And on her forehead a name was written,
"Mystery, Babylon The Great, The Mother Of The Prostitutes
And Of The Abominations Of The Earth." 
Recently, the shakers and the movers of the world met in Davos, Switzerland for their yearly meeting. It is here that the world's elite discuss the state of the world, the future course of world affairs they wish to see manifest as destiny, and the wherewithal to make it all happen.
One of the tools the elite have always used to forge the works wrought from the anvil and the hammer is the intelligentsia - the counsels of Aries. This work speaks to those who listen to the Ram, and have occasion to frequent the House of Mars. It would be wise to heed the words:
OCEANIDS: Who then is the steersman of Necessity?
Prometheus: The three-shaped MOERAE and mindful ERINYES.
OCEANIDS: Can it be that Zeus has less power than they do?
Prometheus: Yes, in that even he cannot escape what is foretold. 
The following paper will discuss the above linked article that was given as a presentation in Davos, Switzerland by Mr. Mohamed El-Erian: President and CEO of Harvard Management Company, a faculty member of the Harvard Business School, and deputy treasurer of the university. He is also a member of the International Monetary Fund's Capital Markets Consultative Group. Credentials par excellence.
This rejoinder is to the ideas expressed in the above referenced work, it is not intended to be personal - it is simply business. Mr. El-Erian is a brilliant scholar, with passages of rights and accomplishments unequaled by all but a few. I am not close to being one of the chosen few: and for that I give thanks.
Each paragraph of the work will be presented individually, followed by highlights of the main points espoused in the preceding paragraph. Comments on each paragraph will then be given.
The subjects are complex and the discussion of each paragraph in a singular manner facilitates an easier grasp of the more important issues involved. I welcome and invite any and all replies, as it is by such discussions that we are learn the lessons of life: what to do, and what not to do. Let's get to it.
"Much of the discussion at the World Economic Forum in Davos has two themes. First, the continued robustness of the global economy as defined by sustained high growth and low inflation. Second, the steady rise in economic and financial risks." 
The main points expressed are:
- First - continued robustness of the global economy as defined by sustained high growth and low inflation
- Second - the steady rise in economic and financial risks
By sustained high growth of the global economy it is presumed that the collective gross domestic product of the world is being referred to. This figure is approximately $55 Trillion U.S. Dollars.
Note the use of the word: sustained, which is very important. A distinction is being made between growth that is sustainable versus growth that isn't sustainable. Obviously the first (sustainable) is preferred over the latter (unsustainable).
Low inflation is also mentioned as an important variable to facilitate sustainable growth, the inference being that high inflation would be detrimental towards sustainable growth. A precise definition is not provided for the term inflation, which somewhat confuses the exact meaning refered to by the use of the word.
Perhaps it is monetary inflation that is being considered, or price inflation, or asset inflation, or wage inflation. One cannot determine exactly what is meant by the use of the word, as inflation is a complex variable that has many different sub-manifestations.
I can think of no more qualified definition of inflation than that of Ludwig von Mises, who states:
"In theoretical investigation there is only one meaning that can rationally be attached to the expression inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange value of money must occur.
Again, deflation (or restriction, or contraction) signifies a diminution of the quantity of money (in the broader sense), which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange value of money must occur. If we so define these concepts, it follows that either inflation or deflation is constantly going on, for a situation in which the objective exchange value of money did not alter could hardly ever exist for very long." 
The third point mentions the importance of the steady rise in economic and financial risks. Once again we are not provided with just what type of risks are being considered, however, perhaps later in the paper they will arise.
"The tendency is to treat these themes as competing and engage in an interesting but inconclusive debate about their relative merits. A better approach is to recognise that these themes are consistent with structural changes in the world and seek to recalibrate the perspective used for defining the way forward." 
The main points made are:
- The tendency is to treat these themes as competing and to debate their relative merits
- A better approach is to recognize these themes as being consistent and to recalibrate the perspective used for defining the way forward.
It is clearly expressed that it is a waste of time to debate the two themes as being competitive, regarding their relative validity and usefulness, comparing one to the other. Furthermore it is said that a better approach is to realize that these two themes are consistent, and that what is needed is a recalibration of the perspective used for defining the way forward.
It is always good to recalibrate, and to check one's calibrations for accuracy, during any such study of complex issues, and their even more complex interactions with one another. To define the proper way forward can only be construed as a good thing.
On the point of the two themes being consistent, I am not yet sure what is meant by that, so we will see how the paper develops and will run with it at the proper time.
I do note, however, that excessive inflation is not a good thing, and is only consistent with the debasement of the currency involved, and a resulting loss of purchasing power, which cannot possibly create wealth - but only facilitates the transference and or loss of wealth.
In regards to the merit of the two themes being competitive or not, we are not on the same page. I'm not sure if we are even in the same book. For now we will pass over it, but we think it will soon show its many faces, and that there will be much to discuss.
"In the past few years there has been an acceleration in the realignment of the global economy. Two developments have been particularly important. First, the productivity shock resulting from the absorption into the global labor force of massive numbers of workers in emerging economies; and second, the increase in commodity prices that has transferred wealth to raw material exporters mainly in the emerging world". 
The main points presented are:
- Acceleration in the realignment of the global economy
- Productivity shock from the absorption of massive numbers of workers into the global labor force from emerging economies
- Increase in commodity prices that has transferred wealth to raw material exporters in the emerging world
The point of an acceleration in the realignment of the global economy is a multifaceted topic, which can easily be referring to several different sets of circumstances. For instance: if the global economy is being realigned, does it follow that it is out of alignment? Or perhaps it is in alignment, but it is being recalibrated to a different and better alignment.
The latter would be similar to putting air in all of your tires and rotating them for a smoother ride. The former would be equivalent to when your tires are all worn out and need replacing, and in the process of replacing them they should be rebalanced and then realigned to make sure everything is in perfect working order.
The first is simple maintenance, and is easily done. The second involves more complex work, and requires a combination of a higher degree of technically skilled labor and engineered parts to be properly performed.
As we proceed it should become apparent as to just what is meant by the realignment and recalibration of the global economic system. However, even the most basic tasks needed to adjust the global economic system will require a great deal of technical, theoretical, and experiential knowledge: first to evaluate the existing system, then to devise a plan and methodology to repair the system, and lastly the hands on experience needed to implement a plan that works in the real time world, not just on paper. The global economic system has already witnessed what paper tigers are made of, and the financial harm they can cause.
The next major point is that there are massive numbers of workers from emerging markets entering the global workforce, thereby causing a productivity shock. It is true that huge numbers of workers from China, India, South America, and other emerging markets have entered the workforce, and furthermore that they are having huge effects upon the global marketplace, not only in regards to production levels, but several other areas as well.
Alan Greenspan, former Chairman of the Federal Reserve could never say enough about what he called the rise in productivity levels that was transforming the New World Order economy into a dynamic production machine. It was spoken of as the new found grail.
It most be remembered, however, that all machines come at a cost: to build, run, maintain and update, and finally to replace. More important than the pure level of increased production is the cost of that production, as such costs can result in the difference between profit and loss. The debt incurred in any such undertakings also weighs heavily in the balance. This is perhaps the most crucial element in the equation, yet it is but briefly mentioned or discussed. Its absence it is most conspicuous and telling.
Lastly, it is stated that an increase in commodity prices has transferred wealth to raw material exporters in the emerging world markets. China stands out as a huge supplier of commodities that has transferred higher money flows back home, however, money flows in and of themselves are not the same thing as wealth. Money is not the same thing as wealth.
The crucial factor is what was the cost that accompanied the increased commodity flows of income back home. In other words - what debt levels were needed to fund the production of the increased commodity sales? This point is one of the quintessential factors in determining increased wealth accumulation: or truly higher standards of living. Excessive debt levels are destructive - not constructive.
Wealth and sound capital investment can only be had by an increase in savings. An increase in savings can only occur when there is an excess of production over consumption. The excess is not spent on further consumption, but is saved. Such savings provides the capital for sound economic growth. More will be said on this as we progress.
"As a result a new set of countries now exercises a greater (and different) influence on four key global variables: growth, trade, price formation and capital flow. For some of these countries, the transition is nothing short of a regime shift. The most visible is, of course, the move from international debtor status to international creditor status, with the concurrent provision of cheap funding back to countries such as the U.S.". 
The main points are:
- A new set of countries now exercises a greater (and different) influence on four key global variables:
1. Growth, 2. Trade, 3. Price Formation, 4. Capital Flow
- For some of these countries the transition is nothing short of a regime change.
- The most visible is the move from international debtor status to international creditor status.
- The concurrent provision of cheap funding back to countries such as the U.S.
The first point is quite true: there are now a new set of players on the world economic stage of production: China, India, Russia, various other Asian countries, and several South American countries as well. A great deal of this has been precipitated by the need for energy and basic commodities, and the labor to produce them, as well as the middle stage production goods made therefrom.
Four specific categories are offered, where change is most obvious: growth, trade, price formation, and capital flows. These are unquestionably important distinctions and variables.
Growth: Little needs to be said about the pure growth factor in the emerging markets that testifies to the overall growth in world production, primarily due to their individual growth production as nation states that collectively add to the world's overall growth. Once again we note: growth yes - but growth at what cost?
China and India are two of the most recent powerhouse players. They have been growing at very strong rates running consistently in the 7-10% range. This is phenominal growth. Russia has once again re-established itself as a major world power due to its enormous energy deposits that it has developed, is developing, and has and is bringing on line. Several other Asian countries and South American nations are contributing likewise to this growth spurt.
Two of the strongest market dynamics is the supply of goods and services, and the demand for goods and services - supply and demand. As we have just seen, huge amounts of resources, especially basic materials and energy products, are being brought on line in greater and faster rates then previously seen in world production growth cycles.
Trade: One source for both increased demand and increased supply, is the emerging markets themselves. Because they are growing stronger economically, and producing more goods for sale, they are increasing their own capabilities to buy (demand) more goods and services, thereby reinforcing the growth for increased production and trade.
There is another aspect or proponent of the demand equation that plays an even larger part, however, we will save that discussion for further on in the paper where it is more appropriate. It has to do with the credit extended to increase both supply and demand, and the resulting levels of debt and debt service costs incurred. All of which go directly to the bottom line - if the accountants get it right.
Needless to say, all this growth, and increase in supply and demand, results in increased trade to move the goods and services from the producer to the provider (seller) to the consumer (buyer).
Price formation has changed due to the fact that these new players have more power then before to set prices for the raw material goods they are producing, especially in the energy markets. Many of the industrial metals have seen huge mark ups, but are not experiencing huge mark downs. A hybrid manifestation of the boom bust business cycle of trade.
China has been buying tons of basic materials it needs - even stockpiling them for future use. Russia has brought energy on line in areas of the world where it can almost dictate its own prices, as it has basically held hostage various consumer nations that it supplies with energy, by shutting down the energy distribution to the consumer, who then has to accept whatever terms are offered - or go without. Other large players are nationalizing energy and other markets: Chavez in Venezuela is one such example. Iran is an unknown player, as to what it will or will not do.
Capital flows have been flowing both in and out of the larger new players on the world's economic stage, as well as to the older and more established economies. Huge sums of money were needed to bring the raw materials and energy from below ground to above ground production and distribution. Once distributed (sold) huge sums of money then flow to those markets where the best return on capital and profits are judged to be had for the taking.
There is another aspect of the process of capitol flows that will discussed, as we proceed further along. Once again - it has to do with the credit and debt levels behind these huge flows of money, which in paper fiat land are one and the same: money, credit, and debt.
This is THE crucial point that is not understood by most, and usually disregarded by those that do know, as it does not serve either their or their masters most basic interests: wealth transference from others to themselves. It is an ancient precept that it is easier to take then make. Some call it tribute, others call it plunder, while some call it profit - but at whose expense? Cui Bono? As they say - follow the money, as it flows back to the same Houses.
Some of these emerging markets have seen changes that are almost of regime style change - in essence they are a regime style change, but it is not the political regime style that is changing - it is the monetary, financial, and economic segments of the various nations that is changing, and quite drastically.
Certain older and more established nations appear to be asserting more power and control, but their Modus Operandi has not changed. Globalism is about capitalism and transnational corporations - it is not about nationalism but internationalism. It is about power and profit. It is about a one world New World Order.
The color of the man behind the screen has always been the same, as the House of Mars so reflects. Those descended therefrom worship before the coldest altar existent - at the feet of Lucre. Be it duly noted: Lucre worships another. See the series on The New World Order Age of Discontent.
This is why the new kids on the block are referred to as emerging markets, as they are coming from having hardly any effect on world trade, to being dominant players in relatively short time frames compared to past cycles. There is another variable here that is playing a large part in this process, and yes by now it is obvious: credit and debt is the name of the tune. History may not repeat, but it certainly does rhyme.
The change from net debtor to net creditor and the inverse of net creditor to net debtor are perfectly illustrated by the United States and China. The U.S. is considered to be the top dog or alpha male in the world economy. China is considered to be an emerging market and is the fourth largest player on the world stage.
Yet the United States has gone from being the world's largest creditor nation, to the infamous distinction of now being the largest debtor nation on earth - bar none. China has gone from being a debtor nation to being a significant creditor nation, primarily due to its large trade account surpluses, most noticeably with the United States. Fascinating how that works. There will be much more said about this in latter parts, as this is also central to the crux of the matter.
"The systemic impact of this global realignment would have been less dramatic were it not for a technical factor: the bout of financial innovation triggered by the proliferation of derivative based instruments. This has reduced the barriers to entry to almost all markets and encouraged the migration of capital towards more illiquid and leveraged asset classes." 
The main points offered are:
- The systemic impact of this global realignment would have been less dramatic if:
- The bout of financial innovation triggered by the proliferation of derivative based instruments had not occurred.
- This has reduced the barriers to entry to almost all markets and encouraged the migration of capital towards more illiquid and leveraged asset classes.
So, we have a proliferation of derivatives causing a bout of financial innovation, which in turn is causing a systemic impact on global realignment. The main player here is the proliferation of derivative based instruments. This is quite the understatement, which Mr. El-Erian knows, as he is a member of the International Monetary Fund's Capital Markets Consultative Group.
According to the International Monetary Fund and the Bank For International Settlements, the notional amount of derivatives is approximately $400 TRILLION DOLLARS. The gross domestic product of the entire world is $55 TRILLION.
This means there is 7 years worth of the entire world's production of goods and services in play as derivatives in the largest casino existent. As always is the case - the House has the advantage. But which is the dominant House?
Please excuse me for saying that this ratio of derivatives compared to World GNP is so out of whack that if it wasn't such a dire situation, it is so ludicrous it almost evokes laughter. And if not laughter - tears. The tears of a clown.
The Trickster is up to his old ruse of fomenting discord by playing one side off against the other. It is standard operating procedure for all elite collectivists. A study of the historical roots of a deck of playing cards can be most enlightening, as there is much that remains hidden below the surface. Out of sight out of mind - no not really. So they would have you believe.
It is further stated that, "this has reduced the barriers to entry to almost all markets and encouraged the migration of capital towards more illiquid and leveraged asset classes." 
What is the "this" being referred to? It is the proliferation of derivative based instruments that is causing a bout of financial innovation - in Mr. El-Erain's own words.
This financial innovation is also known as structured finance: GSE's credit derivative obligations; mortgaged backed assets; credit default swaps; carry trades; exotic interest rate only mortgages; collateral debt obligations; adjustable rate mortgages with low teaser rates that are eventually reset at much higher interest rates; asset backed securities; emerging market bonds/debt; junk bonds; commericial paper of varying grades & soundness; and numerous types of credit risk insurance derivatives. Sounds like a lot of toxic waste doesn't it?
These credit risk derivatives are not insurable as compared to home owner's insurance or life insurance, or business liability insurance, as they are non-random and non-independent risks that cannot be qauntified or qualified. As such there are no resources behind them to pay for losses as there is in insurance premiums paid to cover the actuarial defined potential losses/claims that have been quantified and qualified in the insurance industry (at least to some degree - but that's another story for another day).
For a bit of digression take the example of the U.S. currency being insured. Insured for what? Insured with what? Why would money have to be insured - against what risks? If there are problems with the original currency in circulation, where will the money come from to replace the original money. In a sound monetary system would such be needed? Think about it - long and hard.
Credit risk derivatives are bets against risks going bad - much like flood insurance which is a cash cow as long as it doesn't rain. But once it starts raining it pours - and once it pours it floods; suddenly flood insurance racks up numerous claims that would never be able to be covered if not for the premiums paid in.
Everything is fine until it isn't - and when it isn't - it's too late. As the wife of the man that falls out the tenth floor window says to her husband as she is looking out the sixth floor window and he passes by: "how's it going dear," "fine so far the man replies." Yes indeed.
Lastly, "the migration of capital towards more illiquid and leveraged asset classes"  will be viewed in historical hindsight as a terrible mistake of misguided foresight - intended or not. The words illiquid and leveraged asset classes says it all - just as the man's answer as to how things were going when he fell out the tenth floor window and had not yet hit bottom.
Fine was his reply going by the sixth floor. Ask him at ground zero how things are going - you will not get an answer, as things are no longer "going", they have crashed and are no more.
As the reader can discern - things are starting to get a bit more intense then at the beginning of the paper, much as things get more intense when climbing Mount Everest and the summit comes into view: the dangers and risks rise dramatically. So too should the preparation and strength of the players and their equipment and strategy rise accordingly - as their lives are on the "ropes".
In a speech at the World Economic Forum on in Davos, German Chancellor Angela Merkel said: "we want to minimize the systemic risks in international capital markets and to raise their transparency -- above all, I see the need to catch up with hedge funds."  I guess she sees some systemic risks that need to be dealt with.
This ends part one. There is much more forthcoming. But enough is enough - for now.
 Revelations 17-5
 Aeschylus, Prometheus Bound 515
 Complex Finance and the Brave New World Economy
 Ludwig von Mises - The Theory of Money and Credit
 Complex Finance and the Brave New World Economy