Why the Coming Crash Will Be More Severe than the Great Crash of 1929

Why the US economy is far more fragile and vulnerable than it was in 1929

A summary of the main points made by Charles Hugh Smith in his essay at http://www.oftwominds.com/blogjune09/depression06-09.html:

Since the "Reagan Revolution" of 1981 (“don't tax and spend, just borrow and spend”), our federal government has borrowed and spent way too much.  Even worse, it has borrowed most of it during so-called “good times,” and on a scale once reserved for the rare Keynesian stimulus needed to combat serious recession.  Thus, now that we’re in a deep recession, when we can least afford it, we find ourselves at an unprecedented level of indebtedness (comparable, in terms of GDP, to the entire cost of World War II).  

In addition, we are saddled with:

1.  A corrupt-to-the-core corporate structure riddled with bogus accounting, reliance on financial trickery for profits, and misdirected/worthless/inadequate regulatory oversight.

2.  A banking sector of such debauchery and fraud that the excesses of the 1920s are by comparison more like the pranks of slightly-naughty choirboys and girls.

3.  A Federal system of entitlements (Medicare, Medicaid and Social Security) that has grown far faster than the underlying economy for decades and now threatens the very solvency of the government itself, so stupendous are the future obligations.

4.  A global military hegemony which costs more than all the other military’s and intelligence operations of the entire world put together -- the US military consumes more oil than the nation of Sweden (9 million residents). 

5.  An industrial, transportation and energy infrastructure that, rather than being rebuilt during the past 26 years of debt-based "prosperity," has crumbled in a long slow decline.  Rather than invest in electrical power grids and energy-efficient transport systems, the US squandered its trillions of borrowed dollars on toys, gewgaws, electronics made elsewhere, malls and commercial towers with only transient value, and millions of bloated, inefficient, poorly constructed homes no one needed or could really afford, i.e. "assets" that were not productive at all, "assets" that are now capital traps on a scale heretofore unimaginable.

6.  A paucity of US savings (and thus of domestic capital) with only one historical comparison:  during the depths of the Great Depression when unemployment was 25%.

7.  A huge reliance on financial leverage, debt, borrowing and trickery for corporate profits -- the US exports soybeans, increasingly worthless dollars and "financial innovations" that are now exploding in economies from Ireland to India with the destructive force of superweapons.  In exchange for this dubious paper, we have accepted actual tangible goods from the rest of the world.  And the rest of the world is now slowly waking up to the fact that they've been conned on a scale few can yet grasp.

Globalization has reworked the global supply chain in an astonishingly brief period of time.  As a result, the arbitrage of currencies, wages, governance (less is more profitable) and environmental regulations (zero is the most profitable) have all placed advanced post-industrial economies like the US at great structural disadvantage. 

The US claims to be competitive but much of this competitiveness is highly selective and thus illusory.  Everything in the U.S. -- labor, goods, buildings and taxes -- is high-cost, overregulated (except for finance, banking and governance) and vulnerable to unpredictable lawsuits and officially sanctioned looting.  Other than recent immigrants, non-US employers often find their workers to be surly, unappreciative, narcissistic, entitlement-obsessed, unhealthy, poorly educated, unmotivated, and more inclined to get-rich-quick schemes than actual enterprise or productivity. 

Meanwhile, middle management labors under impossible demands to enrich stockholders next quarter, and heavy turnover insures that few stay in any job long enough to learn it effectively.  Team cooperation is a doublespeak fraud imposed by "facilitators," creating a phony work environment where employees and managers alike pretend to care.  This bogus environment breeds a looting, game-the-system mentality in which everyone is grabbing for all they can before retirement, restructuring, reassignment, resignation or getting fired. 

A "quarterly-profits-are-God" mentality reduces the workforce (even the good workers) to units of input which are pared back or hired without regard to morale or loyalty.  This managerial and cultural pathology makes a mockery of worker loyalty and breeds the very qualities of distrust and "I got mine" attitude that undermines both productivity and workplace happiness. 

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