The Last Dead Bull on Wall Street

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By Mike Whitney (about the author) Page 2 of 2 page(s)

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"Consumer confidence reached its lowest level in more than two years this month amid concerns over record-high oil prices, continued trouble in the housing market and higher inflation"-Although consumer attitudes deteriorated across the board, the substantial drop in expectations contributed heavily to the sizeable decline in the overall index."-

The average working stiff doesn't put any stock in Bernanke's palavering. He sees what's going on for himself every time he pulls up to the gas pump or goes the grocery store. He doesn't need the University of Michigan to tell him he's getting screwed; he knows it! The economy is sinking, inflation is skyrocketing, and the country is adrift. Every farthing in the public till has been shoveled into a black hole in the Middle East. Does Bernanke really think working people don't know that? Everyone knows that. Everyone knows the economy is on life-support; just like everyone knows the country is collapsing from mismanagement. Even the flag-waving, war-mongering maniacs on the Wall Street Journal's op-ed page are starting to shutter from the avalanche of bad news. They see what's going on and they're scared---scared sh**less.

Unfortunately, the sudden shift in consumer sentiment is the hurting retailers who depend on Christmas to carry them through the year. We've already seen the sluggishness in housing and auto sales. Now it's showing up in retail. Abercrombie, American Eagle, Ann Taylor, Chicos, Dillards, The Gap and Nordstrom are all reporting sagging sales. Walmart, Lowes and the other big-box stores are lowering their projections as well. It's going to be a lean Christmas.

The poor US consumer is finally maxed-out and can't tap into his home equity anymore for presto-credit. He's mortgaged "to the hilt"- and he's already run up 6 or 7 credit cards to their limit. In fact, credit card debt is a growing concern for the banks, too.

The commercial banks are the victims' of their own success. After years of seductive promotions and saturation mailings the credit card industry is at its zenith leaving consumers with a staggering bill of nearly $1 trillion. ($915 billion) More and more customers are finding themselves unable to make even minimum payments on their balances and defaults are piling up at a record pace. This is the next phase of the subprime fiasco and it has the potential to be nearly as disruptive as the housing meltdown. The problem is complex, too. After all, most credit card debt in the last 6 years has been "securitized"- and passed on to investors in the secondary market. (pension funds, hedge funds etc.) That means we can expect more tremors in the stock market as corporate earnings go south after credit card-backed bonds are downgraded. It's just more of the same "structured finance"- chicanery; debt stacked on debt, until the whole edifice caves in.

It's looking more and more like Reagan's "shining city on the hill"- was erected on a mountain of toxic debt. It's a wonder it hasn't sunk already.

The country is headed for recession and there's nothing that Bernanke can do to stop it. The only question is whether we'll be facing a colossal economy-busting meltdown like 1929 or a milder 5 or 6-year slump. That's up to the Federal Reserve. If the Fed chief decides to pit himself against the falling markets by slashing rates and destroying the currency; then we are likely to be digging-out for years. But if Bernanke steps aside, and lets the chips fall where they may, then the pace of recovery will be quicker.

Whatever choice he makes, there's no avoiding the inevitable downturn. The hammer is poised to strike the anvil. The stock market will fall, the over-extended banks and hedge funds will collapse, and the country will go into a protracted, economic tailspin. That much is certain. Economic fundamentals can only be shrugged off for so long. When markets correct it's like a tidal-surge that sweeps-away the deadwood of bad bets and over-levered investments leaving behind a broad-expanse of empty beach.

Recession is a normal part of the business cycle. It can't be avoided. The economy needs to unwind so debts can get written off and businesses can retool for the future. The upcoming recession is shaping up to be worse than its predecessors---a real doozey. The damage caused by the Fed's excessive credit has been considerable. It'll take years to mop up the red ink and set the house aright. The markets are in a shambles, investors have been battered and confidence is gone.

Structured finance has been an unmitigated disaster. It needs to be scrapped. We need a new financial system for a new epoch; a system that is heavily regulated and supervised to discourage the crooks and con-artists; a system that it maintains its essential link to the real, productive underlying economy and avoids the galaxy of complex derivatives, "securitized"- liabilities, and opaque debt-instruments that have brought on the present crisis; a system that responds to the needs of working people and takes into consideration the looming problems of environmental degradation, resource scarcity, and climate change; a system that reinvests in communities, education and health-care rather than fattening the bottom-line of corporate racketeers and brandy-drooling elites. It's time to remove the rotten scaffolding and rebuild the whole contraption brick by brick.

The system is broken. Maybe Greenspan did us all a favor by blowing it up with his "low interest"- dynamite. Good riddance.

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Mike is a freelance writer living in Washington state.

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