Before addressing our global monetary infectious disease, a serious correction has to be made: in many articles 'capitalism bashing' has gone unabated especially since the subprime housing bubble has burst. This is irritating because the notion of big government and central banking (the commerce of usury included) are the two main planks of the Communist Manifesto. Capitalism goes along with limited government and hard currencies. There is no shortage of disconnects in logic. In fact it is kind of appalling to read leftist and pro-globalist editorials and essays vilifying greedy-capitalism restlessly while they merely depict the deep flaws inherent to the centralization of power - aka the Socialist Ideal.
Although Darryl Schoon shows up as a hard currency advocate, he still asserts that capitalism sets in motion its demise, the greater the expansion the greater the debt. Well... well, while we're at it, it would be useful to add: as long as the populace buys this fallacy and fail to realize that savings is impossible when living beyond one's means. This has nothing to do with capitalism but market indoctrination. The boomers thought that they would enjoy retirement and most of them are going to fall very short. Wan Lixin at the ShangaiDaily.com, like many, is fed up and for him everything is crystal clear: The Monster US supercapitalism eats the middle class and democracy. Instead of 'Supercapitalism' he should write 'Superdebtism'. Lixin cites many prominent names but never condemns the credit conditions during the events he describes in length. Again debt addiction and currency debasement are among the recurring fallacies used by the Global Elites to get richer and quicker 'is' anti-capitalist, period. Thinking that the panacea for debt is credit is a 'universal delusion'.
Lenin's famous quote: 'The best way to destroy the capitalist system is to debauch the currency' - Ditto. Congratulations, mission accomplished!
Frank Shostak explains why too much debt alone sets in motion a series of random shocks: 1) The act of debt liquidation forces individuals into distressed selling of assets - 2) as a result of the debt liquidation the money stock starts shrinking and this in turn slows down the velocity of money - 3) a fall in money leads to a decline in the price level - 4) the value of people's assets falls while the value of their liabilities remains intact, which precipitates bankruptcies...
Whatever systems is in place, none can survive lies and frauds in the long run and this can be traced back to most omnipotent governments that have ruled since the beginning of Mankind. Even the gold standard couldn't prevent the Kings and Emperors from embarking on ruinous military expeditions or reevaluating their coins when they felt in the mood to do so, which is the same as giving an arbitrary value to today banknotes. Markets must define the price or precious metals, fluctuating according to the supply and demand. Neither governments nor central banks can fix their prices by controlling the interest rates as they see fit. 'Price-fixing' lawsuits are nothing new. So why should we let some powers-that-be commit the same crime? What we are really witnessing are the damages of collectivism and debtism, such as described by A. Hayek in 'The Road To Serfdom'.
The Transparency Black Hole and the Bailout Game
Last January the Davos elites ('they') gathered again to discuss the possible options as the world economy and the fabric of societies deteriorates to a point of no return. The disease can easily be identified and is named extraordinary leverage. Amid the institutionalized meltdown, it would be useful to mention this very 'Obama bill' whose purpose is to alleviate global poverty and amounts to $845 billion. Additionally, he's eying a $120 Billion Stimulus Plan. No joke! Where is Barak Obama going to find the money considering that every household in America owes $400,000 to the Treasury (grand total, future liabilities included) according the former GAO chief, Paul Walker? What happens when consumers stop consuming?
A few weeks ago, Greenspan said at the CERA Conference that the economy would continue to erode until there is a stabilization of U.S. housing prices: "we have a long way to go" before housing prices hit a bottom. As of February 25, Greenspan reiterated with his usual aplomb that US economic growth stalled and a quick recovery was unlikely. Contrarian estimates seem to point to a decline in house price of at least 30% over the next 2 or 3 years, this means a loss of at least $4 trillion in market value if only 20% loss in market value occurred. So far the U.S Subprime meltdown has cost the world $8.6 Trillion according to the contrarians while the mainstream figures announced $7.7 trillion. The scariest part is that it will also affect corporate earnings.
Economic fascism occurs when profits are privatized and costs are socialized. Now we see the deep bottom line as Bank of America asked Congress for a $739 Billion Bank Bailout. This real Estate market is a bottomless pit. The Fitch rating agency, early March, warned that US Alt-A RMBS performance deteriorates rapidly with an outstanding balance of approximately $160Bn. Stimulus for this, rescue package for that... so why not bailing out the corporations while they are at it? For the record, did you know that Fannie Mae's shares went from $70 in August to less than $22 on March 6, 2008; Freddie Mac's from $65 to less than $20 over the same period. Fannie and Freddie are worth 40% of America's $11,500Bn of outstanding home loans! Moody’s estimated that three million subprime borrowers will likely default over the next several years; and that 8.8 million homeowners, or about 10.3% of homes, will have zero or negative equity by the end of the month. In Washington, the Democrats are upset at the Bush Administration which blocked their bill to help homeowners. Yet the same democrats are in favor of government-funded mortgage buyout. Banks' losses could put $900bn squeeze on consumers. This is communism of the most subtle kind. Corporate welfare cost U.S taxpayers already $120bn per year, Citizen.org revealed in 2003. How much is it today exactly? Did it solve anything? The lobbies' task is to get the government out of their way in order to obtain freer rein for 'financial innovation'.
As long as the consumers/voters fail to see the big picture, legal financial scams will remain pervasive. It is all over again, during the Great Crash of 1929, there 25% of banks in America went belly up. Many people saw market speculations engaged in by banks during the 1920s as a cause of the crash. A new banking regulation, Glass-Steagall Act, was passed in 1933. History repeats itself: it is just another regulation that went down the tube. More over, it is a well-known fact that when Alan Greenspan became the Maestro in 1983, he was strongly in favor of banking deregulation. And long before that in 1966, he wrote 'Gold and Economic Freedom', an essay available on the internet.
As the web of debt gradually expanded, 'they' faked the enforcement of some semblance of transparency. That is precisely why the public fell asleep at the wheel. Alas when debt cannot be repaid it is destroyed, that as simple as that - and as financial history shows, often at the expense of the ignorant masses. Panic is not a vain word anymore. A Wall Street bank run has become a (high) probability. David Ignatius at the Washingtonpost.com wrote a piece that tells us why the system is about to screech to a halt. Here is an excerpt:
Frightened financiers are pulling back from credit markets -- going on strike, if you will -- to escape the unraveling daisy chain of securitized assets and promissory notes that binds the global financial system. As each financier tries to protect against the next one's mistakes, the whole system begins to sag. That's what we're seeing now, as credit market troubles spread from bundles of subprime residential mortgages to bundles of other kinds of debt -- from student loans to retailers' receivables to municipal bonds.
Most people dislike or hate economics because of its convoluted jargon. If they only knew that it was a trick to deter them from learning. So, what hide terms such as collateralized debt obligations (CDOs) or structured investment vehicle (SIV) for example? If you do not have a clue and are about to start scratching your head, here is what Richard Sylla, professor of economics and financial history at NYU's Stern School of Business says an report titled 'The black box economy' by Stephen Mihm last January.
"A lot of financial innovation is designed to get around
regulation. The goal is to make more money, and you can make more money if you don't have to keep capital to back up your investments."
Examples abound in the financial press. Interestingly enough, this article on bloomberg.com gives us another hint that corroborates Sylla's definition:
... The new source of potential losses: so-called variable interest entities that allow financial firms to keep assets such as subprime-mortgage securities off their balance sheets. VIEs may contribute to another $88 billion in losses for banks roiledby the collapse of the housing market, according to bond research firm CreditSights Inc. Goldman, which hasn't had any of the industry's $163 billion in writedowns, said last month it may incur as much as $11.1 billion of losses from the instruments...- Advertisement -
So from now on - and trust me that it will make you sound ultra-smart - every time you read some sophisticated terms in whatever economic column, remember professor Sylla's theory. This is actually pretty frightening because in the midst of the deep recession, the Davos folks, ('they') are the ones who will come up with more regulations to nowhere to satisfy the common man's outcry, be given more power and of course big pay raises.
Ever heard of the wolf in sheep clothing? Bill Gross, manager of the world's largest bond mutual fund, sums it up like this: it is 'Frankensteinian' levered body of shadow banks promoting a chain letter, pyramid scheme of leverage' in his January newsletter.
If this leaves you enough moral strength to face the monster, I invite you to read Michael Lewis' Inside Wall Street's Black Hole and who has investigated the Black-Scholes model invented by a pair of finance professors at the University of California at Berkeley.