Category Archives: Capitalism

Deeper is not Better

Over the past couple years Automatic Earth has become one of my favorite economic blogs and Ilgari’s Christmas Eve post is a good example of why I venture there daily. Ilgari makes the point that the past year’s economic developments were, essentially, about the transfer of private debt to the public. This picture just gets worse and worse:

Many people today feel happy and positive when they look at the stock markets, because they think these reflect the real economy, and since the markets are up, things must have changed for the better in the past year.

But they haven’t, not below the surface. It’s all veneer and no substance. What actually has happened is that -virtually- no debt has been paid off in our economies, in fact we’ve added trillions of dollars more in debt. What is different from a year ago is that a huge part of the old debt and all of the new debt has been transferred to the public, and away from private business, in particular financial institutions (and, to an extent, carmakers).

So it comes down to the fact that people feel happy for being deeper in debt, and quite a bit deeper. Being the humans we are, we focus on the short term gratification which can be found in the Dow and a whole slew of increasingly fabricated numbers and government reports, while we conveniently ignore the enormous increases in debts, both public and private, that we will have to pay off down the line.

But, you say, it’s not as bad as it may look, because when the crisis is over, we will return to growth, and that will take care of the debt. That and shrewd dollar-inflation strategies by the wizards at the Fed and Treasury.

Really? What if the crisis lasts, let’s say, ten years? All that needs to happen for that is for home prices to keep falling, or even stagnate. And that seems a near certainty.

The US has no private mortgage market left, or even a viable housing market. Neither do Canada, Britain, Holland and many other countries for that matter. Homes are sold and mortgages approved only because the state takes them off the lenders’ hands and books the minute the deals are closed. The loans are then securitized and sold on to, in America’s instance, the central bank. In other words, all of the risk for all of the entire loans processed in this fashion lies squarely with the taxpayer.

And that is not a good thing if prices keep dropping. When unemployment won’t come down. When governments start raising taxes because sovereign debt goes through the various rooftops.

The main problem’s not even paying off the principal of the debt. That won’t start happening for years to come, if ever. It’s paying the interest on the debt that will become the most immediate headache.

Read it.

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Worth reading…

It’s been awhile since I pointed folks to any of my favorite blogs and when I came across this quote over at the Automatic Earth I thought I’d remedy that. First, from this post at the above mentioned site:

Joe Bageant has something to add to that picture:

Speaking of motives, there are those who worry about an American
authoritarian police state one day rounding folks up, shuffling them off to
geographically remote camps, such as the Department of Homeland
Security’s scattered FEMA Camps. But physical geography isn’t the only
geography. There is geography of the mind too, where another kind of
hellish internment may be conducted.

One without razor wire or sirens but surely as confining and in its own
way, as soul chilling as any concentration camp. One with plenty to eat
and filled with distractions and diversions enough to drown out the
alarms and sirens that go off inside free men at the scent of
tyranny. If a round up of Americans is real, then it began years ago. And as far as I can tell, everyone went peacefully, each one alone, like
children, whose greatest concern on that day when the gates were closed,
was the absence of Ranch flavored Pringles.

As someone who has spent most of the past 18 years outside of the american mainstream I can say that Bageant nailed that perfectly. Chomsky called it the manufacturing of consent in his analysis of the media which has served over the past 60 years or so as the primary tool used to control the public. In any case, do check the Automatic Earth for a fantastic daily post which offers what I think is the best take on the current economic collapse. The format of each post usually consists of a page of introductory thoughts based on a huge buffet of stories which follow. I never have the time to read those so I read the intro and skim the headlines below and then skim the comments.

Next on the list would be Sharon Astyk. While she often offers her take are various aspects of our current economic and environmental predicaments, most of her writing is geared towards helping folks actually prepare for a different kind of life. In particular she offers folks the detailed, practical information for becoming more self reliant in terms of growing, preparing and storing food as well as taking care of other necessities of daily life. She ranges from thoughts on medicine to raising kids to what food to grow and where to get the seeds. She’s a very inspirational read with fantastic posts on the importance of family and community and the general need to be connected as we work through this mess.

More I’d like to add but I don’t have much time so I’ll post this as is and add more later!

Deepening Crisis

Oh yes, I know that the stock market had an orgie of a day yesterday on the news of the schemes being cooked up by the Obama administration to deal with the toxic assets currently in the financial system. More of the same and it won’t work because it is a refusal to deal with reality. The whole reaction to this massive mess of fraud is more fraud. The spectacle is truly disgusting.

Harvey Ussery of The Modern Homestead has written a fantastic article regarding the deepening crisis. I encourage you to read it. Here’s an excerpt:

The only thing surprising about the crisis—I should say the crises—now deepening around us, is that it has taken so many of us by surprise. For several years before the subprime mess started the current hemorrhage in global finance, I read detailed predictions for how the subprime mortgage bubble would burst, with the shattering and cascading effects in the wider system that we have now seen—analyses, mind you, not of Ivy League economic think-tankers, but of reflective folks of ordinary common sense like you and me. If such people were able to read the writing on the wall, where were the deciders in government and Wall Street, the head of the Federal Reserve? What were they thinking?

But this crisis has been long in the making, and the biggest mistake would be to assume that an anonymous “they” out there—Wall Street moguls, hypesters for junk-level, credit-for-everybody mortgages, OPEC gougers—are the ones who have brought us to grief, through no fault of our own. We are supposedly adults in a functioning democracy, not children, and as such we cannot escape responsibility for our willful complicity in an economy that defies compatibility with natural systems, meaning natural limits, and which opts consistently for short-term gain in preference to long-term soundness and sustainability.

I remember reading on the first page of the first economics textbook I ever encountered (Economics, by Paul Samuelson, when I was in graduate school) that the foundation of our economy is: perpetual growth. Not the natural resource base. Not equitable distribution of wealth. Not sustainability. The author was emphatic and unambiguous: Without constant, vigorous expansion, our economy would stagnate and fall apart. And on that first page, even a bonehead neophyte ignoramus like me was saying in confused surprise, “But that’s impossible—nothing can grow without limits!” (Except cancer, whose perpetual growth is precisely what in the end kills its host.)

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Abyss Indeed

Exactly. In his latest post, The Abyss Stares Back James Kunstler writes:

In the broad blogging margins of the web that orbit the mainstream media like the rings of Saturn, an awful lot of reasonable people have begun to ask whether President Obama is a stooge of whatever remains of Wall Street, with Citigroup and Goldman Sachs’s puppeteer, Robert Rubin, pulling strings behind an arras in the Oval Office. Personally, I doubt it, but it is still a little hard to understand what the President is up to. For one thing, the stimulus package, so-called, looks more and more like national sub-prime mortgage itself, a bad bargain made under less-than-realistic terms, with future obligations fobbed onto whoever inhabits this corner of the world for the next seven hundred years — and all to pay for a bunch of granite counter-tops and flat-screen TVs.

We’ve heard it over and over and over and over from those in power in reference to this coming depression: “We have to do something.” My thought? No, no actually you don’t HAVE to do something especially when doing something is the wrong thing to do. Action for the sake of action is stupidity. But they are not just doing something. They are doing the same thing that got us into this situation. Taking on more debt to fix debt for the sake of growth that is not even real growth. Well, the consumption was real and the growth for China was real, but the debt taken on in the U.S. was just that, debt. We got in the habit of telling ourselves, as a nation, that credit and debt were wealth but they are not even close to wealth. They may create the illusion of wealth but when it comes time to pay back what you don’t have the reality comes home.

There will be no getting out of this mess, no way to navigate around it. The hard truth is that we will have to slog through it day by day. This collapse was a very long time in coming and the going will be an equally long time. Unlike the first Great Depression though, when we begin to come out of this we will not find a ready, seemingly limitless supply of oil to tap into. We’ll discover that the production peaked sometime between 2005-2007. The good news though is that by that time we will have gotten used to a scaled back, lower income, lower energy way of life.

Again, to quote Kunstler:

Among the questions that disturb the sleep of many casual observers is how come Mr. O doesn’t get that the conventional process of economic growth — based, as it was, on industrial expansion via revolving credit in a cheap-energy-resource era — is over, and why does he keep invoking it at the podium? Dear Mr. President, you are presiding over an epochal contraction, not a pause in the growth epic. Your assignment is to manage that contraction in a way that does not lead to world war, civil disorder or both. Among other things, contraction means that all the activities of everyday life need to be downscaled including standards of living, ranges of commerce, and levels of governance. “Consumerism” is dead. Revolving credit is dead — at least at the scale that became normal the last thirty years. The wealth of several future generations has already been spent and there is no equity left there to re-finance.

It really is that bad and wishful thinking will not help.

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Getting through this

I thought I’d direct folks to this fantastic post at The Automatic Earth regarding the costs of homes in relation to personal income and the role of banks in removing wealth from our communities. Some interesting points there about the end of a functioning capitalist system as well as a sensible, community-based approach to dealing with foreclosures. The only thing I’ll add is that we have been far too focused on wishful thinking in this country and that has to end. The longer we try to hold back reality, the more energy we spend trying to go around this mess rather than through it, the more intense and longer lasting it will be.

Why is 3 times income a reasonable price for a home? Shouldn’t the prices perhaps be
exclusively set by the cost of building a home? If 3 times income were
“normal”, consider that prices have become easily 3 times the cost of building
the home. So most homes cost 1 time annual income to build. And that’s just
the start. A mortgage of the elevated value will cost 3-4 times its notional value
to be paid off in full. Thus instead of living in a home paid off at 1 time annual
income, buyers will need 10-12 times annual income to own a home free and
clear. All this is money that disappears from communities, and into the vaults of
big faceless banks. It’s little wonder that communities and individuals have an
ever harder time establishing a decent level of services and decent living
standards, health care, education, water treatment etc.

Why do we accept so easily that speculation is a good thing when it comes to
our basic needs? It will come back to haunt us in a very aggressive way. Now
that the speculators, banks and developers can no longer rely on housing for
their gambling incomes, they will turn to other basic necessities, none of which
are shielded from the so-called free market. Thus, as incomes drop and
deflation expands its rule over the earth, prices for food, water and energy will
be set by “free” markets.

If we would stop handing money to the banks, which are insolvent anyway,
take the troubled mortgages they hold or have sold to Fannie and Freddie, who
would also receive not one additional penny, and give them to the communities,
who can negotiate with the occupants about a reasonable rent that would allow
them to remain on the premises (perhaps the Obama 31%-38% of income?!),
providing the communities with income, we do away with the need for all these
bail-outs. In one fell swoop.

A situation such as the one I’m painting here will eventually and inevitably
come to fruition. But our political and societal structures will not let it, not
voluntarily. And that will unnecessarily raise the suffering to levels we do not
even dare to fear. Free market capitalism is dead, and I don’t say that because
I have communist sympathies. I just look around me and see that no society
can exist that allows too many of its citizens to fall into utter misery. What
killed our capitalist system is the inclusion of basic human needs in an economic
system based on speculative games. If you set up an economy that propagates
gambling with basic human necessities, you will of necessity end up gambling
away the lives of the people who depend for their survival on those necessities.
Our societies have played these games beyond our borders, in Africa and Asia,
for hundreds of years. And now, because the system dies of it cannot grow, it’s
our turn.

I cannot resist to also share this excellent quote about Obama’s $275 billion plans to halt foreclosures, also from a recent post at The Automatic Earth :

The fact of the matter, of course, is that the $275 billion will not, and are not
meant to, benefit the homeowners. They are provided for the benefit of the
lenders, the banks. They are meant to guarantee an ongoing flow of funds
towards the vaults replete with toxic debts based on the very homes the
government now showers with cash. They are meant to artificially continue to
prop up US real estate values, which, if they were allowed to simply follow the
course of the markets, would bankrupt not only the owners, for which
Washington cares preciously little, but also the banks, for which Washington will
bend over backwards any time of day. The main problem is that it’s way too
late. The banks will drown, and everybody knows it. So the only real purpose
served by these measures is to transfer ever more of the public’s funds to the
banking sector. It’ll go on until the nation itself is completely broke and broken.

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Understanding the Greater Depression

Want to get a better foundational understanding of the Greater Depression that we have now entered? Here are a few blogs I’d suggest you read every day or at least a few times a week.

Sites which focus on the economic system specifically:
Chris Martenson
The Automatic Earth
The Market Ticker

Sites which discuss a broader range of issues (peak oil, self reliance, homesteading, climate change, suburbia…) related to the current collapse and what will follow:
Casaubon’s Book
The Archdruid Report
Club Orlov
James Kunstler

Here’s a little sample from November 7 post from
The Automatic Earth: Debt Rattle: Hocus Focus:

Obama’s chief of staff is a former Freddie Mac board member and fervent supporter of the invasion of Iraq. Many of the ‘experts’ are, or have been, Goldman and Citigroup execs. These people like the power and the money they have gathered while driving the economy into the ground. They’re not going to give that up just to build a financial system that would better serve the people. They’ll build one that best serves them.

Sure, some loose ends will be tweaked, but mostly they’ll spend the nation into a depression by attempting to salvage corporations that would have long since died if it were not for America’s 21st century version of Mussolini’s corporate fascism, and the unlimited access to the public trough it provides.

The broke man in the street will be broker, until he’s broken, until he lives in the street, his last hard earned penny squeezed from his hands and dumped into banks, insurers and carmakers that have zero chance of ever turning a profit again.

The taxpayer will be taxed, and will be forced to pay until (s)he can pay no more, if need be at the barrel of a gun, until (s)he no longer has a job, a home, dignity or a future. And then the growth machine will spit her out. Whoever can’t produce or consume is a write-off.

We’ve spent too much, and now we’re broke. Let’s spend more, and lots more, ‘cause then we will be whole again. Double or nothing, it’s all we know.

The dice will come up nothing.

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Peeling the Onion: What’s Behind the Financial Mess?

Sharon Astyk has peeled back the layers of the current economic collapse… an excellent essay worth checking out.:

What is reducing the amount of productive work accomplished, and moving the money increasingly only into a few pockets?  It is the high price of food.  And what is the root cause of the high price of food?  Well, the single biggest factor, according to a number of studies, including the UN studies, has been the move to food based biofuels.  So if we peel back the onion one more layer, what we find is that one of the major factors slowing the economy has been, well, oil.  The rush to biofuels is a response to tightening oil supplies and rising costs, and the aggregate effect has been to push up food prices all over the world, while doing pretty much nothing to increase energy security, reduce greenhouse gasses or do much of anything else useful.

I’m no economist, and I don’t pretend to be.  But I wonder, when we peel back the layers of the onion later, and look at the history of this Depression, I wonder if we’ll see that in fact, what happened was that we squeezed out the lifeblood of the very thing we’d built our economy upon – new workers/consumers who could be counted on to grow the economy outwards and upwards.  We could have forseen this – but we chose not to – we chose, as we struggled to keep our lifestyle intact on the backs of the world’s poor, not to see that we stand on their backs, and it is people…all the way down.  In killing them, we killed ourselves. It may be that besides the tragedy of starving millions of poor people, we may also have brought down our own system, simply because we did not see, did not realize that the poor matter more to us than we like to admit.

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The Greatest Looting Operation in History

As of now we all know that the bailout did not pass though it could still happen. Chris Martenson on the government bailout:The Greatest Looting Operation in History:

Here we must face the hard truth that merely transferring the failed loans from the insolvent banks to an insolvent nation will do nothing but forestall the problem until a slightly later date (when it will be larger and more severe, by the way). The fact that both candidates for president are openly supporting the bailout says that reality has not yet penetrated the inner beltway.

So the first challenge will be recognizing that it really is not possible for an insolvent nation to bail out an insolvent financial system by borrowing more money. This is an absurd notion, and in total it really is no more and no less complicated than that. One cannot solve a crisis rooted in debt by issuing more debt.

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The Injustice of an Absurd Bailout

Vermont’s Independent Senator Bernie Sanders:

While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s. The top 0.1 percent now earn more money than the bottom 50 percent of Americans, and the top 1 percent own more wealth than the bottom 90 percent. The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president. In the midst of all of this, Bush lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers or nurses.

Now, having mismanaged the economy for eight years as well as having lied about our situation by continually insisting, ‘The fundamentals of our economy are strong,’ the Bush administration, six weeks before an election, wants the middle class of this country to spend many hundreds of billions on a bailout. The wealthiest people, who have benefited from Bush’s policies and are in the best position to pay, are being asked for no sacrifice at all. This is absurd. This is the most extreme example that I can recall of socialism for the rich and free enterprise for the poor.

Via Chris Martenson who had this to say:

This looks like the old populist message that has been so long dormant/suppressed in this country. Should that animal spirit re-awaken, social unrest will follow. Hell hath no fury…

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The Crash Course

Want to know more about the current economic situation and coming Depression? Check out the Crash Course by Chirs Martenson. This is a fantastic series of flash video/slide presentations that explains money, inflation, and the economy. Watch it and share it. This guy does a really excellent job of presenting the history and the current situation… everyone should watch this at least once. It is… STUNNING.

Pass it on.

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