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Two Crises – One Depression
The world economy is facing two distinct crises, one in the financial sphere and one in the productive sphere. While interlinked in their creation, they demand different remedies.
The creation of these crises originated in the financial part of the economy:
Over the last 15 years, increased competition (within the industry and increasingly from non-banking institutions) and the reduction of earning from the commoditisation of products forced banks to rely on “voodoo banking” – performance enhancement to boost returns.
Voodoo banking created money out of nothing, pushed it down the throats of gullible consumers and sold the such created debt assets to gullible investors.
The regulators stood by or were even complicit in the gigantomaniac Ponzi scheme. The fictitious financial industry grew ten times bigger than the real one it was betting on.
Driven by brutal marketing the consumers indebted themselves more and more. They used the money to buy more and more stuff. Houses, cars or whatever China could produce for them. This artificial demand created production capacity that under more benign circumstance would never have been created. World wide car building capacity now by far exceeds plausible demand.
But finally the consumer was exhausted. Even at 0% interest and no income questions asked there was no one left to take on another loan to buy another house at astronomic prices. The bubble burst.
The financial pyramid came down first. Investors found out they had been lied to. Banks found they held the toxic stuff they had created in their own portfolios. Lehman crashed and took everyone with it.
The feds and governments of this world try to pump money into the financial industry black hole to reanimate the bubble economics. This will inevitably fail. The financial industry is mostly insolvent. No one will lend to another financial entity unless it knows it will get its money back.
As everyone by now recognizes, no one can trust the statement of a bank CEO, balance sheet numbers, the rating agencies ratings, the regulators neutrality, finance media talking heads or politicians.
No one lends in such an environment no matter how much money is thrown into the game. Bernake's quantitative easing will fail.
In the end all financial business is based on trust. Trust in the system and in counter-parties is gone.
The only way to revive some kind of financial system is to sort out the bad apples, to open the books, to re-regulate to very clear and simple standards. And yes, throw some folks into jail. Unless that gets done, trust will not come back.
The real world has a different problem. The artificial demand created by debt peddled to the consumer has evaporated. The production capacities that were created to satisfy that demand are now standing still. Unless debt gets forgiven the consumers will, for many years to come, not be able to go on another buying binge.
Lots of people will now become unemployed. The production capacity will rot away one way or another just like many of those cheaply build overpriced houses.
There is no way to avoid this now. The government can create some demand and put some people to work with infrastructure investment. But it can not replace all the artificial consumer demand that has withered away. If it tries by pumping up money supply it might well create an immense inflation in the mid of a depression.
My grandfather left me some Reichsmark notes. One has 100 million printed on it. But before it was issued the 100 million got overprinted in red with 1 billion. It may have bought a loaf of bread at that time.
The fixing of the financial realm will come when authorities get real with re-regulation and shutting down zombie institutions.
A fixing of the real economy is not possible. Production capacity has to shrink back to a more realistic demand level. Public programs can help to soften the slump. What can and should be done is to help those who lose their jobs, be that by public works or some payed retraining. To let wages fall, as soon some will argue for, will only decrease demand further.
Such crashes as the current one happen every century or so. Usually after the generation that lived through the last crash is gone. Then people forget and redo the errors their ancestors committed.
Unfortunately the politicians that have the task to find ways out of the crisis also redo the errors their ancestors committed.
Instead of cleaning up the Augean stable that the financial industry is, they feed the animals to produce more dung. Instead of letting over-production capacity decay, they will try to keep it going through subsidies and tariff barriers. It will take years until some sanity will get into their action.
Stable societies can survive such storms. Unstable societies may see large revolts and wars. Some stable societies may join in on those wars as domestic Keynesian programs. To created demand at home, to put unemployed into uniforms and in hope to capture this or that natural resource.
Let's hope that will not happen.
But I am not optimistic anymore. This is not just another recession. This is a depression and a global one. Not a great one, but greater.
The American people have so thoroughly internalized the concept of being ruled by an aristocracy, be it religious, financial, military, media, or political that they will never stand up for themselves against the corporatized State, or the thieving rich until forced to by horrendous events.
Until they are forced to by loss of other things they thoroughly identify with, like driving to the job, having a job to drive to, a house in suburbia, 24-hour electricity, affordable food, and the illusion at least of upward mobility, even if only for the children.
Only when it becomes clear that this generation is raising its children for a tighter and deeper slavery to inherited wealth, will despair finally drive revolution. Until they have nothing left, they will happily hang separately, not together, for every American is exceptional, and every one of us is above average. Every one of us is ‘pre-rich,’ just waiting for our Horatio Alger story to come true. Any time now.
What’s particularly missing in ‘we, the people’ as an aggregate point three billion is a solid body of knowledge and understanding of how we want to govern ourselves. A copy of “Common Sense” and a copy of the Constitution and a set of brass knuckles should be in the back pocket or purse of every American by this point. Yep, I don’t see it either.
As a population, we don’t want to govern ourselves. We want to hand that off to the pastor at the corner church, to the mayor of our particular WalMart-welcoming Wasilla, to the banks that are too big to fail and so are beyond the law, to the media, to any Ivy League graduate, to the governor and senators and to the President, to the Unitary Executive.
To a savior.
To anybody but we. We won’t do for ourselves what only we can do for ourselves.
This nation has a deeply held messiah complex, rushing into economic and political slavery as fast as it can be arranged for us. Hell, we’re happy to wait in line while they get it ready. We will welcome a Fuhrer in pants or a skirt.
If you asked the average American today to write a new Constitution that set things right and fair for a self-governing people, the average answer would be regurgitated anger at some ethnic group, some economic class, or some foreign foe.
This is the nation that elected Reagan twice, three Bush Administrations, put up happily with all their thievery and outright class warfare, and most recently has watched a few trillion of their dollars disappear into the black holes of insolvent banks with not a word of explanation being allowed them — only the IOU.
This is a seriously, seriously stupid and dependent populace, as a whole. They will respond to the coming hard, hard times with stupid anger, easily directed by their Jesus, their Governor, their President at advancing their own slavery and poverty.
The American solution to any problem is to make war on it. Drugs, Poverty, Illiteracy, Energy, Pollution, Drunk Driving — we get all wound up about it, throw money at it until it looks like something is happening over there, and then change the channel.
Rest assured, the solution to this economic depression will be resource wars, and heavy repression of domestic politics at home. The survival of the State and the People will be held sacred above anyone’s liberty.
Here comes the Fatherland.
Posted by: Antifa | Dec 18 2008 2:28 utc | 26
outsider 2: (roughly) “To translate the novice who learned a new language has always returned to his native language, but the spirit of the new language, he has only appropriated, and freely in it only he can produce when he was without back memories in their moves and to him in their native language forgets.”
Good comment. Exactly right. You can never adapt to the future until you’re so far into it, you’ve forgotten your past. None of US have any “go-forward” from here. All those who survived the Great Depression are in nursing homes by now, and the first to go under, literally. Our children will find a go-forward, just as my father went forward from his childhood in the Great Depression, working like a zombie, pinching pennies so tight they bent, then committing suicide after he was forced to retire and realized the life he might have had that he had missed.
Our children will suffer horribly. Beyond that we can’t know, thankfully. Whether society learns to re-govern itself, or devolves into animist worship, we can’t say. We can only crowd around the shopping malls like latter day cargo-cult Papuan’s, waiting for something, anything, to break the awful stillness of the snow falling.
r’giap 4) Yes, the Mother of All Migraines, but in ways we can’t possibly fathom. There is more currency in play now that ever in all history, and more people and greater disparity than ever,…ever!! If the Pharaoh ran out of gold and slaves, the Africans didn’t starve to death, the Papuan’s didn’t run out of petrol, the denizens of Mexico City didn’t have food riots then disappear into the jungle. They will now. The likelihood is so severe, I doubt any human can comprehend it without falling back on nursery rhymes and grimm fables, as No So Ana and b choose to do.
On the news tonight, the $300B housing bailout has benefitted precisely … no one.
That’d be a bureaucratic administrative overhead of 100% so far, AKA “Rio Grande”.
Rio Grande – n. To so confabulate and administrate an aid program that not a single penny comes out the other end of the pipeline. (adj. To “Rio Grande” a program.)
NSA 5) and b – Your chatter about ‘flushing the financial systems’ and ‘declaring CDSs null and void’ are like those Obama groupies screaming ‘happiness, happiness, happiness’ in a human wave at some soccer stadium. All it does is enervate the viewer to thinking that somehow, someone, somewhere will bring retribution to Wall Street, Fed and WA DC. Just click your heels together three times!
News for you. Ain’t gonna happen. The establishment circles the wagons.
The falling-to-zero Fed interest means all the retirees are gonna be smoked out of their Treasuries, the bank vaults will fill up with cash, Cadillacs will go on the block, nursing homes and hospitals will “round trip” the destitute to some park, if they get their hooks on you, FrankenPharm you up until you’re frozen in place.
The $T institutional bailout won’t change that metric one iota. Retirees will still be broke and pulling their savings principal out in $10,000 gulps to live on, but again, the government bureaucracy will just suck that $T up like it did the $300B.
It’s the Politburo versus the People now. You’re either with them, or you’re broke.
A potato peeler. A rag picker. You kids are too young to remember that, aren’t you?
You’ve never seen an apple cart, any of you. Or a knife sharpener cart, ding, dong.
US R SOVIET NOW, FO’ SHO’
Posted by: Yellow Tiber | Dec 18 2008 2:45 utc | 28
Alamet 46) Our governor has just issued the bad news on the State budget deficits, disclaiming “that nobody could have foreseen it (sic),” shades of 9/11, and their ‘solution’ is to “freeze State salaries”, which will, of course, be challenged in court and some months from now quietly resolved in state employees favor at the administrative law level. While libraries and schools are being closed and shuttered left and right, there are still 10,000 State EPA employees happily cloistered and studying their LEED restrictions and Carbon-Tax Preparation tomes.
Yesterday I mentioned American Public Education Institute, [NASD APEI] an online “university” devoted exclusively to granting public and military employees with advanced degrees, by tapping and diverting public Federal Education Grants meant for educational access by all. If you think these entirely-online taxpayer-funded advanced degree programs held exclusively for public and military employees are just an interesting alternative to the traditional public education system, here’s an example lecture, which I was able to soft-hack by reverse-surf out of them:
http://dfisk00.googlepages.com/W12a-Actors.ppt
Now they’re closing our public schools and replacing them with online propaganda institutions, inculcating public and military employees with an entitled sense of an aristocratic oligarchy! Who was it said, “give me your child until they are seven?” So not only is the State closing down “liberal” libraries and schools, but the Pentagon is diverting public education funds to online propaganda arms to train advanced degree public and military candidates in public and military institutions to take over the rehire positions in academia through their veterans and public employees hiring preferences.
They’re training the Neo-Con Counter-Revolution with our public tax dollars!
(And, while they’re at it, grifting APEI’s president $12M a month in stock options skimmed illegal profits paid for entirely with taxpayer education grants!)
Nobody blinked an eye here on MoA. No comment. So some black-ops Pentagon program is re-codifying and psy-ops-izing what passes for “advanced education” in America, and in our grandchildren’s future these same mil’s and pol’s will be feeding them the mother’s milk of the State, 1984 on steroids, using public tax funds meant to support liberal public educational institutions?
So? Yawn….
Antifa 26) Ralph 29) et al You’re co-opting our future! You’re saying revolution is not possible, that we are too weak, that we can’t rule ourselves, that They are too strong! You’re raising straw men, and knocking them down, leaving MoA readers with the sense of defeat and inward isolation, the seven stages of denial that leads to utter acceptance.
American Public Education Institute (and a host of similar gov.mil LLC ‘pods’, once you know to look for them) is siphoning off our taxes, creating psy-ops zombies who will teach our grandchildren to obey! Is there nobody here at MoA with academic background, and the integrity to ask SEC how the president of a public-funded online “university” can grift himself $12M a month from tax monies?!
Is there nobody here at MoA who has an administrative background, and can trundle down to the State house and picket to demand they trim the dead wood!? They’ve been growing public employment at 10% a year during the credit.con! 10% a year, whether they had meaningful necessary work for them or not! !!!Making bacon at Fat Camp!!!
Now with jack spat all for tax revenues, 20% of private employees being laid off, the State is still clinging to their largesse!! They’re closing our libraries and schools, instead of laying off the 10,000 State EPA drones they had lined up for the new Green Tax Revolution! They’re casting off our “liberal” knowledge acquired over hundreds of centuries, replacing it with Epistles of George Bush and Al Gore!
Caveat Emperor, and if you don’t believe it, or understand it, you’re not paying any attention! America is being turned into a giant boot camp, a military institution whose entire function is martial consumption abetting the brutal rape of global resources to feed that consumption, while on the domestic front, a Neo Papacy is being build to tithe away profits from that rape, and enslave us to the Green God.
‘Whatever you do, don’t stop shopping’ nee ‘Whatever you do, pay your Green tithe’!
We can stop it! The Enemy is in plain view! Unarmed! They’re just common thieves!
Pickpockets! Grab their arms! Call the law! Throw them in the same debtors prison our grandchildren will find themselves in, if NeoCon is allowed to keep stealing!
Posted by: Jim Deluise | Dec 19 2008 6:00 utc | 58
Why revive consumption?
The Swiss Socialists have now jumped on the bandwagon, they advise lots of bail outs, direct to companies! Their claim is that to keep the economy going internal consumption has to be boosted (copy cats) – everyone is to get on the treadmill of buying frothy blouses, pizzas, X boxes, flat screens (most of these are not made in CH, including the pizzas), and working away…where? In Korea of Japan? China, for the underwear of blouses? err?
And then, the Swiss must work a 60 hour week, to keep it all chugging. (If exports of watches drop even 8% CH is in big trouble.) But who will buy them if the rich already have 7 watches and have had to sell their yachts and are cutting back?
It is all completely, utterly senseless. An old vision, everyone running on a treadmill, so that the ‘bosses’ can skim off the top.
Why does a 10-year-old girl need or want 50 Barbies and all their costumes? And chariots, cars, homes?
Right, to keep her dad in a job and earning money to pay for her food, schoolbooks, and medical care.
Her dad is a bank employee who sells shares and funds of funds, amongst them Mattel shares, or an insurance salesman who actually writes in ‘children’s toys’ in a line on a form (X boxes cost a bomb), and charges for that; or he works for the textile industry – it’s a specialized niche – that sells to top class toy Cos (Lagersfeld and LaCroix and such check the quality).
Perhaps he is an accountant / supervisor, on the spot or at distance, who does the books and part of HR for cos. in Korea, Mexico, Guatemala. Or he might even be a state employee whose job would go phut if tax revenues sank. Or anything.
And if you have a drink with him at midnight, or see him in ‘family negotiation’ meets, where he sits, glum and silent, recalcitrant, or hyped up and voluble, he will tell you, bit by bit, or angry from the start, he is disgusted with his daughter’s room – filled to the brim with displays of consumption.
He will tell you his daughter begs and whines for toys, is always watching for opportunities to augment her cache, to the point of complaining on the internet or dressing up cute (real real cute, the details will be skipped) for a man who our hapless husband considers is his wife’s Albanian lover. Who actually has one-upped him with gifts of froth, pink bikes (never ridden), personal TV, boxes of make up, and subscriptions to a nail care service.
And he has to keep his job – selling shares in Mattel.
From the ground, I’ll leave it there.
Posted by: Tangerine | Dec 19 2008 18:23 utc | 65
@b et al “new shiny suburban houses”
Again, the rich who bought SUVs, in general, did not go into debt. I don’t like SUVs either, but if they didn’t by them they would have sunk $75K on a fancy eco-car. The money wasn’t an issue for the wealthy.
The working class went into debt because it was the only way to survive in a society with no support systems as the bottom fell out from under them.
You are reading too much of the neo-Malthusian regressive, James Howard Kunstler, and making too many generalizations about something you don’t know about. The population of America has increased by more than the population of your whole country in the past fifty years. Twice, you advocated demolishing whole cities in order to prop up the price of property values. Now you are complaining about new houses. People have to live somewhere. They generally live as close as possible to their jobs. When they live two hours away (or more likely one hour), it is because they cannot afford to live closer. My rather ordinary house in Boston was worth 700K. If you couldn’t swing that, you moved an hour away to save 400K. I now live in a small semi-rural area, and I still must commute half an hour because I can’t afford 1K/month for a one bedroom efficiency shitbox in the tourist town where I work on a salary of $8.50/hr.
Six years ago, I was getting all the work I could handle at $90/hr, often taking home 5K/wk. Now I can’t get 40 hours at $8.50.
I’m not arguing about the design of American houses, or the atrocious pattern of land use in America, Kunstler is right there. But it is a cheap shot to blame the victims: individual people who have lost jobs, whole careers, because of de-industrialization, privatisation, off-shoring, out-sourcing, illness, whatever. Policy like that, the means of production of a society is set by lying fat-cat politicians, like Clinton who passed NAFTA, and corrupt corporations.
It is too easy, and there is nothing “progressive” (for lack of a better word) to blame people for trying to have a life.
I thought the bottom was going to fall out on US society five years ago. I’m surprised Bushco was able to keep things going as long as he did.
@annie, jbc, et al,
One good appointment in no way makes up for a murderer’s row on foreign policy. It doesn’t matter how well you treat your own people if they are being carried on the backs of other’s misery.
In one sense, we must wait and see. But in another, much deeper sense, the problem comes with waiting and seeing; that is to say, with ceding any power or room to maneuver to a President at all.
People might hate Bush, but the truth is, he encountered almost no resistance whatsoever from the public. Ten million people across the world — the largest protest ever — gathered to protest the start of the war in Iraq. Bush called it a “survey” group, or some such marginalizing comment, and what happened? The anti-war movement cowered. If twenty million had gathered the next weekend, and forty million amassed the next weekend and started rioting and burning police stations, and then gotten enraged and threatened eighty million the next weekend, there would have been no war. It would have been that easy, eighty million people, 4 afternoons, probably a score dead in violent clashes, an enraged public, and no war. Eighty million Americans alone will tell some phone survey that they are against the war, but they will not give three afternons shutting down the machinery of state to stop it. The same goes to Europeans, whose governments are ALL complicit in aiding the USuk effort.
Eighty million people, several weekends, a million lives. The math is simple.
People DO have the power, but only if they take it; if they SIEZE it from their rulers, whether it is Bush or Obama. Restrict their scope of action, question their legitimacy.
Instead too many are BESTOWING legitimacy on Obama. Fucking corrupt UFPJ will not even protest “the war,” much less all the manifestations of empire, the 700 bases and twenty or more low level conflicts being constantly fanned by the US worldwide.
Meanwhile people are dying and starving. I am too poor to have the free time to post here very much anymore, certainly too poor to campaign for Obama, but I have the time to help out at the homeless shelter, or stand weekly vigil against empire.
And so it goes….
Or, as one of my old favorite blogs used to say, “Do what you want, you will anyway.”
Posted by: Malooga | Dec 20 2008 0:30 utc | 73
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