Monday, September 29, 2014
I will go through this soon and supply links to support and explain my claims and statements! -CH
It is being argued that the world's financial stability can be extended, following the end of the US Fed's program of "quantitative easing", by the Bank of Japan and European Central Bank taking up the burden and starting to massively inject liquidity into the markets.
So is this possible? Could it work? How long could it last?
How much appetite do the world financial markets have for a flood of new Yen and Euros?
That a crisis in the US equity markets is imminent is getting ever broader recognition. A stock market crash - which seems inevitable - could have serious consequences in and of itself. But markets crash and markets recover, investors and regular people get hurt, some are ruined, some of us even die, but much as it stinks, the surviving investors come back into the game and the real economy recovers.
It was different in 1929 and 1931, when the collapsing stock market set off a cascade of other crises and a Great Depression.
It was different in 2007-9 also, and we're told it could have been much worse. The real economy has never recovered. It's like a corpse being kept alive on adrenaline, the people living in fear and denial, hoping and holding our breath. It's a real depression. But it's not yet full collapse. Can we still recover from it?
None of the underlying causes of the 2007-9 crisis have been addressed, none have been fixed, and the only one which was partially relieved, the accumulation of un-repayable mortgage loans, has metastasized into new forms that are again swelling.
Some of the bubbles being reported on sites like ZeroHedge:
- the sub-prime auto loan bubble, massive-scale lending to insolvent borrowers - and securitization of the contracts!
- the shale gas bubble, with nearly all drillers losing money and borrowing massively to replace rapidly depleting wells.
- the commercial mortgage crisis, with malls and office parks and buildings across the country seeing huge vacancy rates and staring bankruptcy.
- the securitized student loan bubble, with huge rates of non-performing securitized loans.
- the new US housing bubble, prices being ratcheted up again.
- the securitized rent bubble, buyers of foreclosed properties renting them out, pushing rents ever higher but not maintaining them, and selling claims on future rent receipts.
- the continuing decline in the incomes of working families, at a time when they should be recovering, continues to hollow out our capacity to support the real economy with our spending.
Plus, a classical recession in the US real economy (remember that? yup, it's still there somewhere) is looming, about to be triggered by overproduction and inventory buildup,
And the Mother of All Bubbles, the Federal Reserve Bank printing and pumping out dollars by the trillions, backed by - nothing except the knowledge that countries need them. Which is only not producing massive price inflation because most of the dollars go into financial speculation.
Should we perhaps then call the massive accumulation of debt - public, private and corporate - the Father of All Bubbles? Because it too has been swelling, to the point where it dwarfs the global domestic product and is now utterly unrepayable.
Global debt, which has resumed its rapid rise since the crisis of 2007-9, is approaching a fateful moment - the Minsky Moment it is being called - where new borrowing, new lending, which has been the main force over the past 30 years resisting collapse, no longer provides any stimulus to the real economy, where new lending in effect only goes to pay interest on the existing debt burden, with nothing left over for real investment or consumption!
We could compare this to the moment when a dying giant star goes into its final collapse. The star, having exhausted its hydrogen fuel, then its helium, lithium and other fusion products, starts to fuse heavier elements like iron and nickel, reactions that not only don't release enough energy to resist the collapse, but actually absorb energy. At that point the star starts to collapse catastrophically and then detonates - blowing itself apart!
Worse yet, this is perhaps a Double Minsky Moment. The underlying driver of classical depressions, first identified by Karl Marx over 150 years ago, is that investment in the real economy, largely focused on reducing labor costs, undercuts the ability of the working people to buy back what they have made. The cycle restarts after bankruptcies and acquisitions clear away overcapacity and new investments stimulate consumer demand. It is arguably now the case that, with the introduction of offshoring production and robots, investment in production has become so efficient at replacing labor that it can't produce even a temporary boost in the income of working class families!
Could the economic system somehow survive a stock market collapse anyway, stabilizing through massive government interventions and all the central banks issuing massive streams of new money?
Or could perhaps a new global currency save the day?
One resource that has not been exploited but has been widely discussed would be the injection of liquidity into the world markets by the International Monetary Fund issuing trillions of dollars worth of SDR's, or Special Drawing Rights, in effect a new global currency. If begun before the global financial panic gets out of hand, it could perhaps buy some time. But
* this could not relieve any of the pressure from swelling financial bubbles - it would just fuel them.
* this could not deleverage the global economic system - the massive pile of debt would continue swelling.
* this could not revive the effectiveness of Keynesian financial stimulus - it would, as with the Fed's "quantitative easing" just pour money into the banks and bond markets to keep them from collapsing without providing any stimulus to the real economy.
* I see no way it could usher in a new era of global stability, or even the era of debt bondage many fear. A capitalist economy must either grow or die.
It could perhaps buy a few more years at best before financial Armageddon.
On the other hand, external shocks and internal instabilities could easily overwhelm this new defense before it is even in place.
* a stock market collapse proceeding too fast for the new currency to be set up and put into circulation,
* the disruption due to Russian sanctions is accelerating the already serious rate of contraction of most of Europe's national economies,
* a now well-documented campaign to suppress the price of gold and protect the price of the dollar must inevitably collapse as the supply available to the Western central banks runs out.
* an epic collapse of the China housing bubble and banking system is well underway.
* a possible mass defection of EM countries from the dollar to the BRICS Bank could shake the IMF.
the looming collapse of
* and finally there is a huge instability baked into the financial system by the phenomenal growth of derivatives, which globally have reached a face value of $750 trillion, ten times the value of the global domestic product! Theoretically this is a zero-sum game, until some major player can't cover their bets, at which point it could - and probably will - unravel and bring the world banking system down.
Plus, as growing numbers of investors and governments come to understand the dimensions of the gathering crisis, the possibility of a global panic and rush for the exits grows. But there will be no exit.
My call: be ready for the storm of the millennium. Soon. Very soon. Never mind the survival biscuits; Organize! Organize your communities for survival, to defend our homes, assure at least the distribution of information, food, heating fuel and essential medicines, and to demand our governments break out of the box!
There is no shortage of people willing to act together to do the work of the world, or of the resources to do it. There isn't even a shortage of money - although it looks that way from here on the street.
What there is, is a shortage of power.
If they can't put us to work, with our survival at stake, we must take on the task ourselves!