THE BUST IS COMING
(UPDATE: Perhaps rather than reading this, you might want to see these two articles. Both will give you a frightening and truthful perspective of derivatives, and the coming crash: Ellen Brown is excellent, though I disagree with her presupposition of the possibility of California politicians ever even THINKING of a peoples' bank, her analysis is spot on: http://www.counterpunch.org/2014/10/13/how-to-protect-public-revenues-from-the-next-meltdown/ Within this article are two other important posts. Yes even Forbes magazine has articles about the truth! http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/ And a writer I am new too…Michael Synder http://theeconomiccollapseblog.com/archives/5-u-s-banks-each-have-more-than-40-trillion-dollars-in-exposure-to-derivatives
I am writing this in a general snapshot view: what economists’ would call a ‘layman’s’ perspective on the economy. There are so many coming tipping points that will crash the world economy, the globalized financial-ized monetized-every-atom-that-can-be-made-a-commodity economy, that what I write is scattershot. To get a more concise and educated view I suggest the links page and the daily articles on Nakedcapitalism.org., Mike Whitney’s articles on counterpunch.org, and Michael Hudson’s blog. Also William Black articles, the person who sent near one thousand people to jail over the Savings and Loan fraud a long time ago, Pam Martins (wallstreetonparade), and even Gretchen Morgenson of the NY Times. Wolf Richter has his own site with valuable posts at Wolf Street.
Very few of these experts, left, or mainstream are saying the phrase ‘worldwide depression coming’. They raise the very real possibility without stepping that far.
I do. And it will come within a year or maybe two. And this is why.
An overview of the week of August 10th to 16th, 2014:
1)France and Germany’s economies are contracting. Austerity imposed on other countries in the EU has come back to bite them in the ass. As so many non neo liberal economists asked, “What did you expect?”
2)The bellicose USA sanctions against Russia in support of the coup in Ukraine, has already had reverbations on EU economies. The US shows no signs of backing down. Gas and Oil deliveries could be shut off. Turkey, an actual NATO member, is now talking with the Russians.
3)China and Russia, among other countries, are building a different reserve currency to replace the USA dollar. Oil is pegged to the USA dollar. If that ends, serious repercussions will happen to our economy.
4)China has a huge property bubble and a huge shadow banking system. According to Bloomberg and Financial Times articles, this could crash their economy. China’s massive GDP growth has been propped up by a casino of ghost loans, and massive infusion of money from their central bank. There is no consensus of if or when they will have a crash, but generally speaking there is agreement that if China goes, the entire FIRE sector of the USA will go too.
5) In the USA, stocks are overvalued by at least 200%. We are in historical levels of unregulated derivatives trading. Central banks in China, the EU and of course the US, are pumping money into what we know as the Too Big To Fail, global financial institutions. There have been no close in and put your arms around the nation, by the EU or by the USA. That is, there has been no meaningful re-regulations of the casino that crashed the world economy in 2008.
Maybe number 5 should go to a number 6 or 7. This whole mess is so intertwined with absolute fraud and government complicity worldwide, an outline by a dumb layperson like me, turns into a rant.
And justifiably so. This boom will be so loud, we’re gonna want hearing aids. I mean that after this, there is no one in ‘power’ in any democratic political system that anyone is going to want to listen to. With good reason. But that is also ‘reason’ that with reason we must fear the future. Without a large independent left here in the USA, and no cross national in the EU which is surprising and discouraging given the past…..Europe has a great history of international leftists rallying….and also failing. But still always much stronger than here. If the austerity punched southern countires like Greece, Spain, Portugal, have not committed to mass attack back, what hope can we have for Americans?
I put out a very diatribe ridden magazine free newspaper around 2009 wherein I claimed a depression would follow the recession in a few years due to Obama’s continuation of the Clinton and Bush policies and even using the same advisors, Fed Reserve head, to prime the FIRE sector’s asset bubbles all over again. I was wrong only if you discount half the population and half the urban areas. By any past standards of measurement most of the working class of the USA has been in an economic depression since 2009. But we can ignore Detroit, Stockton, half of Cleveland, St. Louis, and we can ignore that poverty rates have doubled, that half of people over 60 don’t have a dime to their name, and that half the country still has real unemployment rates of 20%. A recent poll suggests near 70% of the population claims a three month trauma (job loss, unexpected health expense) of any kind will put them on the street.
Let’s instead say I was overreacting due to ideological bias and concern ourselves with areas that are booming and in what types of economic activity, and what long term value we can in layman’s language expect.
August 2014 housing prices in places like Austin, Los Angeles, Oakland, San Francisco and even Miami, are back to 2007 bubble levels. How could that happen in only seven years? The simple answer, even among educated activists who should know better, is the booming tech sector of the economy.
Certainly high paid tech jobs which in the Bay Area alone amount to at least 50,000 new positions since the bust are a significant factor in skyrocketing rents and some basic real estate appreciation. When the tech sector creates thousands of new millionaires via buyouts, IPOs etc there will be a significant effect on housing prices too.
But as a simple worker person, I see capitalism in the most basic sense. A bit rooted in what I know of Keynes, and with an anarchist/socialist bias against the ‘rentier’ class. Also from what I’ve managed to absorb from Marxist populist writers Mike Davis, and Doug Henwood. By the way, Hendwood’s huge book Wall Street written over twenty years ago is still a must read. Some chapters will make eyes roll back in our little worker heads, but the basic information and gist of it rings true today.
Capitalism in the most basic worker sense is an economy where a minority owns land, resources, and the means of production. They are so politically powerful their interests very often make nations go to war. Though the citizens and the government itself rarely prosper after that great expenditure of blood and resources. The capitalists are always searching for a way to reduce all costs: resource extraction for production and keeping labor costs low. The capitalists then take their profits to live like royalty but also to increase their power and wealth controlling more of the market for their goods either by increasing research and development, advertising, and modernizing the actual production process., or often subverting even a democratic political system to create a monopoly.
Then there is the rentier class which in the past was even vilified by centrist economists and production capitalists as parasitic and who often argued successfully for higher taxation rates via speculation taxes, real estate transfer taxes, and increases of variations of what we call the capital gains tax. Remember that even in pre 1950 fascist economies, corporations were not able to offshore much of their profits. They were taxed heavily but also guaranteed a slave like workforce unable to organize. The rentier class, now more modernly called the FIRE sector (Finance, Insurance, Real Estate) though always global since the end of feudalism, gained massive political and global power since the 1970’s. This is expertly documented in Klein’s Shock Doctrine, with her help from over 30 international experts in writing the book. Please read that. Capitalists at one time even supported anti trust and anti monopoly regulation. This goes way back to when mercantile traders and producers supported democracy in place of feudalism to at the least be on a parity in a court system for an international policing of monetary control and debt payments.
But from a ground up level we don’t see global we only see continuous extraction from our wages and salaries. Hence the provincial ways leftists or grass roots housing activists see things. I thought the global bust of 2008 would change this. It did. But not enough.
I approached pre bust 2007 with a basic working class wondering, who in the hell can afford all this bubble housing appreciation, and who in the hell is buying it? Turned out that most people couldn’t afford it. Real wages for 70% has been dropping since the 90’s, and consumer buying power was only increased through credit. This meant ARM loans, no money down car loans etc. So once we read about that as the bust happened, that reality was an explanation. Except it was nowhere near the real root of the global bust. It was a partial explanation similar to you can get the flu by touching what an infected person touched recently, but you only become sick if you have no body immunity against that virus transfer.
The FIRE sector makes derivatives, securitizes debt, bets against that debt, bets that it will be secure, bets it will default. This is worldwide. And all the technical and documented pyramid ponzie scheme of the whole shebang is better documented and explained than I ever could. You know the difference between the three tranches, and CDOs and CDS? Don’t worry, it’s a casino as you believe and supported by central banks all over the world. The European Union Central Bank, The US Federal Reserve. The most surprising outbreak of truth, which pissed off so many stiff collar cheerleaders economists and political apparatchiks was Matt Taibbi writing in the Rolling Stone beginning during Obamas run to win in 2008. The guy was a sports reporter. He then decided to figure out why both candidates seemed to be skirting about all underlying causes. His articles are still must reading today, as is his best selling book Griftopia. He consulted with many skeptic economists…and the result is a masterpiece of nasty take down of how our leaders don’t give a shit about what happens to us….even to the middle class…..which I thought the democrats would never abandon. The working class yes, long ago. But the middle class property owners?
Because the FIRE sector now controls most nation’s economies production is not really an issue. Extraction by the rentier class has been the bonanza. You can see this in the German leadership supporting austerity measures on Greece, Spain, Portugal and then following the lead, austerity in Ireland and the UK.
Austerity has been imposed only because the financial sector of the world along with their puppet politicians including so called ‘socialist’ democrats have demanded it. In a typical capitalist model of building a middle class, to keep the working class from revolting and thus seeing a stake in getting ahead, you must have a consumer base. You must have people with money that will buy products, including the debt vehicles that keep you more chained in, as well as home ownership which makes people concentrate on property value as opposed to community or social value and against paying taxes that would create density in cities, or pay for transit in urban areas.
The twist your head in exorcist style in our disbelief comes form the fact that by imposing austerity, these politicians are actually lopping the cream off whatever consumer base exists. If you get rid of one million civil service relatively well paid secure jobs like Obama has overseen, you just knocked down a huge consumer base to unemployed or part time workers.
When German politicians via the Euro Central Bank imposes austerity on Greece, they have cut off a portion of their export market. Germany is wealthy and weathered the 2008 crisis so well because they are a huge exporter of manufactured goods to the rest of the EU and to China etc. The country is actually now importing more workers, while they cut benefits to their own native born. Regular people like us just can’t understand this obvious myopic cut your own peoples’ throat because we can’t comprehend the corruption of the top 1%. For example, there are still demonstrations all over the western democracies against corporations telling them to pay their fare share of taxes, to bring production home etc. As if we are in the 1980’s .
Corporations are not patriotic, nor nation based. They exist as an entity to make maximum money for the top level, and increase shareholder value. You cannot assign a moralistic aspect to an organization that abides only by the rules of maximizing profit, or at the least by maximizing pay outs to their top level managers and bosses.
Austerity is the blatant example of this. While ‘western democracies’ institute austerity on the citizens, the politicians for the most part continue subsidies and allow profit off shoring to avoid taxes for global corporations that in no way are tied into creating jobs in that nation.
In order to understand this illogical system, you must recognize that the top 1% globally and their politicians in harness and tow, are not at the least connected to community or ‘nation’. It’s become an over used trope now on the comments sections of sites, but there is truth that many of the people that rise to the top of fixed political systems and capricious corporations are actually psychopathic. In that they can lie without feeling any moralistic repercussion, that they can steal and amass wealth without feeling any ethical remorse, and that they do not react to peoples’ outrage, since they either don’t hear it, or don’t care to hear it. But watching our politicians’ actions, and those of the ‘socialist’ democrats in Europe, you have to put some weight on asocial beings rising to the top of corporate and political power, that there really could be fact supporting this amateur psychological analysis.
What we have now is a vastly interconnected FIRE sector, that may own huge parts of actual manufacturing capacity and often do, but are mostly concerned with how to increase rentier class type profits from quarter to quarter. Their profits are supported by government policies the world over. Trillions of dollars can be transferred from country to country overnight. The more recent obvious example of this is the manufactured Asian crisis of the late 90’s Where most of the ‘asian tiger economies’ were brought to their knees with a mix of fraud, fake accounting, and complete collusion among the global banks (including all of our “USA based” Too Big to Fail conglomerates) and the IMF and World Bank. Korea was debased and nearly ruined over a fake debt problem. Privatization set in. There was a huge fire sale as in Russia after the Yeltsin coup supported by Bill Clinton. Korean wages almost twenty years later have not recovered. With trillions being able to exchange in seconds via computer trades, vulture bets and puts on currency, any country in the world can be economically devastated if the rulers and gamblers decide so.
We MUST recognize that nearly every democracy on the planet has and will continue to , sacrifice their middle class to the FIRE sector. There is no question about this now; from Ireland to Greece to the USA, liberal politicians are completely following what we use to call ‘reaganomics’ but is more correctly called ‘neo liberal’ economics and Friedman of the fascist Chicago School of Economics phrased it.
The sacrifice of the working class was evident in the 90’s. But understanding how far they are going, against all common patriotic, nationalistic, long term sense is important. We have a liberal party that is actually destroying the middle class.
What we have is a multi trillion dollar unregulated derivatives market coupled with massive margin asset buying, huge corporate buy backs of their own stock to pump their own payouts, and the continued privitization of all common good and resources. The last we are mostly aware of . But people that should know better still don’t get how global this is, and how a crash will lead into an inescapable spiral. That is the difference from a depression and recession in layman’s terms. It becomes a spiral, that local and state governments cannot even reverse with massive aid. Which won’t happen anyway, as we have seen the ‘liberal’ Obama with majority support from his party to slowly institute austerity in his second year; cutting off aid to states who have no central bank to fund projects either.
Can we finally get rid of that boutique capitalist hippy idea that the ‘local matters’? That local politics become national?
We have to have an international mindset and extend it into our local mutual aid help and organization activities. It’s obvious to me after the bright light of Occupy already years ago, this is not going to happen, until the bust really comes.
What will trigger it? China, one of the largest holders of USA treasury bonds finally crashing under it property bubble and huge shadow corrupt loan system? Germany imposing austerity on its own export markets, and then also losing its sales due to a Chinese bust?
Philip Oltermann The Guardian, Friday 4 July 2014
“ Economically, the two industrial giants have never been more reliant on each other. Since the economic crisis diminished demand for German exports in Europe, China has become the most important emerging market for Siemens and Volkswagen, both of whose CEOs are on Merkel's trip.
Audi announced on Friday that it had delivered more than 50,000 cars to China in a month for the first time in June – for VW and Mercedes' S-Class, China is already the biggest export market.
Since 2009, exports to China have almost doubled: in 2013, €67bn (£53bn) worth of German goods made their way to the world's most populous country, five times as many as from Britain. Total trade reached €140bn last year, making China a bigger trade partner for Germany than the US. “
What else can trigger it here? If we go, so goes China and the EU. The asset bubble of both tech and ‘blue chip’ is overvalued by 200% at least according to real economists, margin debt is above pre 2007 levels, truthful measures of unemployment show a steady rise since 2010, poverty rates doubled for the bottom third, while defense (NSA,Military, Security etc) spending overall has grown. This is not a political elite that sees the danger. And then we have a new, but very old story, of another property bubble.
Trillions of dollars have flooded in from Canada, China and many other countries, as well as dangerously low capitalized hedge funds and private equity to buy everything from working class housing in Oakland (Blackstone?) to thousands of million dollar condos from SF to Miami to NYC. One broker estimated that 40% of the house buyers in Brooklyn were foreign or corporate….not just rich people moving in. A Wall Street Journal article (of all places) a year ago suggested that their research showed 40% of homes in Oakland was hot money. Not ‘tech people’ or wealthy white couples as goes the stereotype of what moves all gentrification.
We also have a massive student debt bubble that has doubled under Obama and cannot be defaulted on. Obama voted for the law as senator, that student debt can now follow you to your grave. We also have a massive car loan bubble. Wonder why car sales keep going up, even though regular people have less money every year? Part of the GM bailout by our government was also a bailout of their finance arm. Something everyone kinda missed. And their tactics have not changed.
Most large cities in the USA were suckered in, or bribed, to take on interest rate swaps from the villains of the Too Big To Fail Investment gambling firms, now legally called ‘banks’ thanks to Bush and Obama. These swaps are pushing cities into bankruptcy. Look behind the scenes of Detroit. It’s not just a disappeared manufacturing base….that started in the 80’s.
The stupid Oakland mayor went on a rant about how much extra police payouts were caused by continuous Occupy actions. Some regular person had to do research and holler out, the bullshit interest Oakland was paying the bullshit casino ‘banks’ dwarfed that expenditure and ALL fed, state, city, outlays for affordable housing and healthcare combined.
Cities cannot default. Even a mention of refusal to pay any onerous, illegal deal, drops the bond rating. Cities only build or provide outside their basic tax revenue by state or federal funding, and mostly these days, by an ability to issue bonds. If the rating drops, and the city has to cut everything even if they can’t issue more bonds, since their interest payments then automatically go up.
So when (not if) this massive asset bubble, tech IPO overvaluation bullshit pops, property sales and values will immediately drop 40% (as in SF we have seen TWICE in just 15 years), and then so will revenues that cities have increasingly relied on to function since the 1980s: real estate transfer taxes, property taxes and with some cities income tax.
And as I said before. There is absolutely no reason to believe that the federal political system will step in and help renegotiate debt, nor give large amounts of New Deal type infrastructure aid.
I would maybe wrongly predict that the stock market crash will do it. Though we tend to remember the headlines of stock crashes more than the pops that burst that bubble. When Lehman Bros went under in 2008, sparking the global crisis, most of us laypersons remember that year as a stock crash and housing bubble burst. That’s fundamentally wrong as a starting point. That crash was the culmination of FIRE sector globally unregulated and intertwining every aspect of exchange and commerce you can think of . In the USA it got a boost from Bill Clinton helping to overturn the Glass-Steagal act and ok-ing the continued deregulation of derivatives and corrupt bundling called many things: securitization, CDO’s, CDS’s. Look up a person named Brooksley Borne to see how vicious Clinton and Greenspan were to any expert warning signs.
Remember the food riots years ago worldwide? Climate change cause, drought? No. It was completely the result of companies like Goldman Sachs being allowed to speculate in the Chicago Commodities Exchange. Something that was illegal even back under Reagan. There was no shortage of any grain worldwide.
Yes Capitalism has always been part and parcel of famine, speculation, imperialism, and casino bets and puts where some get rich but the majority suffer. These times are different though. You have the financial elite, completely separated from actual production as in where we would traditionally think of reinvesting to increase profits off of production. The ownership of production is a side arena for this global class. They see it as extraction complete and absolute, rather than extraction of profits and then investment to increase profits.
That every bit of everyone’s life can be somehow consumer-ized on a market and then bundled into some derivative product to then sell to another gambler. There is no ‘ownership’ with this new class. There is no banker behind bulletproof glass studying his assets versus debts. No target of some rich guy on the hill with slaves. It is a fluid and government enforced divestment of the planet itself. A Dionysian orgy of enrichment for a few unaccountable to any ‘law’ that small time capitalists helped create two party democratic revolutions for after feudalism. This is not a fight against a nationalistic fascist class, nor a fight for one or two more laws. This is a fight against a global order and against the very fast barreling fireball of climate change’s destruction. On top of that. Most of us are going to be fucking even more broken in just two years. Maybe that happening will add more to the ‘revolutionary pile’ of discontents. I have no optimism to offer at this time.