Episode 229 – Capital Deceit with Paul Gambles

Macro N Cheese – Episode 229
Capital Deceit with Paul Gambles
June 17, 2023

[00:00:00] Paul Gambles [Intro/Music]: There’s this nonsense idea that there’s something democratically opportunistic about capital markets that they’re there for everybody. They offer access for everybody. Well, yeah, maybe, but they offer a lot more access to people who have a lot more money to start with.

Why do you need the dollars circulating in Argentina, or in Southeast Asia or anywhere else? And the reality is, you don’t, except for the fact that that’s the economic and political construct that was dealt to emerging markets after World War II.

[00:01:35] Geoff Ginter [Intro/Music]: Now, let’s see if we can avoid the apocalypse all together. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43] Steve Grumbine: All right, it is Steve with Macro N Cheese. This week’s guest is Mr. Paul Gambles, and let me tell you why this is funny, and I’m chuckling up front because we’re talking about capital markets today. If you know me, capital markets, they’re the boogeyman. I’m just tripping that this is gonna be one of the most exciting pods I think we’ve done.

And I think we avoid subjects that we’re inherently not comfortable with. But because of my guest’s expertise in this and also his refined sensibilities in understanding the working class and what has happened to society over the course of time, I feel like this is gonna be an incredibly valuable hour that you’ll get to experience.

But let me just explain to you a little bit about my guest. Paul Gambles is the co-founder of MBMG Group. Recognized as a leading provider of personal advisory, corporate advisory, insurance services, private equity, accounting and auditing, legal services, property solutions, estate planning since the establishment in 1996.

He’s also a director and chief investment officer of MBMG Investment Advisory, a SEC regulated investment advisor with client assets in the US in excess of 1.2 billion. Under his leadership, MBMG has expanded throughout the Southeast Asia with a remit encompassing an ever increasing range of professional solutions and financial products and services.

His own range of expertise includes asset allocation, tax structuring, and macro economic analysis. There’s many other things I could sit there and laud onto my guest, but as a leftist podcast, what the heck am I doing? With all that said and done, I’m extremely excited to bring on my guest, Mr. Paul Gambles.

Welcome to the show, sir.

[00:03:41] Paul Gambles: Thank you Steve, it’s a real pleasure. I mean, usually I’m listening to it, but it’s a bit strange actually being on it, and I’m really looking forward to this.

[00:03:48] Grumbine: Well, fantastic. I have friends that talk to me quite frequently about how are we gonna change society and do we eat the rich, do we not eat the rich? How do we go about this? And we have all these chats about how to structure society, and I’m not smart enough for this conversation. There’s just too many factors out there for me to ever get my head wrapped around, but I do have a class analysis and the working class is being squashed without any kind of even a regret.

It just happens, and for me personally, I’m outraged, and I don’t know how to process that outrage all the time. Then it comes out in different ways and sometimes it’s very productive, and other times it’s not so productive. But I think a lot of it has to do with the fact that some of my outrage blinds me from the real happenings within these capital markets and mind of the capitalists.

And you and I talked offline a little bit about, not “being a conspiracy theorist”, and yet the concept of me and you talking offline, planning this podcast, is in a sense, we conspired to put together this podcast. So a conspiracy theory can mean many things. With that said, it seems like the capital order and capital class and the capital markets have conspired against mankind, against the little people, concentrated power and made it almost impossible for workers to have dignity and to live lives that are full, which is also part of the reason why you and I are coming together is we’re both MMTers that support an economic framework and understanding that allows people to see the possibilities that could in fact help their lives. So why don’t I just let you tell us a little bit about yourself and respond to my introduction.

[00:05:40] Gambles: I was enjoying listening to that. I could have listened to that for a full hour, to be honest, Steve. But I think of all the things you said there, that that’s absolutely right. And I think the problem is kind of hiding in plain sight, in that I had, I guess whatever, uh, the smaller, less intellectual version of an epiphany is. Fanny, I guess is it? I dunno. Whatever a small epiphany is. Anyway, I sort of had one when I realized that having sort of accidentally ended up in capital markets. It was a book a few years ago called The Accidental Investment Banker. Well, that was kind of me. I accidentally ended up in capital markets, and was, you know, I’ve always done my best at it, but one day I realized that there was a huge gap between the narrative and the reality of what happens in capital markets. And again, because I’m not always the quickest on the uptake, it took me a while, and it took a lot of really smart, really helpful people, to help me realize that actually there’s really a gap between the narrative and reality in pretty much everything that we see.

Capital markets is just really a symptom. It’s just the lens through which we can look at these things in the same way that economics is, and the same way that politics is. These are all sort of functions of how we all live our lives, and none of them are really what they seem or quite what they purport to be.

So the one thing that you said that I’d kind of push back on is about eating the rich, not because I disagree with the intent behind it. I’m not sure they taste that great, but I think the way society is structured, that’s never gonna happen. You’re never gonna be able to get the power to do that. So, you know, I think you are right to be suspicious of those kinds of conversations that reduce it to something that kind of simplistic.

We have very, very complex and dynamic social systems that have evolved ever since, you know, we became Homo Sapiens. And again, even there, you know, the very birth of mankind is kind of shrouded and a lie, because Victorian anthropologists didn’t want it to be seen that we’d actually evolved too closely from chimps.

Then they don’t class Australopithecus as actually being a homo, as being a version of mankind. They had to insert this extra species that they say, well that’s not humans yet, because that’s where chimps came from, humans are another step along from there. So you know, even the very dawn of mankind is shrouded in a kind of mythology that is just meant to perpetuate myths that somehow lead us to everything we do every single day.

I just think it’s really hard to actually understand a lot of the things that we see in everyday life. I was actually just thinking, my son graduates this year from university, and he wrote a dissertation about the politics of the superhero genre. And look, I’m a huge fan of Noam Chomsky, but until Henry wrote his piece, I wasn’t aware that Chomsky had actually said ‘The first superhero text that we have is the Declaration of Independence’. Because the Declaration of Independence was all about creating a form of social control over people, creating a huge fear in the mass of the people, so that a small group could actually ascend to power, could exercise control, and create an absolute dependence on them.

This idea that America, or every other country, needs somebody to come along and save the day. So I think it permeates everything we do, from capital markets, through to media and entertainment.

We’re all part of a system that, in many ways, as I say, is built to perpetuate myths. Because if it really told the truth about how the world worked and how power and wealth is concentrated in such few hands, then it’s like Henry Ford’s quote about, if people knew how banking and monetary policy worked, there would be a riot in the morning.

So, you know, we need this narrative, we need this deception to be practiced on people. Otherwise,, we don’t just keep perpetuating the kind of social structures we’ve got, and every day, every step we take, they ,become more embedded. Inequality becomes more embedded, and capital markets have played a huge part in that.

I think, probably in the eighties, nineties, naughties, then, capital markets were probably one of the biggest drivers of inequality. I think today there’s a real argument that maybe technology and social media are, uh, perhaps even bigger drivers or just as big drivers of inequality. In the way that they’re able to concentrate power through information, into a very small number of hands that use that.

Again, going back to Chomsky, it’s the sort of unholy marriage between, you know, media and politics. They have this codependent relationship that they need, to be able to distract people from asking too many questions and finding out the way that too many things really are structured. And then, yeah, like we said, it’s not conspiracy theory, it’s just fact that when you look at the data, when you look at the statistics of how many people own what, and how most people own so few, then it’s hard to see why there isn’t more of a uprising to want to eat the rich.

Except, as I say, the system is self perpetuating. All systems do things that take steps that are designed around self perpetuation, and we just are the kind of current zenith of that. And yeah, me and my buddies in the capital markets have got an awful lot of blame to bear for that, Steve.

[00:11:47] Grumbine: You brought up so many good things, and I love the concept that we’ve created superheroes with the Declaration of Independence, and that it gives us the ‘great man’. And I’m a former libertarian, so I speak fluent ‘jerk’. Back in the day I read my Ayn Rand, Atlas Shrugged, The Fountainhead.

[00:12:09] Gambles: You could get a job in capital markets.

[00:12:12] Grumbine: But that’s all you need is the little Ayn Rand and you’re there, right?

[00:12:15] Gambles: Exactly.

[00:12:16] Grumbine: Well Ayn Rand’s idea of the makers and takers, the great man, the brilliance of the maker, and the absolute sucking of the taker. This concept has permeated society. Even when I was flirting with objectivism through studying Ayn Rand. Even then, there was a pang in the back of my head that said, there’s something really gross about this.

I can’t quite put a finger on it because I was wrapped up also, in the excitement, of maybe, I’m one of the makers. Maybe one day I’ll be a maker, as opposed to a taker.

[00:12:56] Gambles: That’s exactly how it works. That’s the deal. That’s how it sucks you in that you do all the good stuff and you end up becoming the maker. You end up being one of the good guys, getting all the good stuff, and you deserve it. And the people who don’t get that, in that framework, hey, they don’t deserve it.

There’s a reason why, there’s… I forget what they call it, is it the just perspective rationale, or something like that, where people look at what happens in society. And when they see bad things happen to people, they go, well, you know, that happened to them because there was a reason, they’re not like us, they didn’t do all the things they’re supposed to do.

And that is very compelling, it’s very overarching, it’s so kind of, universal. That’s a really tough thing to fight against. So if you’ve had your Ayn Rand diversion therapy and you’re now coming out the other side, you are in a better place.

[00:13:44] Grumbine: You go back to biblical times, and you read the stories of the Garden of Eden and the snake, surely you’ll not die. And the temptation, the addiction, the allure of power, and the allure of success. It’s hilarious because there’s this culture war that we’re trapped in, that plays into this as well. The whole idea of ‘you social justice warriors are just virtue signaling.’

But what is it that we just experienced in that little exchange? We saw the capital order exchanging virtue signaling by, ‘you deserve it, you’ve worked hard.’

[00:14:22] Gambles: Absolutely.

[00:14:24] Grumbine: That’s virtue signaling 101.

[00:14:27] Gambles: But nobody ever points that out, because it’s so embedded, it’s so all embracing. And as you say, you know, that has gone on since people basically formed societies 10,000 to 15,000 years ago. Why did we create religions? Why did the Greeks have gods? All of these things all become so embedded in the societal fabric. You’re a good guy if you play along with it, or you’re a bad guy and you’re going to hell, or you’re gonna get the wrath of Zeus, or you know, whatever the details of that particular framework may be. But you’re gonna get all the bad stuff if you don’t play the right game, yeah?

[00:15:07] Grumbine: Yeah, so Paul, I want to take this back, and I don’t wanna stay specifically in the MMT origin story, but I think there’s an opportunity here, because we talk about myths, legends, and Boris of strategies. And one of the core tenets of MMT is the money story, which Warren Mosler very eloquently speaks to.

[00:15:27] Gambles: Yeah.

[00:15:27] Grumbine: As he talks about the idea of, you offer up a tax payable only in your currency that’s got your face stamped on it. And as long as you can enforce that tax, you’ve got a working currency.

And some of that thinking, the lie, the myth, that has gone into the role of taxation, and how it plays in the currency issuer, currency user debate, and discussion. It’s really not a debate, just people don’t understand, so they debate. And so, in the end, it kind of gets lost, that this is a construct, that is a coercive force used, predominantly, to force you to use this thing.

And as a result of that, people fundamentally believe that they need to produce more of those things, so that the government can survive and give them nice things. Not realizing that the very myth distorts the fact that it is the creation of the sovereign, and in this case, the nation state as it issues its currency out to provision itself.

I’d be interested in hearing your thoughts on that.

[00:16:34] Gambles: I couldn’t agree more. I guess one of the useful things on whatever journey I’ve made to start into question, and hopefully one day I’ll start to understand as well, but questioning is probably a good start. But I was really lucky that I came across a lot of the work that Steve Keen had done. This is 20-25 years ago, when Steve wasn’t, I think it’s fair to say he probably wasn’t as well known, as he is today.

I mean, he was still something of a…

[00:17:04] Grumbine: Renegade economist?… Are you kidding me?

[00:17:07] Gambles: He was, yeah, like enfants terribles, I suppose, at that stage, without having quite the reach that, thank God, he’s got today. And Steve has been incredibly helpful, understanding, patient.

[00:17:21] Grumbine: Indeed.

[00:17:22] Gambles: And, I think, one of our coming together moments, so, and Steve’s a great friend today, I mean, he’s not only a great teacher, he is a really good friend of mine.

[00:17:29] Grumbine: Indeed, yes.

[00:17:31] Gambles: Because he’s a wonderful human being. I mean, he’s one of the smartest people I know, and he has also got one of the broadest streaks of human decency of anybody I know, as well. Which occasionally leads him to get a little bit excited about some of the really important issues like climate change and the people who are doing the best to disguise the reality there.

But the sort of, real eureka moment, that Steve patiently led me to was, I couldn’t understand what it was in macroeconomic models, that was just not making sense. That, I could see that the way they described the world, wasn’t the world we actually lived in. But I needed a bit of help joining the dots. And it was Steve that sort of helped me understand that, that the traditional macroeconomic model, in all the years before MMT was widely accepted (to the extent that it is, which is still not wide enough, obviously), was that money is not a significant factor in our economy, that it’s merely a medium of exchange. And that was a real light bulb coming on moment, when I understood that that was how traditional macroeconomists looked at it. They don’t regard money creation as being a factor, an economic factor, in itself. They just see money as literally a form of exchange from capital to labor, to goods, to services. And that’s just nonsense. That’s just so self evidently nonsense. It’s just ridiculous. And I think some of the earliest discussions we had were like, you know, me saying, ‘but that can’t be, nobody’s that stupid.’

And that’s what led me to realize, actually, this isn’t stupidity, this is a useful tool for making sure that most people are not meant to understand the way that monetary policy works. Henry Ford, sort of a hundred years ago, was right, that there’s a veil drawn over it, so that most people don’t understand how it works, because if they understood how it worked, they’d understand what the consequences of it are. And so that was a really key breakthrough for me.

I actually sort of came to that realization, and that place, probably 20 years ago. Before I think, the MMT movement, (and I think Warren had already started doing the stuff he does, and Michael Hudson, was obviously working with, I think people like Randy Wray and Stephanie Kelton, at that stage), but it wasn’t a, kind of formalized movement, in the sense that it’s been able to become today. There was no, sort of, MMT Bible, if we want to look at The Deficit Myth in those kinds of terms. I hesitate to call it a bible because actually I think most of what’s in The Deficit Myth is true, so it’s probably not a Bible.

That’s probably offended half your base, you can put disclaimers on afterwards.

(Ba Dum Tiss).

Exactly, yeah. So I came to MMT before it was really, sort of, MMT, as such. I just came to a realization, of a kind of common sense message, that Steve in particular, and then Michael, and then, yeah, I came across Randy, and ultimately I came to, Hyman Minsky, which I think, for me, is a sort of philosophical underpinning of it all.

Although, I think I’ve heard Warren say that he’d never read Minsky, or he wasn’t particularly a devotee of Minsky at the time. He came up with his own initial papers on MMT. I think it was only later that Warren got into Minsky’s work.

[00:21:15] Grumbine: Yes.

[00:21:16] Gambles: But yeah, that’s what led me there, and I spent quite a lot of time doing what I could to try and help get that message out. That it’s just absolutely nonsense to try and analyze any modern economy without including any adjustment, any factor, of money in that economy. They’re just saying, you know, that money is completely neutral. It doesn’t in any way influence, it doesn’t add value, or detract value, or create momentum, or create busts. It’s not a boom and bust value. Just absolute nonsense, cause I could see that everything was about different forms of money, including leverage, in particular. Which was the thing that had got me, sort of, really interested, around the turn of the millennium.

So, that’s not only helped me to understand, I guess, how the economy really works, and for anybody who hasn’t read The Deficit Myth, I think, that’s probably the best starter pack on understanding the real economy, it also made me realize a whole bunch of other things there we were being told, were also patently untrue.

And it wasn’t necessarily and entirely down to lack of information, it was in many cases down to extreme misinformation. And I often say, the thing that really proves MMT is right, more than anything, more than The Deficit Myth, more than Warren’s paper, more than Steve Keen’s Debunking Economics. The thing that really proves MMT is right, is when you hear politicians saying, ‘No, we don’t have enough money in the kitty for single payer health service’, or ‘No, we don’t have enough money for the social housing’, or, ‘No, the government hasn’t got enough money for education.’ But ask them to do tax cuts, or ask them to go fight an imperialist war, suddenly they have all the money to do that, and that is actually the ultimate proof.

Nobody ever asks them, when it was hospitals, we didn’t have the money, but when it’s creating weapons to put people into hospitals, we seem to have plenty of money for that. Nobody ever seems to ask that question, but actually to me, that’s the ultimate proof that MMT is on the right track.

[00:23:27] Grumbine: I couldn’t agree more. I wanna do a slight pivot here, because I absolutely agree with your statements. You being in capital markets, one of the big concerns that you hear people voice, not just lay people, by the way, people that should know better, trained economists who make this profession absolutely a perversion.

These guys talk about, ‘Well, if you just print a bunch of money, it’s gonna devalue the dollar’, and they say it with such swagger and cock suredness. And I have so little respect for ’em when they do that, but regardless, people repeat it.

And one of the challenges for me, was to understand that spending was the birth of a dollar, and taxing was the death of a dollar, it was like a circuit. And Steve Keen does talk about circuit theory. Warren Mosler expressly states that the fact that the sovereign doesn’t require financing, but the term revenue comes from the French word revenir [“returned”], which makes the money coming back in, perfectly legitimate to call it revenue.

However, the purpose of that revenue is not a financing operation, it is simply the return to sender.

[00:24:43] Gambles: Yep.

[00:24:43] Grumbine: But where’d the sender get the money to begin with? The sender created it by spending it into existence.

[00:24:49] Gambles: Absolutely

[00:24:50] Grumbine: And so when they talk about ‘print a bunch of money’, this, I believe, is a direct result of people who believe that fundamental thing that you had raised earlier, skipping the money creation aspect of it, they believe capital markets dominate and dictate, and they do, in practice, but they don’t have to.

[00:25:10] Gambles: They do, because that’s the premise that’s set up. Why do so many economists get it so wrong? Like I say, charitable explanation would be that, it’s stupidity. I don’t think it is. I think it’s, what’s the quotation, you’ll never get a man to believe something if his job depends on him believing the opposite, or whatever?

[00:25:29] Grumbine: Yep.

[00:25:30] Gambles: This system, or whatever societal structure, whatever you want to call it, has evolved over generations, over centuries, over millennia. It’s hard coded, these myths, into the message of how people are supposed to believe that things work, the macroeconomics work, the capital markets work.

There’s this nonsense idea that there’s something democratically opportunistic about capital markets, that they’re there for everybody, they offer access for everybody. Well, yeah, maybe, but they offer a lot more access to people who have a lot more money to start with. And when you do the origin story of capital markets, the most commonly quoted one, is the Dutch East India Company, in the 16th, 17th centuries, and there’s nothing remotely democratic about that story.

The idea was that the dozen or couple of dozen wealthiest ship owners in Amsterdam wanted a way to reduce their risk and to ensure that their own financial primacy wouldn’t be threatened by things like acts of God, storms, shipwrecks, things like that. So basically, all of the wealthiest ship owners all clubbed together to make sure that they remain the wealthiest, and that their position was even more certain going forward. And that those differentials between them and everybody else in society, would just get bigger and bigger.

So the whole origin story for capital markets is actually about protecting a minority against the kind of threat of equality, with the majority.

[00:27:26] Intermission: You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on TikTok, Twitter, Twitch, Rokfin, and Instagram.

[00:28:17] Grumbine: So, let me ask you this question. Because this is something that leftists frequently bring up, I know Marx spoke about it, but this is also something that I see even young libertarians speaking about, and I imagine this fits right into your wheelhouse: the concept of capital flight and managing capital.

What we’re seeing is a belief that capital owns all, controls all, and if the government spends money, the capital will flee. And from an MMT perspective, Warren would say capital flight isn’t a thing. And as a capital markets guy, what’s your take on that?

[00:29:01] Gambles: So I arrived in Thailand, where I’m based, in 1994. I came here for two or three years at the time, but I guess I’ve way overstayed my welcome. And therefore I got a ringside seat of the Asian financial crisis, just a couple of years after I got here. I like to think that it wasn’t directly caused by me being here, but it is fairly coincidental that it happened pretty quickly, once I’d settled here. There’s a guy called Jerry Brady, who writes a fantastic financial newsletter, that he publishes as a hobby, almost, it’s free anyway.

He actually came up with one of the best explanations of emerging market currency weakness, or any kind of relative, you know, currency weakness. Which is that, if you have a soft currency and a hard currency in circulation alongside each other, then there are the conditions where you’ll get a run on currency, because everybody will instinctively be drawn to wanting the readily convertible dollar, basically. If you’ve got the dollar circulating alongside the peso, if you have a local economy that runs on two speeds, in effect, then dollar primacy wins out, for all sorts of practical reasons.

The key point to that is, well, why would you do that? Why do you need the dollar circulating in Argentina, or in Southeast Asia, or anywhere else? And the reality is, you don’t, except for the fact that, that’s the economic and political construct that was dealt to emerging markets after World War II. And they were pretty much forced into a reliance on US dollars for most of the time since World War II.

That is what creates the potential for capital flight. Because currency doesn’t, even in the electronic age, doesn’t just disappear into the ether, it actually has to have a destination, it has to go somewhere. And what we’re really talking about is conditions where Thai baht, or Argentinian peso, or Turkish lira, or whatever, end up being converted, on a large and non-commercial scale, into something like the US Dollar. And as I say, that’s purely a political construct that does that.

There will be no commercial driver that would make that happen if the dollar weren’t imposed on emerging economies, in the way that it has been for an awful lot of the last 70 years, or 80 years, or so. So it’s not a factor of local government mismanaging economies necessarily, or mismanaging currencies. I guess an easy way to look at it is, we had the crisis here in 1997 because the governments in the region, and corporations in the region, had all been encouraged to borrow US dollars. That’s what caused the flight, and when you increase that level of borrowing in a foreign currency, in an alien currency, that you can’t print yourself, to the extent that it becomes a threat to the local currency. That’s when you get currency flight to US dollar, flight to safety. It’s not necessarily a local factor at all, except the local factor was what seemed to be the perfectly reasonable option, that was offered in 1996, 1995, 1994, of being able to borrow in US dollars at an interest rate that the American system made sure was only about half of the interest rate that was charged in local markets and local currencies. So it’s really a sort of economic imperialism. It’s an attack on local currencies, a stealth attack on local currencies, by dollar, by creating a level of debt in dollar that ultimately becomes unserviceable.

[00:33:19] Grumbine: Absolutely, and it brings me to another point. I wanna look at the leverage of the IMF. That is an extension, by far and away, of US imperialism, and the structural adjustments they impose to ensure that country doesn’t have the ability to fight dollar hegemony. And the other factor, and I think this is equally important, is when we talk about capital flight out of these governments that have borrowed in foreign currencies. The idea, in fact, that there is a way out of that, that there is alternatives, and that’s where BRICS come in.

Looking at the formation of BRICS as a countervailing force, although it may not be strong enough to do much damage at this point, there is definitely a resiliency to that BRICS group, that has continued to grow and blossom, as a means of escaping that pressure of dollar hegemony. What are your thoughts on, both the IMF, and the counter response through the BRICS?

[00:34:32] Gambles: Yeah, I think that’s a great point. You had an episode on BRICS, didn’t you?

[00:34:36] Grumbine: Yes. Yan Liang came on and talked about that. [Macro N Cheese episode 226] Absolutely.

[00:34:40] Gambles: So that was excellent, I recommend everybody listen to that. So, I say I had a ringside seat, I was here, and it was pretty galling, for a lot of people here, I think, that as it became apparent that the problems Thailand had encountered, had been because it had suited the western world for the Southeast Asian countries to borrow in western currency to an extent where it was obviously excessive.

Michael Hudson has this great phrase about, debts that can’t be repaid, won’t be repaid. But you know what, they end up being repaid in another form. And that form was the arrival in Southeast Asia in 1997 of the IMF, with their IMF script all ready, IMF prescription. And the solution to having basically teased emerging markets into a dollar addiction by standing on the corner pushing dollars, the emerging markets got the pain for that, and then the cure was Doctor Dollar, coming along again in the form of the IMF to prescribe more of the same.

The the one thing I would say is I think it’s in some ways quite encouraging that having been beaten up by that system, a lot of Southeast Asia was very reluctant to follow down that route again. Thailand has always been a sort of study in diplomatically playing every side and trying to not offend anyone. Across the border in Malaysia, Dr. Mahathir, who wasn’t always sound on every issue, was very, very clear that this was a Western problem that had infected Asian markets, and that prescribing more of the same, but in a way that would increase the burden of extraction on local markets. He was very clear that that wasn’t the way to do it.

Because again, we have to remember, you know, the reason this came about, the reason this whole system came about, was that it’s a form of value extraction. Why were dollar interest rates so much lower than emerging market interest rates? They were so much lower because the dollar was benefiting from that relationship that it had enjoyed, of being able to lend so much into these local markets. And that was helping to drive down the dollar funding costs, so it was absolute value extraction.

And you have to also take a bit of a step back and ask, why were local banks in Southeast Asia being forced to play the game, to a totally different set of rules, to the Western banks? Western banks were being allowed to create the run up in credit, that led us to the NASDAQ crash in 2000, then led us to a subprime crisis in 2007, 8, 9.

That was a direct consequence of the way Western banks were behaving. But the Western policymakers were using their influence to make sure that local banks here just weren’t creating local currency through bank loans, anything like the same extent that their American cousins were. So there wasn’t a point, there wasn’t a day when suddenly the Fed, or the US banking system, or Clinton, or whoever it was in power at the time, there wasn’t a day when suddenly they said, ‘hey, we’re going to extract value, we’re gonna impose hegemony over these emerging markets’, it was merely, you know, a whole bunch of steps at a time, almost like dangling sweeties or something like that.

It was one step at a time of ‘come into our system, it’s lovely, it’s cozy, everybody’s friendly in here’, and then when you get in, you know, you find out it’s actually full of sharks. So, that was the experience here, and inevitably how people got sucked into it, in the same way that we were talking earlier about people getting sucked into narratives. Countries are nothing except people. Governments are nothing; but are made up of people. So the same way that individuals fall for narratives, so do governments, so do policymakers, so do whole countries. I think the most encouraging thing that came out of that wasn’t just that locally here, everybody in Thailand was cheering on Mahathir Mohamad when he was coming out with his rhetoric against Western bankers.

Although it’s kind of ironic, if you think what’s happened to him, Malaysia with 1MDB, but that is probably a different rabbit hole to go down. But probably the really encouraging thing that came out of all this, was that the most powerful of emerging markets, they had a ringside seat, they saw all this, and yet they had, I guess, more combined economic clout.

One of the reasons why the dollar system was so successful at imposing itself on emerging markets, on Southeast Asian markets, was a sort of, lack of collaborative bargaining or collaborative thinking between the markets. Each one kind of had its own relationship with the west, and obviously that was just a totally unequal relationship.

What we saw with the BRICS was the bigger of the emerging markets, actually all effectively banded together to try to create an alternative pathway. And again, I think one of the really interesting things there, is that western hegemony, it didn’t say, “guys, that’s fine. You carry on. No problem. Make your own trade arrangements, make your own currency, make your own deals.” It’s done pretty much everything it can to interrupt the progress of the BRICS. It’s been a sort of almost economic terrorism practiced by the West against emerging markets, or practiced by developed economies against emerging markets, to try to prevent the power base of the BRICS forming.

We’ve seen examples every single day, even currently. If you look at the role that the West has played in trying to undermine the Turkish Lira, it’s basically an act of economic warfare. If anybody goes and looks at a chart of the South African Rand, to the US dollar, over the last couple of months or so, you’ll pretty evidently see the point at which American geopolitics expressed its dissatisfaction with South Africa for not following the Western prescription, for how South Africa should conduct its relationships with other BRICS, and particularly with Russia. There was a very concerted attack on the Rand, by the West, particularly by the States, and yet Turkey has come through this.

It’s got a much weaker currency than it would have if it weren’t subject to this kind of FX intimidation. South Africa is coming through this, but it causes damage, it causes significant collateral damage in these economies. People lose jobs, businesses fail, and all because the Western markets punish the Rand, or the Lira, for not following the geopolitical himshi, the geopolitical script, that the West wants them to follow.

So, it’s probably something that we have to go through, if we’re actually going to see emerging market economies actually unshackle themselves from that Western funding dependency, that was inflicted on them as the only way that they were gonna achieve economic growth miracles. So it’s not gonna be plain sailing by any means, but I think the fact that we’ve still got such a strong commitment, from BRICS and from other emerging economies as well, to actually try and take some degree of control over their own future, as opposed to just being put back on the early 1990s, “borrow as many dollars as cheaply as you can” diet, which we all saw what that led to.

So yeah, we need an alternative where some steps towards that, but it ain’t gonna be easy and there will be a lot of pushback because western hegemony is not gonna just surrender easily. It’s really interesting, I think, that it’s becoming as extreme as it is right now. I don’t believe that anybody can, hand on heart, say that there’s no connection whatsoever with the BRICS attempts to disentangle themselves from Western commercial, economic, and currency hegemony, and the actions that we’ve seen, in terms of American geopolitics, in and around the Ukraine, and in and around the South China Sea.

I think those are pretty clearly responses that are attempts to prevent the diminution, or the limitation, of economic hegemony. I think we’re seeing it move into a geopolitical, and into a military sphere. And I think that’s terrifying, but I think that’s a logical reaction for Western hegemony, if you see it in Western hegemonic terms.

[00:44:24] Grumbine: I want to tie together several key points that you brought up, because I think they’re very important for people to understand. Michael Hudson said, debts that can’t be repaid won’t be repaid. Talking about the acts of western hegemony on society as a whole, and it’s near militaristic attacks on various countries as they attempt to break free of dollar control.

You don’t have to look at current situation to see how bad this was. A gentleman in Africa named Thomas Sankara had a great quote, and I wanna read this to you. He said, “Under its current form, that is imperialism controlled, debt is a cleverly managed reconquest of Africa, aiming at subjugating its growth and development through foreign rules. Thus, each one of us becomes the financial slave, which is to say a true slave.” That guy is a hero. This is a man who said basically, if I pay your debt, then my people will die. So therefore I cannot pay your debt… which is kind of the quote that Michael Hudson says.

[00:45:34] Gambles: Yeah.

[00:45:35] Grumbine: But that tied it together, I think, from the attack on the BRICS, the irresistible urge for Western dominance, and its need for products and services, at the way they want it.

[00:45:47] Gambles: Again, I think you have to look at it. Why do Western hegemonic lenders, lend debts that they know can’t be repaid, and won’t be repaid? It’s because when the non repayment happens, when the default happens, then in 1997, it wasn’t the western hegemonic lenders who lost out. It’s a very clear way of maintaining control.

You lend the debt, you increase the dependency, and then when the default happens, hey, you send in your friends from the IMF to increase the dependency even further. It’s a very clinical, possibly even cynical, strategy—not just maintaining influence, but actually increasing influence, increasing that inequality, that slavery, between debtor and creditor.

[00:46:34] Grumbine: Don’t forget the enforcement arm, that would be NATO.

[00:46:37] Gambles: Absolutely.

[00:46:39] Grumbine: We just did a great interview. If you haven’t heard it, David Correa wrote a book called Police a Field Guide, and I interviewed him one of the previous Macro N Cheeses, and I strongly recommend it. In fact, he joined us with his co-author, for what we call an RP Live, where we had a webinar where people asked him questions.

[00:46:58] Gambles: Fantastic.

[00:46:59] Grumbine: It’s very important to understand the role of the police, in managing and maintaining order for capital to thrive. And this is the same role that NATO plays, in that same thing, making sure renegade states tow the line, so capital can do its thing.

[00:47:15] Gambles: Absolutely. The renegade states are entirely sort of a media creation, in the same way that criminal profiling, we’re told that certain racial or economic profiles are more likely to be criminals, whether we’re told that outrightly or subliminally, it’s the same thing.

And again, it goes back to what my son taught me about Chomsky, it goes back to the Declaration of Independence. Create a bad guy, and then you’ll need to rip off your shirt and show that you’ve got a large S branded on your chest underneath. To be the one to come and save, so I think it all ties in.

[00:47:56] Grumbine: It really is terrifying, isn’t it? The manipulation of thought, to maintain an order, that clearly is manufactured, that wouldn’t live on its own, were not at the end of a gun point.

[00:48:09] Gambles: Absolutely. The idea that people, who maybe have never been out of their state in America, or maybe haven’t traveled very far from home in Europe, have all suddenly got Ukrainian branding on their public profiles. Whatever the wrongs and rights, but they’re bought into this idea, that they need to be seen waving a Ukrainian flag on their public profile.

[00:48:35] Grumbine: Virtue signalling. Yep.

[00:48:36] Gambles: Exactly. It’s just bizarre that so many people can buy into that. Yes. As you say, that virtue signaling, that orchestrated virtue signaling. All thinking, all at once that, hey, this is a great idea, and all thinking that they’re doing the right thing, and thinking that it’s their idea. There are hundreds of millions of people out there, who are thinking, this is my idea, I’m standing up for freedom, well.

[00:49:00] Grumbine: Manufacturing consent.

[00:49:02] Gambles: Exactly. Manufacturing consent. Absolutely manufacturing consent. Totally.

[00:49:07] Grumbine: All right. I want to have you back many times, because I feel like this conversation is kinda like dipping the pen in the inkwell, we haven’t even begun to write. This is really fantastic. So thank you for a great show, but leave us with an understanding the final word on capital markets and their role.

[00:49:25] Gambles: Okay. I’ll tell you what, if I can, I’ll take a tangent.

[00:49:28] Grumbine: Sure.

[00:49:29] Gambles: There’s this idea that capital markets are somehow free, and that, that freedom is somehow related to democracy and rights of representation, and everybody having an equal value in society. Again, one of the things that I learned in the last few years is, you have to be really careful with democracy, like everything else that we’re talking about.

It’s not necessarily what you think it is, it came as a real eye-opener to me. To find out that the Greek model of democracy, which is always put on a pedestal—it’s something we all know that we’re supposed to look up to and aspire to. It’s what the founding fathers were deeply reverent about with the Declaration of Independence, the Constitution. It was late in life when I actually found out that really, Greek democracy, again, it’s a myth. Just like the Gods on Mount Olympus, really, it’s a bit of a myth. It wasn’t a form of transferring power to the people, as we now understand it. It was basically a carve up between different autocratic interests, primarily the three main autocratic interests in ancient Athens, who had, until that time, basically been at each other’s throats and taking turns. That one would be the autocrat and the other two leading families would be in exile, and then they’d come back, there’d be a war, and there’d be a regime change, and a different family would be [inaudible]. And in the same way, the Dutch merchants, who supposedly invented capital markets by banding together to share the risk of their voyages and their ships, then the main Greek autocratic families decided to do a deal, where they would carve up their rights to rule between them. Nobody else would get a shout, but they’d carve it up amongst themselves. And in doing so, guaranteed that all three of them, and any other minor families that they let play the game, would get their share of the spoils of running Athens.

And the problem was that they’d whipped people up into such a frenzy for so many years, so many generations, to be at each other’s throats, that the only way they could sell it to the people was to say, ‘now you guys are in charge, we’re giving you the power.’ But it was never the case at all. There really wasn’t any transfer of power to the people at all.

So we’ve gotta be careful about whether anything is what we think it is, and if it’s not, why does it exist in the form that it does? It’s probably for somebody’s benefit. It’s normal human behavior that we respond to incentives, and so most things are response to an incentive, and what we call democracy today, grew out of a small group of autocrats, responding to the incentives of ensuring their ongoing power, their ongoing rule, at the expense of the people. But the only way to get that by the people, was to sell them the democracy myth.

[00:52:36] Grumbine: Wow. That is a powerful statement. Paul, thank you so much for joining me today, sir. Where can we find more of your work?

[00:52:45] Gambles: So probably the best way to follow up. I write on all sorts of things. Most of the stuff that I write has got a capital market element to it. Then probably the best two places to find me, unless you want to pay a research subscription. So best two places to find me for free would be on substack and on Twitter. My Twitter account, I registered one of the first Twitter accounts years ago and then lost the password for it, didn’t know how to retrieve it. So as a result of that, my Twitter account today is @paulgambles2.

[00:53:21] Grumbine: Well Paul, thank you so much for joining me today, sir, and for all of our guests out there, I hope you learned something. I know I did. I do look forward to having you back on. This was absolutely amazing.

[00:53:33] Gambles: Thank you.

[00:53:34] Grumbine: You’re cut from the kind of cloth that I wanna keep coming back to. So thank you for this wonderful discussion.

[00:53:41] Gambles: Been a pleasure. Really enjoyed it.

[00:53:43] Grumbine: Right back at you. All right. This is Steve Grumbine with my guest, Paul Gambles. Macro N Cheese. We are outta here.

[00:53:57] End Credits: Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.