Although consumer borrowing is a very important part of the equation, debt monetization (or recycling) between banks might be even more so. There are currently fears that lending between banks have ground to a halt. In the EU, we're talking of 100bn that should have been dealt with last August. In the UK it was a matter of 70bn over the next 10 days (in a article written in August). More alarmingly, ECB made 269-billion euro refi offer as market tensions persisted as of 09/12/07. Not only banks created a monster in the first place, now they also want us to believe that refinancing debt to pay debt is the safest bet on earth. The Bank of England Governor must be sweating heavily though. A few days ago he declared that markets are 20% overvalued and poised for severe fall.
On September 9, another HSBC executive endorsed 'the credit squeeze' on CBSMW but with a much gloomier tone. The worst is not over. According to him it is all about damaged confidence among the market players that needs to be restored. Confidence is broken and the outcome will be 'da' crash of the millennium Dr. Ravi Batra explains while remaining positive in the long run:
... we are now more overvalued than Japan was in 1990. So certainly most American financiers know we are in a bubble economy but they hate to admit it because they think that they are one way or another responsible for it.... That could lead to a political revolution, but I do not believe it will lead to a dictatorship. I think we will see the rule of money end and that we (the majority of Americans and citizens around the world) will benefit by a tremendous revolution... Well first there will be a lot of destruction of money.
Citizens and investors alike will learn the hard way that coercion is the root of all evils. Indeed, how coercive is forcing people to take on 401ks and IRAs to avoid taxation, not to mention taxation itself. This among other things: such as encouraging the use of credit cards to buy stocks by making plastic a way of life. What to think of super bonuses prompting CEOs to cook their books, all of which condone short-term gambling along with the pump and dump mentality. It is interesting to mention that an average CEO's salary was about 25 times more than the common worker in the 70's. By 2005 it shot up to 465 times more! The worst coercion is without a doubt cheap interest rates delivered by central banks directly and which rejoice people gravitating around the lending industry. Cheap interest rates go along with pervasive corruption and predatory lending.
In short, any type of coercion provokes an amoral speculative frenzy. And this looks very blatant when analyzing the story behind every boom and bust cycle. Such trends will go away the day the average investor will have understood that becoming a 'fat cat' in a short period of time is generally the result of a lack of discipline and ethics - at the expense of the gullible being lured into asking the government for more incoherent regulations that do not address the fundamentals.
Something fishy: Every year and worldwide, thousands of college students in economics are recognized by their peers. A distinction they welcome proudly as the door to brilliant career opportunities open. If they have the right connection, all the better: many will end up working for big financial firms or even government or centrals banks. Although it surely is amazing that our fate lies in the hands of those prominent people, one does not need a PhD in economics to understand why the obsession with growth dominates all political debates, and why lawmakers make employment a high priority of theirs. To grasp the rhetoric behind the numbers, one has to take a look at the big picture to see why 'growth and GDP' are in fact a tale concealing one of the most blatant fallacies ever.
Although this is recurrent in the so-called rich countries, let's take the example of the USA. How does it come that the twin deficits are ever increasing, and the national debt just went past 9 trillion dollars. Finding items 'made in America' has become a tour de force - all this despite the boom! The problem is that the word 'economy'(and 'forest' alike) is an abstraction. Both do not exist. A forest is composed by trees and an economy sustained by humans.
Not only because people cannot sell and buy everything at the same pace, making theories and rules for the majority does not work. Basing the GDP on consumption is additionally fatal since it is impossible to live beyond one's means forever. If you want to find an explanation to the business cycles, here it is.
The End Of Conventional Wisdom: The GDP fairy tale has been conventional wisdom for decades. Anyone having a good sense of logic can see the hoax of a model based on debt consumption and extreme consumerism. Spend or die is economic cannibalism. One does not need to be a rocket scientist to ponder the origins of our 1,000 trillion. To be fair there are other ingredients contributing to the mess we find ourselves in today but since economics is the only way to gauge 'Property Rights' and 'Freedom', for the sake of our survival we must reject doomed theories such as these. Let's cross our fingers very hard and take action, Dr. Ravi Batra may not be a dreamer after all.
Libertarian Screenwriter, philosopher, owner of un-debt.net in support of The Gold Action Anti-Trust Committee (gata.org) and a hard currencies advocate. Currently involved in the promotion of the documentary by Danny Schechter "in Debt We Trust" (www.indebtwetrust.com/media.php). She has completed recently a screenplay titled "D.E.B.T INC," which exposes world economic serfdom. Seeking a producer!
