caused by the banking crisis. The US depression was rooted in the collapse of global trade, not in some flaw of capitalism or any of the other uniquely domestic afflictions on which the New Deal programs were predicated.

The American economy had been thoroughly internationalised after 1914, and had grown in leaps and bounds as a great export machine and prodigious banker to the world. While it lasted, the export boom of 1914-29 generated strong gains in domestic incomes, which in turned fuelled the post-war rise of the new durables industries like autos and home appliances. The tremendous expansion of export and durables output also triggered the greatest capital spending boom in history. Auto production capacity rose from under 2 million units in 1920 to nearly 6 million in 1929, while completely new industries like radios and washing machines were born almost overnight.

The American economy had been supersized for continuous expansion of exports, but that was its Achilles heel. When international trade collapsed after 1929, the manufacturing and capital goods industries collapsed rapidly.

A crucial element in the expansion of American exports was the $10 million of foreign bonds underwritten by Wall Street. This was the equivalent of $1.5 trillion in today’s values. It was these extensive borrowings which allowed many American export customers to finance their purchases, not unlike the Chinese have been funding the purchase of their exports during the last decade.

The problem was that this growth was not sustainable. When the stock market crashed, this financial fuelled chain of economic expansion snapped and violently unwound. Sales of author dropped like a stone from 5.3 million units in 1929 to 1.4 million vehicles in 1932. This 75% drop in auto sales cascaded through the auto supply chain with devastating impact. The collapse of these growth industries caused a huge cut back in business investment.

The Depression was not caused by a mysterious disappearance of domestic demand as the Keynesian model claims. It was caused by this massive contraction of international trade. After 1929, politicians and bankers all over the world made the problem worse, by raising barriers to trade and financial transfers.

The New Deal pushed pulled and reshuffled the supply of the domestic economy, but it could not regenerate the external markets upon which post -1914 American prosperity had vitally depended.

Stockman (2) Investment Banks

David Stockman argues in the Great Deformation that the big investment banks were not worth saving.

Twenty-five years earlier these firms had been undercapitalised white-shoe advisory houses with balance sheets, which were tiny and benign. They had grown into giant ultra-leveraged hedge funds, with just a small side operation in regulated securities underwriting and merger and acquisitions advisory services. This shift followed a transition from partnership to a limited liability companies through IPOs in the 1990s. Their profitability was generated by massive trading operations supported by balance sheets that were leveraged 30 to 1 and dangerously dependent on volatile short-term funding.

Goldman Sachs held assets of $1 trillion, but much of their massive wholesale funding had maturities of less than thirty days, and some of that was as short as a week, and even overnight. When Bear Stearns hit the wall in March 2088, it was rolling over $60 billion of funding every morning. This rollover funding was dirt cheap, because lenders had no rollover obligation and were often fully secured.

On the other side of their balance sheets, these de facto hedge funds held assets, which were generally more illiquid, longer term, and subject to credit and market value risk, which generated substantially higher yields. Due to this duration and credit mismatch, the profit spread per dollar of assets was considerable.

When the crash came, these shonky balance sheets came under attack. The investment bankers complained about short sellers, but they were really undermined by plain sellers. These houses of cards should have been allowed to collapse, as an example for an entire generation of money managers, but Bernanke and Paulson body checked the free market before it could do its work.

They panicked because they were afraid that the crisis would spill over into main street banking. Stockman says this was not a risk, because the run on wholesale funding was mostly confined to Wall Street. During the crisis, there were no runs on well-managed commercial banks and thrifts, because their assets were invested in safe US Treasury debt and government-guaranteed mortgage securities. Other loans were carried on their banking books, rather than trading accounts. The irony was that the Wall Street mortgage securitisation machine had sucked all the worst of the subprime mortgages of the balance sheets of community lending institutions.

The claim that their vestigial capabilities in mergers and acquisitions and in underwriting stocks and bonds should be preserved was ludicrous. Neither of these businesses required meaningful amounts of capital, and there always dozens of pedigreed Wall Street veterans waiting to hang out a boutique investment banking shingle to pick up the slack.

David Stockman (1) AIG

I can remember when David Stockman was Ronald Reagan’s budget director. At that time, I was impressed with his stand for economic principle over political expediency, so I was interested when I picked up a copy of his latest book from my local library. The book is called The Great Deformation: The Corruption of Capitalism in America.

The book is very long, rambles in places, and it could have benefited from a thorough editing, but he has some intriguing thing to say. His overall theme is crony capitalism and the harm it has done. He begins by explaining why the bail out of the insurance giant called AIG was unnecessary.

In the previous decades, Hank Greenburg had grown AIG through a series of mergers and takeovers of insurance companies all over the world. AIG had taken over a string of large life and casualty insurers including Western National, SunAmerica, Hartford Steam and Boiler, and American General. AIG’s total assets went from $140 billion into $450 billion in three years.

When Lehman Brothers collapsed, AIG went to the government requesting a rescue, Hank Paulson claimed that AIG had to be saved, or insurance policies all over the world would be worthless, and ordinary people would be left at risk of disaster with no insurance cover. Paulson claimed that AIG was entwined with the global system touching business and consumers alike. Stockman says this was a lie designed to scare Congress into action to benefit the investment banks.

The reality was that AIG had become a glorified insurance mutual fund. It had grown to be a giant by acquisitions and investments, but it did not have automatic access to the assets sequestered in its far-flung subsidiaries. They were protected by by state insurance commission rules designed to protect policyholders and ensure solvency.

At the time of the crisis, 90 percent of AIG was solvent and no danger to the financial system, or anyone else. Its $800 billion balance sheet consisted mostly of high-grade stocks and bonds that were domiciled in a manner that prevented contagion. Its massive high-grade assets were parcelled out into scores of insurance subsidiaries subject to legal and regulatory jurisdictions scattered all over the globe. These lockups protected policyholders and ensured that there could be no asset stripping action by the liquidators of the AIG holding company. The insurance subsidiaries were asset rich. The liabilities of these companies were the future claims of the policyholders, which come slowly over time. There could not be a panic “run” by policyholders, because their claims would mature over months and years.

The real problem with the AIG holding company was that it had been guaranteeing some of the toxic derivatives created by the big five investment banks. These were domiciled exclusively in the AIG holding company. These obligations could have been readily liquidated in bankruptcy without any disruption to the insurance companies, their solid assets, or their policyholders. Instead of allowing this to happen, AIG was given $180 billion dollars of taxpayer’s money.

Congressional investigators later found that the $400 billion of Credit Default Swap (CDS) insurance issued by AIG were held by a small number of the world largest financial institutions, but virtually none of it was held by main street banks, so they were shielded from an AIG collapse. For the financial institutions that did hold the CDS insurance, the worst-case loss would have been only a few months bonus accrual. AIG was not a risk to the financial system. What was a risk was the bonuses of the staff at the big fie investment banks. Not surprisingly, nearly $20 billion was paid to Goldman Sachs, where Hank Paulson had previously worked. This was the equivalent of eight months profit and bonus accrual for the company.

Washington threw stupendous amounts of money at AIG in a great panic, pretending to save the world, but the main beneficiaries were their mates in the investment banks.

Scary stuff.

David Stockman cover AIG in this talk at the Metropolitan Club.

Sharia Law

I am definitely not an advocate of Sharia law, but we need to understand why it has widespread support in many places. The reason is the failure of western justice.

When people in the people in the West think of Sharia law, they are reviled by the burqua and thieves having their hands cut off. They cannot understand its appeal.

In countries like Egypt and Pakistan, the attitude to Sharia law is quite different. The reasons is that the justice system left behind by the colonial powers is slow and corrupt. Ordinary people have no access to justice, because the courts are biased towards the rich and powerful. If they do provide justice, it takes so long that it is worthless. In contrast, Sharia law is administered by local judges. It is quick and not biased against the poor. This is the reason for its appeal in these countries.

Christianity has a far superior system of local justice, based on God’s law. Unfortunately, Christians have not taken it seriously, and have instead relied on secular systems of human justice that are becoming increasingly slow and expensive. Frustrated people are looking for alternative that can provide real justice. If Christians want to be taken seriously, we need to be ready with something better. Until we rediscover God system of laws and local justice, we will not be able to counter sharia law effectively.

Military Coup in Egypt

Some information about Egypt that is often missed by Christians.

• Egypt is controlled by the leaders of the military forces. This has been the situation since 1956, when the king was toppled by a military coup. They have often ruled through civilian puppets that are well controlled.

• President Murabak was put in place by the generals, but he had been in power so long, he had forgotten where he had come from and was trying to start a dynasty by establishing his son as his successor. The generals did not want that to happen, because they did not want to lose their grip on the political process, so they were not disappointed when he fell from power.

• The generals believed they could control the Moslem Brotherhood. They were happy for them to be the civilian government because they thought they could maintain the stability needed for their business to prosper, but they were worried that their US benefactors might be offended.

• The lower ranks of the army are made up of conscripts from the humble classes. The people feel like the military represents them, because there brothers and sons serve in it. In contrast, the security forces are hated.

• The military controls nearly 40 percent of the economy. They own and operate huge factories that produce electronics and consumer goods. Their construction companies build highways, housing developments, hotels and telecommunications facilities. They own factory farms producing milk and farming chicken and fish. Some of the work is done by poorly paid military conscripts.

• Private businesses find it almost impossible to compete with military-owned businesses. When they are not in direct competition, the military uses its power to clip the ticket at every opportunity.

• The military leaders enjoy a privileged life. They live a pampered existence in special developments where they can buy condominiums and luxurious apartments for at subsidised prices with cheap credit. The military leaders pretend to care for the nation, but their main political objective is to protect this privilege.

• The Moslem Brotherhood was totally unprepared for running a government. Their skills were in social support programmes. They have been outsmarted by entrenched political powers loyal to the military.

• Although the Morsi government had won an election, their power was limited. It had no control over the military budget, so they generals could carry on doing what they liked.

• The $1.3 billion aid given by the US government goes directly to the military. The Morsi government had no control over it.

• The military forces gets the some very effective weapons from the US, but they are only allowed a very limited supply of ammunition. This gives toys for the officers and the ability to control the people, but no capacity to fight a war.

• The Morsi government could not control the police and security forces, so they were unable implement their policies. The police and security forces went on strike in March to demand better conditions and the resignation of the Interior Minister appointed by the new government. They have been off the streets since then, which allowed crime to soar and causing massive insecurity.

• Most of the judges had been appointed by the Murabak government, so they obstructed all the decisions of the Morsi government. The nullified the lower house of parliament, although it was democratically elected.

• The Moslem Brotherhood in Egypt is quite a conservative group. They may have been radical fifty years ago, but they have grown old under persecution. They are not the Taliban of Egypt. They focused on providing social services, rather than on radical activities. This is the reason for their popularity.

• The Salafist movement is far more radical than the Moslem Brotherhood. The Salafists generally supported the Al Nour party, which got less votes in the election than the Freedom and Justice party of the Moslem Brotherhood led by Morsi.

• Al Nour, which advocates sharia law, won 30% of the vote in the parliamentary elections, so it expected to have influence in the government. The Morsi government was stuck in the middle. It needed the political support of Al Nour, but if it adopted Islamic practice to satisfy Al Nour, it alienated the more secular parts of the population.

• The driver of the Arab Spring was really economic. Egypt has 25 million people aged between 15 and 29. Many of them are unemployed.

• Egypt cannot produce enough food to feed its people. During the Murabak era, the United states shopped surplus wheat to Egypt at a 50 percent discount. When the Moslem Brotherhood was elected, the discounts stopped and bread prices doubled, causing huge pain for the poor.

• After the revolution, tourism to Egypt tanked. This has severely damaged small family businesses. The recent disruption will make the situation worse.

• The weakness of the economy makes Egypt almost impossible to govern. Very few economies in the modern world have been able to create enough jobs to absorb the new generation of youth. The military dominated Egyptian economy is incapable of absorbing it massive youth bulge.

• When Moslem leaders are forced into exile, they often up in France. They learnt their economic in Paris, which is bastion of socialism. When they get return home and get into government, they implement socialist solutions, which create a weak economy. (This was true of Ayatollah Khomeini in Iran, too)

• Modern people all over the world have an expectation that their governments can create economic growth and full employment. The Egyptian people have the same expectation, but it will be disappointed.

• Young people in Egypt can see the good life on television and want freedom to live it, but they also want jobs, so they can afford to live it. No government could create sufficient jobs to fulfil their dreams, especially a socialist one.

• Millions of young people in Cairo are unemployed, so they can easily join a protest for several days. There is evidence that some of the protests were organised by the security services.

• Egyptian society is very divided, but civil war is unlikely. The Military leaders have too much at stake, and they hold the power, so they will not let it happen.

• We will see rapid turnover of governments in Egypt. The people will go onto the streets when they are disappointed in the latest showing, and the military will put someone else in to have a try. If this goes on for several years, the army might lose control, and the red horse might be released.

I do not believe in democracy. It is a immoral and a lie. I am intrigued at how quickly Western governments who push democracy as the ideal government ignore it, when elections produce results they do not like. It confirms that they are more committed in power and control, which is what democracy is.

Decline of Religious Influence

We are all in the same boat. For religious groups that want to have political influence, the tide is going out all over the world.

Egypt is an example. The majority of people in Egypt are Moslem, so naturally they want Islam to have an influence on their government and laws. Therefore, it was it is not surprising that when relatively-free democratic elections were held, and Islamic government was elected.

The problem is that Islam is strongest among the older generations and in the rural areas. The younger generations are now a huge part of the population (Egypt has 35 million people aged between 15 and 29. Many reside in the cities. Their outlook on life is shaped by the mass media, not traditional schools or religious leaders, so they are mostly secular and materialist. They do not want to have their lives controlled by the rules of religion. They see religion as outdated and want to be free to live as they choose.

So they went onto the streets in their millions to protest.

The religious leaders were divided.

The military leaders, who are the real power in Egypt responded by ousting the religion government.

Religion has lost out, but the military leaders have cemented their control of the nation.

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The situation is similar in America. The majority of people are Christian (or have a Christian memory). They want Christian principles to have an influence on the government and the laws of the nation.

Christianity is stronger in rural areas and the south. In the past, the culture was shaped by the pulpit and the strong Christian influence in public schools. That influence has now declined, everywhere but in rural areas and parts of the south.

The younger generations are concentrated in the cities. Their worldview is shaped by the media and public schools, so they are secular and materialist. They hate the idea of their lives being controlled by religious traditions. When George Bush became president, they got a sense of what it would be like if religious people gained control again and they were freaked out. They saw Christian political influence, and they hated it.

The secular generations stirred up the media and made sure that the political influence of religion was knocked back. Whenever a Christian like Sarah Palin or Michelle Bachmann seeking to bring back Christian political influence, the media turn of them with a vengeance, so that that they are thumped before they can become a threat. Christian leaders are divided politically, so they have been powerless against the onslaught.

In a secular and materialistic society, the only real power is military. So in America, the power of the military, and related security agencies, is increasing too.

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The pattern is the same in both countries, and in many others

• Large religious groups want their religion to have an influence on the government and the law.

• The power of the pulpit and the religious influence on education is declining.

• The younger generations are secular and materialistic. Their numbers are growing fast.

• These people refuse to have their lives controlled by what they see as old-fashioned religious ideas.

• They know how to manipulate the real powers that control their political system.

• Religion is squeezed out of the political sphere.

• The power of the military is increasing.

John Kay on Capitalism

John Kay made these comments in a talk at the LSE.

The word capitalism is a misleading term that encourages many misapprehensions. One is that economic power rests with the owners of capital. There was a time when this was true, eg Arkwights Mill existed, and this gave Arkwright real power. However, this is no longer applies. In the modern world, economic power rests with financiers, and people like Jamie Dimon, Ben Bernanke and Steve Jobs. Their power comes from their position in the hierarchy, as it always has, in the church, the courts, and other power structures. Their economic power does not come from the ownership of capital. They derive capital from the power they exercise. They do not gain power and influence for their capital. They gain capital from their place in the authority hierarchy.

Ownership of the means of production does not mean anything anymore. The term ownership is unhelpful. No one owns Apple or JP Morgan in the usual sense of the word. The Apple store in Regent Street is 75% owned by the Queen and 25% by a Norwegian sovereign wealth fund.

Share ownership does not mean anything either. There are four aspects of ownership of shares.

1. Decisions to buy or sell shares.
2. Decisions about how voting rights should be exercised
3. The name on the share register
4. The economic interest

All four roles can be exercised by different entities, and they usually are in the UK. Discussion about ownership of shares obscures our understanding of modern business.

Security markets are thought of as a market for buying and selling capital. This is no longer the case. Modern businesses are able to fund their expansion from the surpluses generated by their activities. (Small and medium business do not have access to capital markets). Modern business is less capital intensive, so successful businesses become capital generative earlier in their life. Capital markets are not a means of getting capital into a business, but a way of getting money out. Most activity is financial engineering and not capital raising.