This Time Is Different

Tyler Durden's picture

Authored by Dr. Tim Morgan, Tullet Prebon,

The 2008 crash resulted from the bursting of the biggest bubble in financial history, a ‘credit super-cycle’ that spanned more than three decades. How did this happen?

As Carmen Reinhart and Kenneth Rogoff have demonstrated in their magisterial book This Time Is Different, asset bubbles are almost as old as money itself. The Reinhart and Rogoff book tracks financial excess over eight centuries, but it would be no surprise at all if the Hittites, the Medes, the Persians and the Romans, too, had bubbles of their own. All you need for a bubble is ready credit and collective gullibility.

Some might draw comfort from the observation that bubbles are a long established aberration, arguing that the boom-and-bust cycle of recent years is nothing abnormal. Any such comfort would be misplaced, for two main reasons: first, the excesses of recent years have reached a scale which exceeds anything that has been experienced before; and second, and more disturbing still, the developments which led to the financial crisis of 2008 amounted to a process of sequential bubbles, a process in which the bursting of each bubble was followed by the immediate creation of another.

Though the sequential nature of the pre-2008 process marks this as something that really is different, we can, nevertheless, learn important lessons from the bubbles of the past.

  • First, bubbles follow an approximately symmetrical track, in which the spike in asset values is followed by a collapse of roughly similar scale and duration. If this holds true now, we are in for a very long and nasty period of retreat.
  • Second, easy access to leverage is critical, as bubbles cannot happen if investors are limited to equity.
  • Third, most bubbles look idiotic when seen with hindsight.
  • Fourth – and although institutional arrangements are critical – the real driving dynamic of bubbles is a psychological process which combines greed, the willing suspension of disbelief and the development of a herd mentality.

“tulips from Amsterdam”

One of the most famous historical bubbles is the tulip mania which gripped the United Provinces (the Netherlands) during the winter of 1636-37. Tulip bulbs had been introduced to Europe from the Ottoman Empire by Obier de Busbeq in 1554, and found particular favour in the United Provinces after 1593, when Carolus Closius proved that these exotic plants could thrive in the harsher Dutch climate.

The tulip was a plant whose beauty and novelty had a particular appeal, but tulip mania would not have occurred without favourable social and economic conditions. The Dutch had been engaged in a long war for independence from Spain since 1568 and, though final victory was still some years away, the original Republic of the Seven Provinces of the Netherlands declared independence from Spain in 1581. This was the beginning of the great Dutch Golden Age. In this remarkable period, the Netherlands underwent some fundamental and pioneering changes which included the establishment of trading dominance, great progress in science and invention, and the creation of corporate finance, as well as the accumulation of vast wealth, the accession of the Netherlands to global power status, and great expansion of industry.

This was a period in which huge economic, business, scientific, trading and naval progress was partnered by remarkable achievements in art (Rembrandt and Vermeer), architecture and literature. The prosperity of this period created a wealthy bourgeoisie which displayed its affluence in grand houses with exquisite gardens. Enter the tulip.

For the newly-emergent Dutch bourgeoisie, the tulip was the “must have” consumer symbol of the 1630s, particularly since selective breeding had produced some remarkably exotic new plants. Tulips cannot be grown overnight, but take between seven and twelve years to reach maturity. Moreover, tulips bloom for barely a week during the spring, meaning that bulbs can be uprooted and sold during the autumn and winter months. A thriving market in bulbs developed in the Netherlands even though short-selling was outlawed in 1610. Speculators seem to have entered the tulip market in 1634, setting the scene for tulip mania.

The tulip bubble did not revolve around a physical trade in bulbs but, rather, involved a paper market in which people could participate with no margin at all. Indeed, the tulip bubble followed immediately upon the heels of the creation by the Dutch of the first futures market. Bulbs could change hands as often as ten times each day but, because of the abrupt collapse of the paper market, no physical deliveries were ever made.

Price escalation was remarkable, with single bulbs reaching values that exceeded the price of a large house. A Viceroy bulb was sold for 2,500 florins at a time when a skilled worker might earn 150 florins a year. Putting these absurd values into modern terms is almost impossible because of scant data, but the comparison with skilled earnings suggests values of around £500,0003, which also makes some sense in relation to property prices. In any event, a bubble which began in mid-November 1636 was over by the end of February 1637.

Though tulip mania was extremely brief, and available data is very limited, we can learn some pertinent lessons from this strange event.

For a start, this bubble looks idiotic from any rational perspective – how on earth could a humble bulb become as valuable as a mansion, or equivalent to 17 years of skilled wages? Second, trading in these ludicrously overvalued items took place in then novel forms (such as futures), and were conducted on unregulated fringe markets rather than in the recognised exchanges.

Third, participants in the mania lost the use of their critical faculties. Many people – not just speculators and the wealthy, but individuals as diverse as farmers, mechanics, shopkeepers, maidservants and chimney-sweeps – saw bulb investment as a one-way street to overnight prosperity. Huge paper fortunes were made by people whose euphoria turned to despair as they were wiped out financially.

The story that a sailor ate a hugely valuable bulb, which he mistook for an onion, is probably apocryphal (because it would have poisoned him), but there can be little doubt that this was a period of a bizarre mass psychology verging on collective insanity.

all at sea

The South Sea Bubble of 1720 commands a special place in the litany of lunacy that is the history of bubbles.

The South Sea Company was established in 1711 as a joint government and private entity created to manage the national debt. Britain’s involvement in the War of the Spanish Succession was imposing heavy costs on the exchequer, and the Bank of England’s attempt to finance this through two successive lotteries had not been a success. The government therefore asked an unlicensed bank, the Hollow Sword Blade Company, to organise what became the first successful national lottery to be floated in Britain. The twist to this lottery was that prizes were paid out as annuities, thus leaving the bulk of the capital in government hands.

After this, government set up the South Sea Company, which took over £9m of national debt and issued shares to the same amount, receiving an annual payment from government equivalent to 6% of the outstanding debt (£540,000) plus operating costs of £28,000. As an added incentive, government granted the company a monopoly of trade with South America, a monopoly which would be without value unless Britain could break the Spanish hegemony in the Americas, an event which, at that time, was wildly implausible.

The potentially-huge profits from this monopoly grabbed speculator attention even though the real likelihood of any returns ever actually accruing was extremely remote. Despite very limited concessions secured in 1713 at the end of the war, the trading monopoly remained all but worthless, and company shares remained below their issue price, a situation not helped by the resumption of war with Spain in 1718.

Even so, shares in the company, effectively backed by the national debt, began to rise in price, a process characterised by insider dealing and boosted by the spreading of rumours.

Between January and May 1720, the share price rose from £128 to £550 as rumours of lucrative returns from the monopoly spread amongst speculators. What, many argued, could be better than a government-backed company with enormous leverage to monopolistic profits in the fabled Americas? Legislation, passed under the auspices of Company insiders and banning the creation of unlicensed joint stock enterprises, spurred the share price to a peak of £890 in early June. This was bolstered by Company directors, who bought stock at inflated prices to protect the value of investments acquired at much lower levels. The share price peaked at £1,000 in August 1720, but the shares then lost 85% of their inflated market value in a matter of weeks.

Like the Dutch tulip mania, the South Sea Bubble was an example which fused greed and crowd psychology with novel market practices, albeit compounded by rampant corruption in high places. Even Sir Isaac Newton, presumably a man of common sense, lost £20,000 (equivalent to perhaps £2.5m today) in the pursuit of the chimera of vast, but nebulous, unearned riches.

Any rational observer, even if unaware of the insider dealing and other forms of corruption in which the shares were mired, should surely have realised that an eight-fold escalation in the stock price based entirely on implausible speculation was, quite literally, ‘too good to be true’.

In his Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay ranked the South Sea Company and other bubbles with alchemy, witch-hunts and fortune-telling as instances of collective insanity. Whilst other such foibles have tended to retreat in the face of science, financial credulity remains alive and well, which means that we need to know how and why these instances of collective insanity seem to be hard-wired into human financial behaviour.

made in Japan

In some respects, the Japanese asset bubble of the 1980s provided a ‘dry run’ for the compounded bubbles of the super-cycle. Japan’s post-war economic miracle was founded on comparatively straightforward policies. Saving was encouraged, and was channelled into domestic rather than foreign capital markets, which meant that investment capital was available very cheaply indeed. Exports were encouraged, imports were deterred by tariff barriers, and consumption at home was discouraged. The economic transformation of Japan in the four decades after 1945 was thus export-driven, and led by firms which had access to abundant, low-cost capital.


By the early 1980s, Japan’s economic success was beginning to lead to unrealistic expectations about future prosperity. Many commentators, abroad as well as at home, used the ‘fool’s guideline’ of extrapolation to contend that Japan would, in the foreseeable future, oust America as the world’s biggest economy. The international expansion of Japanese banks and securities houses was reflected in the proliferation of sushi bars in New York and London. Boosted by the diversion of still-cheap capital from industry into real estate, property values in Japan soared, peaking at $215,000 per square metre in the prized Ginza district of Tokyo.

Comforted by inflated property values, banks made loans which the borrowers were in no position to repay. The theoretical value of the grounds of the Imperial Palace came to exceed the paper value of the entire state of California. Meanwhile, a soaring yen was pricing Japanese exports out of world markets.

Though comparatively gradual – mirroring, in true bubble fashion, the relatively slow build-up of asset values – the bursting of the bubble was devastating. Properties lost more than 90% of their peak values, and the government’s policy of propping up insolvent banks and corporations created “zombie companies” of the type that exist today in many countries. Having peaked at almost 39,000 at the end of 1989, the Nikkei 225 index of leading industrial stocks deteriorated relentlessly, bottoming at 7,055 in March 2009.

The Japanese economy was plunged into the “lost decade” which, in reality, could now be called the ‘lost two decades’. In 2011, Japanese government debt stood at 208% of GDP, a number regarded as sustainable only because of the country’s historic high savings ratio (though this ratio is, in fact, subject to ongoing deterioration as the population ages).

2008 – the biggest bust

With hindsight, we now know that the Japanese asset bust was an early manifestation of the ‘credit supercycle’, which can be regarded as ‘the biggest bubble in history’. The general outlines of the super-cycle bubble are reasonably well understood, even if the underlying dynamic is not. To understand this enormous boom-bust event, we need to distinguish between the tangible components of the bubble and its underlying psychological and cultural dimensions.

Conventional analysis argues that tangible problems began with the proliferation of subprime lending in the United States. Perhaps the single biggest contributory factor to the subprime fiasco was the breaking of the link between borrower and lender. Whereas, traditionally, banks assessed the viability of the borrower in terms of long-term repayment, the creation of bundled MBSs (mortgage-backed securities) severed this link.

Astute operators could now strip risk from return, pocketing high returns whilst unloading the associated high risk. The securitisation of mortgages was a major innovative failing in the system, as was the reliance mistakenly placed on credit-rating agencies which, of course, were paid by the issuers of the bundled securities. Another contributory innovation was the use of ARM (adjustable rate mortgage) products, designed to keep the borrower solvent just long enough for the originators of the mortgages to divest the packaged loans.

The authorities (and, in particular, the Federal Reserve) must bear a big share of culpability for failing to spot the mispricing of risk which resulted from the on-sale of mortgage debt. The way in which banks were keeping the true scale of potential liabilities off their balance sheets completely eluded regulators, and Alan Greenspan’s belief that banks would always act in the best interests of shareholders was breathtakingly naive. In America, as for that matter in Britain and elsewhere, central banks’ monetary policies were concentrated on retail inflation (which had for some years been depressed both by benign commodity markets and by the influx of ever-cheaper goods from Asia), and ignored asset price escalation.

Meanwhile, banks’ capital ratios had expanded, in part because of ever-looser definitions of capital and assets and in part because of sheer regulatory negligence. Just as Greenspan’s Fed believed that bankers were the best people to determine their shareholders’ interests, British chancellor Gordon Brown took pride in a “light touch” regulatory system which saw British banks’ total risk assets surge to more than £3,900bn on the back of just £120bn of pure loss-absorbing capital or TCE (tangible common equity).

It does not seem to have occurred to anyone – least of all to the American, British and other regulatory authorities – that a genuine capital reserve of less than 2% of assets could be overwhelmed by even a relatively modest correction in asset prices.

Both sides of the reserves ratio equation were distorted by regulatory negligence. On the assets side, banks were allowed to risk-weight their assets, which turned out to be a disastrous mistake. Triple-A rated government bonds were, not unnaturally, regarded as AFS (‘available for sale’) and accorded a zero-risk rating, but so, too, in practice, were the AAA portions that banks, with the assistance of the rating agencies, managed to slice out of MBSs (mortgage-backed securities) and CDOs (collateralised debt obligations).

Mortgages of all types were allowed to be risk-weighted downwards to 50% of their book value which, at best, reflected a nostalgic, pre-subprime understanding of mortgage risk on the part of the regulators. In the US, banks were allowed to net-off their derivatives exposures, such that J.P. Morgan Chase, for example, carried derivatives of $80bn on its balance sheet even though the gross value of securities and derivatives was close to $1.5 trillion. The widespread assumption that potential losses on debt instruments were covered by insurance overlooked the fact that all such insurances were placed with a small group of insurers (most notably AIG) which were not remotely capable of bearing system-wide risk.

Meanwhile, innovative definitions allowed banks’ reported capital to expand from genuine TCE to include book gains on equities, and provisions for deferred tax and impairment. Even some forms of loan capital were allowed to be included in banks’ reported equity.

Together, the risk-weighting of assets, and the use of ever-looser definitions of capital, combined to produce seemingly-reassuring reserves ratios which turned out to be wildly misleading. Lehman Brothers, for example, reported a capital adequacy ratio of 16.1% shortly before it collapsed, whilst the reported pre-crash ratios for Northern Rock and Kaupthing were 17.5% and 11.2% respectively.

Well before 2007, the escalation in the scale of indebtedness had rendered a crash inevitable. Moreover, the two triggers that would bring the edifice crashing down could hardly have been more obvious. First, the resetting of ARM mortgage interest rates made huge subprime default losses inevitable unless property prices rose indefinitely, which was a logical impossibility. Subprime defaults would in turn undermine the asset bases of banks holding the toxic assets that the sliced-and-diced mortgage-based instruments were bound to become as soon as property price escalation ceased.

The second obvious trigger was a seizure in liquidity. The escalation in the scale of debt had far exceeded domestic depositor funds, not least because savings ratios had plunged as borrowing and consumption had displaced saving and prudence in the Western public psyche. Unlike depositors – a stable source of funding, in the absence of bank runs – the wholesale funding markets which had provided the bulk of escalating leverage were perfectly capable of seizing up virtually overnight. For this reason, a liquidity seizure crystallised what was essentially a leverage problem.


At this point, three compounding problems kicked in.

  • The first was the termination of a long-standing ‘monetary ratchet’ process – low rates created bubbles, and the authorities countered each ensuing downturn by cutting rates still further, but, this time around, prior rate reductions left little scope for further relaxation.
  • Second, economies had become dependent upon debt-fuelled consumption, and any reversal in debt availability was bound to unwind the earlier (and largely illusory) ‘growth’ created by debt-fuelled consumer spending. As figs. 2.2 and 2.3 show, the relationship between borrowing and associated growth had been worsening for some years, such that the $4.1 trillion expansion in nominal US economic output between 2001 and 2007 had been far exceeded by an increase of $6.7 trillion in consumer debt, and the growth/borrowing equation had slumped.
  • Third, some countries – most notably the United Kingdom – had compounded consumer debt dependency by mistaking illusory (debt-fuelled) economic expansion for ‘real’ growth, and had expanded public spending accordingly, a process which created huge fiscal deficits as soon as leverage expansion ceased. Ultimately, the leverage-driven ‘great bubble’ in pan-Western property values had created the conditions for a deleveraging downturn, something for which governments’ previous experience of destocking recessions had provided no realistic appreciation.


familiar features

Though, as we shall see, the bursting of the super-cycle in 2008 had some novel aspects, the process nevertheless embraced many features of past bubbles.

A number of points are common to these past bubbles, factors which include easy credit, low borrowing costs, financial innovation (in the form of activities which take place outside established markets, and/or are unregulated, and/or are outright illegal), weak institutional structures, opportunism by some market participants, and the emergence of some form of mass psychology in which fear is wholly ousted by greed.

Often, the objects of speculation are items which can seem wholly irrational with the benefit of hindsight (how on earth could tulip bulbs, for instance, have become so absurdly over-valued?) A further important point about bubbles is that they can inflate apparent prosperity, but the post-burst effects include the destruction of value and the impairment of economic output for an extended period. In reality, though, the bursting of a bubble does not destroy capital, but simply exposes the extent to which value has already been destroyed by rash investment.

Of course, the characteristics of earlier excesses have not been absent in contemporary events. As with tulip bulbs, South Sea stock and Victorian railways, recent years have witnessed the operation of mass psychologies in which rational judgement has been suspended as greed has triumphed over fear. Innovative practices, often lying outside established markets, have abounded. Examples of such innovations have included subprime and adjustable-rate mortgages, and the proliferation of an ‘alphabet soup’ of the derivatives that Warren Buffett famously described as “financial weapons of mass destruction”. Credit became available in excessive amounts, and the price of credit was far too low (a factor which, we believe, may have been exacerbated by a widespread under-reporting of inflation).

why this time is different

Whilst it shared many of the characteristics of previous such events, the credit super-cycle bubble which burst in 2008 differed from them in at least two respects, and arguably differed in a third dimension as well.

The first big difference was that the scale and scope of the 2008 crash far exceeded anything that had gone before. Though it began in America (with parallel events taking place in a number of other Western countries), globalisation ensured that the crash was transmitted around the world. The total losses resulting from the crash are almost impossible to estimate, not least because of notional losses created by falling asset prices, but even a minimal estimate of $4 trillion equates to about 5.7% of global GDP, with every possibility that eventual losses will turn out to have been far greater than this.

The second big difference between the super-cycle and previous bubbles lay in timing. A gap of more than 80 years elapsed between the tulip mania of 1636-37 and the South Sea bubble of 1720, though the latter had an overseas corollary in the Mississippi bubble of the same year. The next major bubble, the British railway mania of the 1840s, followed an even longer time-gap, and a further interval of about seven decades separated the dethroning of the crooked “railway king” (George Hudson) in 1846 from the onset of the ‘roaring twenties’ bubble which culminated in the Wall Street Crash. Though smaller bubbles (such as Poseidon) occurred in between, the next really big bubble did not occur until the 1980s, when Japanese asset values lost contact with reality.

In recent years, however, intervals between bubbles have virtually disappeared, such that the decade prior to the 2008 crash was characterised by a series of events which overlapped in time. Property price bubbles were the greatest single cause of the financial crisis, but there were complementary bubbles in a variety of other asset categories.

The dot-com bubble (1995-2000) reflected a willing suspension of critical faculties where the potential for supposedly ‘high tech’ equities were concerned, and historians of the future are likely to marvel at the idiocy which attached huge values to companies which lacked earnings, cash flow or a proven track record, and were often measured by the bizarre metric of “cash-burn”. Other bubbles occurred in property markets in the United States, Britain, Ireland, Spain, China, Romania and other countries, as well as in commodities such as uranium and rhodium. Economy-wide bubbles developed in countries such as Iceland, Ireland and Dubai. Perhaps the most significant bubble of the lot – for reasons which will become apparent later – was that which carried the price of oil from an average of $25/b in 2002 to a peak of almost $150/b in 2008.

This rash of bubbles suggests that recent years have witnessed the emergence of a distinctive new trend, which is described here as a credit super-cycle, a mechanism which compounds individual bubbles into a broader pattern.

This report argues that a third big difference may be that the super-cycle bubble coincided with a weakening in the fundamental growth dynamic. What we need to establish is the ‘underlying narrative’ that has compressed the well-spaced bubble-forming processes of the past into the single, compounded-bubble dynamic of the credit super-cycle.

It is suggested here that this narrative must include:

  • A mass psychological change which has elevated the importance of immediate consumption whilst weakening perceptions both of risks and of longer-term consequences.
  • Institutional weaknesses which have undermined regulatory oversight whilst simultaneously facilitating the provision of excessive credit through the creation of high-risk instruments.
  • Mispricing of risk, compounded by false appreciation of economic prospects and by the distortion of essential data.
  • A political, business and consumer mind-set which elevates the importance of the immediate whilst under-emphasising the longer term.
  • A distortion of the capitalist model which has created a widening chasm between ‘capitalism in principle’ and ‘capitalism in practice’.

Before we can put the credit super-cycle into its proper context, however, we need to appreciate three critical issues, each of which is grossly misunderstood.

  1. The first of these is the vast folly of globalisation. This has impoverished and weakened the West whilst ensuring that few countries are immune from the consequences of the unwinding of a world economy which has become a hostage to future growth assumptions at precisely the same time that the scope for generating real growth is deteriorating.
  2. The second critical issue is the undermining of official economic and fiscal data, a process which has disguised many of the most alarming features of the super-cycle.
  3. Third, there has been a fundamental misunderstanding of the dynamic which really drives the economy. Often regarded as a monetary construct, the economy is, in the final analysis, an energy system, and the critical supply of surplus energy has been in seemingly-inexorable decline for at least three decades.

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grid-b-gone's picture

Investment psychology now supersedes fundamentals as a primary consideration. Trading now supersedes investing. Feel free to keep blowing those bubbles now that I understand the shift that has taken place. 

centerline's picture

Even worse than that.  Investment is no longer determined by a balance of risk/duration.  Stock no longer matters... only flow.  Desperate cash will ride any and every bubble possible, ultimately requiring more and more CB intervention to avoid potentially destablizing failures.  If not already having figured out that wherever debt is being pushed onto the masses, failure is not an option.

Bubblenomics.  This is the new field of study... soon to be a postmortem analysis.

Freddie's picture

I avoid all the media crap but Drudge has a link to NY Slimes pimping for Wall Street.  The evil arseholes at the NYT have an article on why it is a good time for the little guy to jump back into the market.

francis_sawyer's picture

Ruminating about 'what happened' to bring about the big bust in 2008 is just mental masturbation... It's academic wannabe financial wonkery in all its glory...


It makes not a shit of difference to grandma... She just wonders why she's eating catfood [& none of these explanations are very comforting]...

To say 'WE'LL AVOID THESE MISTAKES' next time around is ludicrous... The perpetrators of the 3 card Monti game will just fold up the table & move on to the next block... Frankly ~ it'll go on & on until someone has the courage to PUT A FACE on the crimes...

Animals know their 'predators' in this way...

Xel3's picture

Francis, I've seen your thoughtful comments time and time again.

Surely you must realize at the most essential level, to avoid past mistakes in the present and future tense, we indeed must understand said "past" mistakes. It is undeniably this lack of appreciation for past events that has led humanity to commit the same narrow-minded and short-sighted mistakes over and over time again that has lead us to the present situation.

"History doesn't repeat, but it sure does rhyme." ~ Mark Twain

CheapBastard's picture

EZ Credit and zero down mortgage loans are in full swing again. Billions in profits will be taken by bankers again...and all the losses fo these bad loans will be passed onto taxpayers....again.


I'm looking forward to the next collapse.

PUD's picture

Excellent piece except for its condemnation of "globalization"...True the current version of globalization has accentuated problems but the concept of a unified financial system for the same species of primate is very valid and in fact our only salvation.

We cannot continue to exist in a competitive structure that seeks advantage to anothers disadvantage. The planet is too small and too interconnected for such primitive thinking.

The solution lies in global unification with a new non debt based money system tied to a basket of real world goods and services that eliminates the destructive policies of currency war. The solution lies in equitable distribution of finite resources so that 6% of the global population (the us) does not by force consume 60% of all that is out there. We cannot survive as a species under the current flawed system or with ignorant clinging to old paradigms.

Argue with me about this at your peril

centerline's picture

No argument here.  Just adding that such notions are contradictory to our evolution, hardwiring and current programming.  I believe  the current programming will change in short order... but the hardwiring is another problem.  Can technology overcome this?  I do not know, but am optimistic in this regard in the long run.  But, at this juncture I am not holding my breath.  I think that if this cycle does not pound us into a new dark age, the next cycle might click.  Either we figure it out better (break the pattern, creating a new one) or we figure out how to get off this rock.

PUD's picture

Technology is energy hungry. I agree with you about our genetic programing but I don't steal, rape or murder even though I am hardwired towards self. I would like to think that we as a species can overcome our dna with reason as rationalisim really is the key to survival and survival is the primary purpose of genetic hardwiring

Hohum's picture


Like globalization or hate it, it will go away because of that net energy problem.  On the bright side, the resources of North America means we can cope better, in theory at least.

PUD's picture

I don't think so. That's a kind of bunker mentality. The problem with bunkers is they are fixed positions and the occupants have to sleep sometime.

Hohum's picture



You seem to think globalization (at its current magnitude) is a permanent fixture of the world economy.  Your answer is cryptic, though.  I think we'll have to adapt to less globalization.  But you say otherwise.  Anyway, I do agree that the TPTB want maximum globalization for as long as possible.

PUD's picture

No, I'm saying that complete globalization at every level is the only means to ensure our species survival. We are one species. We are all related. We are (on the genetic level) all brothers and sisters. To pit each against each on a shrinking planet of finite resources is nothing short of primitive barbarism. I don't care if anyone likes it or not...the universe does not care what you like or don't. I'm saying that on lifeboat earth if everyone doesn't row in the same direction and ration resources equitably then no one is going to make landfall. Surely you understand this?

Ghordius's picture

PUD, your are asking for a global (commodity backed) currency

How? By force?

PUD's picture

Of course collective rational thinking and the realization that to do otherwise is to risk an end of civilization.  I'm not placing odds on any outcome simply stating the obvious fact that we must embrace a radical new system

myptofvu's picture

Okay I'll argue....You are assuming that nothing else will be dreamt up to give one country an advantage over another. The currency wars are just that, ways of aining an advantage. So even if you leveled the palying field of the instrument that is used as an exchange mechanism what makes you think other ways of gaining an advantage won't be exploited?


Resources will serve everyone best when they are in the hands of those who use them the most productively. If Elbonia can make cars better, cheaper, faster than Franistan then it is in the best interest of Franistanians to purchase their cars from Elbonia. The problem lies in a lack of understanding this and getting caught up in the thought of jobs being lost in Franistan. If you limit the resources to Elbonia they will not be able to make enuff cars for exporting and the poor Franistan people will be stuck driving their Edsels.

busted by the bailout's picture

You are probably much younger than me, but I can tell you are smart, so you no doubt are aware that  global unification has been the vision of many for a long time.  In fact, when I was young, this goal was considered by many of my generation to be achievable within our lifetimes.  It seemed the obvious solution to end war, oppression, and exploitation.  But now, as an old man, I must conclude this dream will remain elusive for many, many more decades, perhaps even centuries.   The divisions caused by nationalism and differing religious beliefs, language, culture, and tradition remain far too great to overcome in any of our lifetimes, imo. 

In the meantime, globalization  appears to have hurt this cause rather than enhance its likelihood.  It has set countries more into greater competition with each other, and the real victors appear to be the corporations that, of course, have no real “home bias”, no patriotism to any government or system; they only seek profit and growth, wherever they can get it.

Perhaps the multi-national corporations will be our salvation and lead us to global unification?  And, if so, who will wield more power in that new world, them or us?   Will it be a Corporatocracy or a Democratic world?  Will we benefit and our freedom be enhanced?  Or will we suffer at the hands of an all powerful world government aligned with global corporations that together control almost every aspect of our lives?

Parrotile's picture

On the basis of past and current data, the answer to your implied question seems obvious.

Remind me again just who seems to have gained, and will gain more in the future from covert and overt market / political / societal manipulation?

It certainly is not the "99%", formerly known as "The Great Unwashed".

The "New Normal" - where primacy of claim to assets relies far more on connections than ability.

enloe creek's picture

yeah we need a global socilist system, now who could argue with that

BigJim's picture

Hey, let's play argument by equivocation!

Does 'globalisation' mean no tarrifs? Free trade? Or does it mean 'our' leaders protecting 'vulnerable' local industries and jobs from 'unfair' competition? A wise, omni-benevolent elite taking care of the monetary system for the benefit of 'all'? Because that's pretty much what we have now, with The Fed acting as Big Daddy to all the CBs in the Anglo-American Financial Empire's orbit. And you want MORE of the present system?

The bigger the government, the less easily it is kept in check by the people it governs. How can Muslims and Zionists and Athiests all 'row in the same direction'? Exactly how would.... no, let me correct that... how could... a government rule over all the diverse cultures of the Earth and in any way represent their wishes? It couldn't. It would have to be an absolute dictatorship. Is that what you want?

And I keep hearing this argument that 'we' should somehow tie money to a basket of 'goods and services', but I have yet to hear exactly what this means. Proponents of this idea will usually talk about how ridiculous it is to tie money to the 'price' of gold, and then I know they haven't a clue.

And that, dear PUD, is you.

Anusocracy's picture

" We cannot continue to exist in a competitive structure that seeks advantage to anothers disadvantage. The planet is too small and too interconnected for such primitive thinking"

Perfect. You just explained why we can't have government.

Ignatius's picture

There's something in the human psyche (get rich quick) that allows these bubbles to fester.

People gamble -- ludicrously against the house, no less -- in the hope of quick riches.

We're pissed at the banks because they are best at playing/rigging the game (hell, why not, they designed it).

We plead for sober while everyone's enjoying getting drunk.

Kind of a pickle, no?

gould's fisker's picture

"A political, business and consumer mind-set which elevates the importance of the immediate whilst under-emphasising the longer term."

Unless I missed it this is the article's only reference to the power that a bubble takes on politically before it pops, and the article isn't alone in this.  Imagine trying to "prematurely" pop the US housing bubble in 2005 or so, even as a number of analysts were getting a bad feeling about its effects.  Anyone trying to do so would have been ripped to shreds because so many at all levels were invested--from flippers to global derivative investors, including the government reaping revenue.  So, Greenspan's approach of laissez faire--had to let the bubble run its course--was exactly wrong, allowing a market with a toothpick for a foundation to grow and grow.  Not only did Greenspan make that error, but he wouldn't tolerate any real inspection of the derivatives process throughout.  The only hope was to realize the 08 bubble's likeness to a criminal enterprise from the beginning. But of course policy had been lined up for at least a decade to facilitate it.

reader2010's picture

You Ain't Seen NothinYet.

disabledvet's picture

Again "This Time is Different" with this SUBSUMED by the abstract. This Time is Different because of how the MEDIA IS BEING USED ON THE PEOPLE OF THE WORLD. Simply put "it is an ATM machine with no withdrawal limit" since we all live out of fear over how we "appear" to ALL others. This is an AWESOME and unregulated...if not un-regulat-able...power...and trust me, unlike the banks "it does have the power to terrorize" and the least its MODERN variant (spy vs spy, the War of All against All, Known Falsehoods...Unknown Responsibility, etc..etc...) is truly a marvel at pure evil. Ask yourself this: "where is there a story about the information wars?" only on the internet to you even read about the subject matter...yet there it is..The Information Liberation Movement for all to see. Why would "information" need to be "liberated" when we're all handing it over voluntarily in the first place? And the answer of course is "because the very act of being required to hand over your information to a third party without the persons's knowledge or consent is illegal." And yet ALL Governments consent to this complete terrorizing of their own people. The fact of the matter is we are shortly going to become "all that is known"....and that is where i think the problem lies. "All that is known actually is" simply means there is no "technological advantage" to "always being the first responder even though the reason is that you set the fire in the first place." If there is one basic truth it is that very LITTLE actually goes on...and the reason that we are watching something on television is OVERWHELMING because "the event is being made to be significant." An equity boom OR bust is a case in point and hence why the boom and bust cycle is guaranteed in the Western World. The more interesting question is why after World War II did this not happen? And the answer of course is that when you have a draft and a nation unified in a "fight against communism" being able to manipulate mass psychology for both "yeay and nay" is well nigh impossible. Believe me the last thing the Media Complex wants is another Cold War. That was all about "the Army that was to never be used"...and there's no story in that. Which is why i would argue STRONGLY for our Government to engage in an effort to SECURE FREEDOMS not to secure a "one Nation under Manichean Struggle for all" polity. And this is do-able i might add. The banks are big and powerful...fer sure...but they and their cohorts in the media are not omnipotent when standing next to sound public policy "and the Long Struggle" (to paraphrase the Civil Rights movement). If Wall Street thinks bailouts are the answer i say "soak up all the excess labor by creating a draft and securing Western Europe and South Korea." It's nothing that we're not already that is being undermined precisely BECAUSE of bailouts for Wall Street i might add...and while it does have inherent dangers the biggest danger of all...doing avoided. Just my two cents of course...but i think everyone now knows the term Media Crimes is not just for "terrorist nations" but ESPECIALLY for freedom loving ones...and of course freedom loving people who have a right to be LEFT ALONE. Fight the power folks...turn OFF the television. Get OFF Facebook. Fight for an ALTERNATIVE to Bill Gates' "Windows" into all our homes and activities and our personal many of which he has now destroyed...MURDERED as it were. (here's a company if you believe in the movement that i like: this is about creating STUPID computers that are RUN by the smart people...instead of SMART computers run by people who think "they're smart"...but will be known in history as "the people who stole other people's identities and then killed them." And to our Government.. .ARREST THESE PEOPLE. AND STOP LETTING THEM COMMIT SUICIDE AS WELL.

q99x2's picture

This time is different because the banksters and many within the Federal Govt are attacking the citizens of the United States of America and are using the collapse and propaganda to attempt world domination. And if things get worse they will continue to physically attack the US States and its citizenry at ever increasing scales by using foreign entities against the US. So, I don't know if a world war waged from the Governments against their own people is different or not. But then we have the technological aspect which is absolutely different. In fact since things happen in parallel with different sets of conditions and particles the situation at question has never been the same. Failure of the mind to see things as unique seems to be the problem.

falak pema's picture

hahahahaha ...

Read this : Davos: The Crisis Is Over - Business Insider

and this : GMO: China's Credit System Vulnerability - Business Insider

So this MSM feeds a theme and its opposite in the same breath! 

'Cos if China blows thats a big domino for sure by First world standards. 

Atomizer's picture

Leave it to the Business Insider to soften the blow thru persuasiveness of [we never saw this coming] avalanche.

dizzyfingers's picture
"The only function of economic forecasting is to make astrology look respectable."---John Kenneth Galbraith
earleflorida's picture

I would have to presume that most 'bubbles' are a product of a latent exogenous event-- eg. Ottoman Empire/Spice Trade,...    [history of the spice trade, ie. globalization?]

As history's timeline shows, the [Portuguese?] Spanish got lucky [ Portuguese eventually lost out in the Spice Trade] in South America... so lucky? were they [silver and monopoly on spice]-- that silver was the official currency of the known world: 'introduction of the 'Spanish dollar' [piece of eight].

These are just a couple of exogenous events that changed the world forever bringing about rabid? commerce, and no-one counting? Thus the bubbles! Not even the Dutch could have anticipated such events in a world that was fast evolving. Then, came true globalization of the seas-- and none other than England... 'Triumphs Victoriously!' So swift was their incubation/ manifestation throughout the entire globe... whence their presence-- "'had never seen, nor felt, 'The Setting of the Sun'!"

Everyone was fighting for a piece of the pie then, as they are doing today... unable to keep their eyes on the objective landscape that brought many a great empire to their knees.


Skin666's picture

I can't see anything in either articles by Morgan, about Fiat Money or Fractional Reserve Banking. 

That would be the best place to start

Monedas's picture

There will always be more socialist rabble than people who  respect your freedom, more ugly people than pretty people, more dumb than smart people, moar poar people than wealthy people, more lazy people than energetic people, more violent crimminals than healing doctors, more Democrats than Republicans, more sinners than virtuous people, more Keynesians than Austrians, more liars than honest people !  We live in a world governed by the "scarcity of decency" !       Monedas    1929    Comedy Jihad Humour Laboratory World Tour

adr's picture

It looks like all of the bubbles occured because of a stock exchange and leverage. Hmm maybe the entire concept of a stock exchange is the problem.

The tulip bubble blew, because anyone could buy the representation of a tulip bulb without ever owning a single bulb. WOW ETFs IN THE 17th CENTURY!!!

What's wrong with forcing people to make a living off physical goods and labor?

Oh yeah, you can't become a billionaire overnight on labor. With physical product, you need to actually produce it, and have the raw materials. With bullshit leveraged paper, all you need is corruption, lies, and propaganda to get rich overnight.

Ban the echange of stock, you kill every bubble before it starts. But what to do with all the titans of financialization?

EscapingProgress's picture

"The first of these is the vast folly of globalisation. This has impoverished and weakened the West whilst ensuring that few countries are immune from the consequences of the unwinding of a world economy which has become a hostage to future growth assumptions at precisely the same time that the scope for generating real growth is deteriorating."

There is nothing wrong with globalisation. I define globalisation as the push towards free trade, and I like the idea of freedom. We should give it a whirl. Without nation states employing central planning policies, in particular their central banking proxies artificially depressing interest rates, we would not be in the economic predicament we are in today.

Shathawk's picture

Hollow Sword Blade Company


XitSam's picture

Or Hongkong and Shanghai Banking Corporation 1865.

Tango in the Blight's picture

We Dutch built the most powerful navy of the mid 1600s that projected its power globally and we eventually went bankrupt because of it.

The United States better learn from the experiences of the United Provinces.


alfbell's picture





As Martin Armstrong explained, it is really all about CONFIDENCE and it's pendulum swing. After the 2007 crisis the public confidence pendulum swung towards the government: the government will save us and fix the system. When the pendulum swings in this direction it allows government to get bigger, exercise more control, intervene in your personal and business affairs, move towards totalitarianism, etc.

There will have to be a radical drop in the private sector's CONFIDENCE in the government for the pendulum to swing the other way which will then bring about reform, smaller government, reinstatement of freedoms and liberties, reinstatement of rule of law, etc. etc.

It will take some major failures and crises in the public sector/government before that will ever happen. Wonder how long we'll have to wait? 10 years? 20? 50?

dunce's picture

Globalization was the goal of the communists, their theme song was the Internationale, The muslims call theirs the caliphate the names change but the idea is not too different from platos republic and the philosopher kings. stuff your delusions of intellectual superiority in barney franks anal orifice.

Youri Carma's picture

Good piece but the most important factoit is missing here namely the very important lesson from the Dutch Tulp Mania which we should take to heart today as soon as possible:

The Tulip Mania finally ended with individuals stuck with the bulbs they held at the end of the crash—no court would enforce payment of a contract, since judges regarded the debts as contracted through gambling, and thus not enforceable by law .

0 – FORCE MAJEURE!Call Void All Bankster Bogus Derivative Debts! Because paying off these trough fraud induced debts have become a technical and practical impossibility.



neutrinoman's picture

The pendulum will swing away from government before the end of this decade. Many already know that governments/central banks themselves bear a heavy blame for what happened in 2008.

The credit supercycle that ended in 2008 didn't start three decades ago. It started in the mid-1950s. It was put on PAUSE for a decade+ by the high inflation of the 1970s and the high interest rates of the 1980s, then resumed in the late 1980s, with some smaller pauses associated with recessions. It went exponential in the mid-1990s. The Fed played the key role in the multidecade evolution of inflation, debt accumulation, and asset bubbles.

The US has been living beyond its means for 44 years, without a single year since 1967 of both current account and fiscal surplus. We rearranged our monetary system in the 1970s to accomodate the newfangled debt = assets ideology associated with both Keynesianism and modern finance, abandoning the gold standard and other physical/commodity concepts of fundamental assets. This move toward a debt-backed system allowed debt to grow to far larger levels than were possible, say, in the 1920s, the last financial bubble in the US.

No More Bubbles's picture

The current bubble has never been bigger - and the bubble is one of DELUSION!