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The Next Crisis - Part 1

Tyler Durden's picture




 

Submitted by Golem XIV,

The present global financial ‘crisis’ began in 2007-8. It is not nearly over. And that simple fact is a problem. Not because of the life-choking misery it inflicts on the lives of millions who had no part in its creation, but because the chances of another crisis beginning before this one ends, is increasing. What ‘tools’ - those famous tools the central bankers are always telling us they have – will our dear leaders use to tackle a new crisis when all those tools are already being used to little or no positive effect on this one?

I think it is worth remembering how many financial crises we have had since the economy became globally interconnected and since we began the deregulation of finance and the roll back of all Great Depression safeguards under Reagan and Clinton.  It’s also worth noticing that the causes and pattern of the various crises have an unpleasant ring of familiarity about them – as in – the bank lobbyists making sure nothing gets learned and nothing gets changed.

In the 80′s there were four financial crises: The Latin American crisis caused by those countries borrowing and the global banks agreeing to lend them far too much (too much lending to people who couldn’t afford it – check), the American Savings and Loan (S&L) crisis when American S&L’s made too many bad, long-term and leveraged loans relying on rolling over and over short-term loans to fund it all (reliance on short-term liquidity to cover massive loan books of dodgy loans – check) , and the 1987 Stock market crash when the system of global debt had its first major modern global paroxysm (systemic contagion – check) . And before the dust had even settled from that we had the Junk Bond collapse ( Too much junk – check. $400 billion in junk bonds were issued in 2013 alone). In the 90s there were two more crises (if one ignores the Mexican currency devaluation): The Asia currency crisis (a replay of the Latin Crisis with the same global banks doing the same lending to different corrupt or stupid leaders who agreed to loans on behalf of  people who couldn’t afford to pay back – ie nothing learned at all  - check) and the Dot Com bubble (valuations way above reality fueled by cheap money and lax lending – check). I think that’s most of the kinds of greed fueled idiocy accounted for.

If you line up the S&L, the Junk Bond and the Dot Com bubble, America has had a major home-brewed financial crisis every ten years. If you consider that none of these events happened in isolation nor limited their effects to the country of origin then we have to conclude that the global financial system is prone to crises. You can, if you see the world through resolutely libertarian glasses, blame everything on interfering governments – it matters little. The fact remains that the system as is, is unstable and run by the myopic, the greedy and the corrupt. Where they draw their salary, which side of the revolving door they happen to be on, on any day seems to me irrelevant. The worst of them don’t understand and are easily bought. The best have no concern for anyone or anything beyond their next bonus.

And here we are being led by them.

Of course saying another crisis is coming is like saying we are due a large earthquake in Southern California. True, but it doesn’t mean one is going to happen tomorrow. What I think it does mean is that we should be thinking what our leaders, what the people they work for – the global overclass – might already have in mind or have already put in place, for what they want done next time. I think it would be foolish to imagine they have not thought about it and are not putting in place the things which will close off some futures and force us into others that they prefer. They have so very much to lose and so very much more they want to gain.

The next crisis.

To know what the next crisis might look like we first have to look at the conditions today that will form its starting point. Necessarily everything from here on is speculation, nevertheless even when we can’t know what people will do and what ‘events’ will overtake us, we can, I think,  discern quite a bit of the general topography, the landscape, of the future.

The first thing we should bear in mind is that however it starts, the next crisis will be another debt-crisis like the current one. This is because debt is now the global currency and global financing mechanism. Once it starts, however, one thing will be very different from the last time – this time nearly all nations are already heavily indebted. Last time they were not. And this is what changes everything for the over-class.

Contrary to the endless misinformation repeated at every juncture by austerity politicians and bankers alike, the debt load of most nations at the beginning of the present crisis was not already out of control before the banks blew up.

sovereign debt levels

The green bars are debt as percentage of GDP before the bank bail outs and the blue bars are after. These are official Eurostat figures. Notice Ireland. Its debt to GDP was down at 27%.  The ONLY thing that altered between 2007 and 2010 was the bank bails outs. Ireland’s ENTIRE debt problem is due to bailing out private banks and their bond holders. Britain’s debt almost doubled and again the ONLY thing that happened was bailing out the banks. The government claims that UK public debt was out of control due to spending on public services is just WRONG. UK government debt against GDP had not gone up in 7 years. Then when we bailed out the banks it nearly doubled. That is the fact as opposed to the propaganda of what happened and why.

If you look a little more closely into the figures for government debt levels in Europe between 2000 and 2010 the fact is that all European nations apart from Portugal were either reducing their debt-to-GDP level or at least not allowing it to grow. Most of Europe was reducing government debt to quite manageable and historically low levels. Ireland’s debt was very low (27%). Take a good long look at those two bars for Ireland. Even Spain was bringing in more in tax than it was spending. Don’t take my word for it look at the figures yourself. Almost  every European country was keeping debt to GDP even or going down – before the banks were bailed out that is. The exceptions, of course, were Greece and Italy whose debt was already very high even before they bailed out their banks.

The sudden explosion of European sovereign debt is the direct and indisputable result of all our political parties deciding they would safeguard their mates’ and their own personal wealth (it is the top 10% who hold the bulk of their wealth in the financial products which would be destroyed in a bank collapse. NOT the rest of us!) by bailing out the private banks and piling their unpaid debts on to the public purse.

So whatever the trigger of the next crisis may be, they know any solution which saves the wealth and power of the over-class will have to involve piling new, private-bank bad-debts on to already indebted sovereigns and that, our leaders must be keenly aware, will not be easy to force on an already angry public. They know a whole range of the assurances they might like to give us about what must be done when the next crisis hits and how those things will undoubtably save us, will not be so easy to shove down people’s throats. 

“So what,” I can hear the 1% saying, “can we do?”

Here are some thoughts on what I think they can do, will do, are already begining to do and WHY they are doing them.

The over-arching thought that I have, which shapes everything from here on, is that this crisis is no longer primarily financial; it is now political. Any solution, no matter for whose benefit, is beyond the scope of financial ‘reform’ but will depend on radical political change. In my opinion, the era of reformist politics is over. The questions are:  radical change in which political direction? in whose hands? and for whose benefit?

At the moment, I believe the radical thinking is almost all being done on the 1%’s side. They may talk about fixing, but what I think they mean is changing. When Obama spoke of change, he meant it. Just not primarily for you. The 1% are not stupid. They see the need for change and intend to control it.

I think one of the cleverset things the 1% have done over the last few years is the way they have created a relentlless public discourse, via their paid political front-men and women and their media empires, to insist on the need to ‘fix’ and protect the system, and the extreme danger to us all  should the system not be ‘saved’. This has served as a perfect cover for making sure that not enough people have noticed that the system is, in fact, being gutted and replaced by something that better serves the interests of the 1%. We have not been fixing the banks, we have been feeding them.

So while the 1% are thinking ahead, too many of the 99% are still like rabbits in the headlights, mesmerized and paralysed. They have been told over and over that any radical change to our present financial and political system is impossible, and if tried, would only bring disaster upon us. The 1%, on the other hand, see clearly that the present system will bring disaster upon them if it is not changed radically. They can see that it must be almost done away with entirely – in all but name. The important thing for them is that the direction of radical change benefit them and that the 99% not even realise that it is happening.

And so far it’s working – just. Just enough people continue, if grudgingly, to take refuge in a moribund political system made of parties and theories which date back to the Victorian age.  The temporary triumph of the 1% is that despite the fact that no one would drive a Victorian car, nor wear Victorian shoes or clothes, they somehow feel there’s no choice but to rely on Victorian political institutions, parties and ideas.  The good news is that the number who really believe this is dwindling and most of those who do, do so out of fear not faith. Which is why our present, 1% controlled politics, is increasingly about engendering fear rather than inspiring faith. 

Luckily truth has a wonderfully cleansing effect upon lies and fear.

 

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Thu, 09/18/2014 - 19:48 | 5232074 golddigga
golddigga's picture

the next crisis is 12-15 years away. 

Thu, 09/18/2014 - 19:54 | 5232083 El Oregonian
El Oregonian's picture

It's just one breath away...

Thu, 09/18/2014 - 21:08 | 5232346 boogerbently
boogerbently's picture

They say these downturns happen about every 10 years.

It's a cycle.

We're 6-8 years into this "recovery" !!

Thu, 09/18/2014 - 21:17 | 5232380 markmotive
markmotive's picture

The last crisis never ended...

LSE Lecture: Crisis without End? The Unravelling of Western Prosperity

http://www.planbeconomics.com/2014/09/crisis-without-end-the-unravelling...

Thu, 09/18/2014 - 22:53 | 5232631 KnuckleDragger-X
KnuckleDragger-X's picture

We are in a depression and no one dares call it that......

Fri, 09/19/2014 - 07:04 | 5233130 CHX
CHX's picture

Jim Rickards does... (whether one likes him or not).

Fri, 09/19/2014 - 09:03 | 5233472 JRobby
JRobby's picture

"the life-choking misery it inflicts on the lives of millions who had no part in its creation"

This alone should be sufficient to trigger bloody revolution.

Fri, 09/19/2014 - 10:32 | 5233901 Newsboy
Thu, 09/18/2014 - 20:10 | 5232139 Winston Churchill
Winston Churchill's picture

Weeks, my downvoted friend,weeks, not years.

You are not paying attention if you believe its years.

Thu, 09/18/2014 - 20:24 | 5232194 golddigga
golddigga's picture

people here really have no sense of humor, sure downvote away. 

Thu, 09/18/2014 - 20:43 | 5232266 EINSILVERGUY
EINSILVERGUY's picture

Dude, unless your post is so out their to obviously be a contrarian remark you gotta use the sarc tag. 

Thu, 09/18/2014 - 21:28 | 5232413 golddigga
golddigga's picture

you guys know when the world finances will blow up, tell the guys the on wall street that dumb and yet none of you can tell sarcasm. oh the irony. 

 

 

Fri, 09/19/2014 - 00:34 | 5232815 Sages wife
Sages wife's picture

First rule of holes - If you're in one, stop digging.

 

Fri, 09/19/2014 - 07:01 | 5233124 CHX
CHX's picture

You'd be all "green" had you just added "/sarc"

Thu, 09/18/2014 - 20:00 | 5232102 lasvegaspersona
lasvegaspersona's picture

just a shot away

Thu, 09/18/2014 - 20:07 | 5232127 ebworthen
Fri, 09/19/2014 - 09:05 | 5233465 whirling tword ...
whirling tword freedom's picture

Dictators are bred during crisis periods... if you have a political party that is extreme and promise safety and better times.... usually having a politial enemy that is the cause of all the problems... you can gain power.

Ask Hitler, Lenin, Mao, Pol Pot, The Ukraine, Syria, Lybia... the list is long.

I'm worried about what comes next..... I have a feeling it won't be good.... The stage is already set for the next president to just break every law they don't like.... there is precident for that now.

Thu, 09/18/2014 - 20:03 | 5232112 Cognitive Dissonance
Cognitive Dissonance's picture

Never let a crisis go to waste. And if there isn't one handy make one.

More social/cultural engineering will be conducted over the next 10 years to 'protect' us from these/this artificial 'crisis' than over the last 100.

Thu, 09/18/2014 - 20:05 | 5232125 disabledvet
disabledvet's picture

The crisis is ISIS...and that looks like the paralysis...of analysis...to me.

I say again "the US Navy will not wait for events to unfold." Acting in the absence of orders...is an order.

Thu, 09/18/2014 - 20:22 | 5232187 skank
skank's picture

(Thanatophobia - ) Fear of Death  is real.

Thu, 09/18/2014 - 20:03 | 5232116 adr
adr's picture

The crisis is that someone who already has far more than they need won't be able to buy something else without having to lift a finger.

The worthless class will never exist under an environment of declining net worth again. Even if it means the death of them. They know nothing else.

The Shark Tank market. I'll give you money I didn't earn for a 40% stake in the company you poured your heart and soul in. My cut is the privilege of being able to give others money away, because we made it the only path to success.

It only gets better when the moneychangers are dead.

 

Fri, 09/19/2014 - 07:38 | 5233202 jughead
jughead's picture

Moneychangers are like cockroaches...they'll outlive all of us.

Thu, 09/18/2014 - 20:02 | 5232117 ebworthen
ebworthen's picture

Bring on the truth.

Thu, 09/18/2014 - 20:02 | 5232120 Diggintunnels
Diggintunnels's picture

Oh my naive children. You worry too much. We have this under control. The answer is simple. War. War is the ultimate aggregate demand multiplier. Don't worry it will only affect far off lands. The more we blow things up, the greater the need for rebuilding. Tune the destruction curve to equal 2% inflation and voila, problem solved. Now back to bed my little angels. Tomorrow is full of adventure for you on your iPhone looking at Facebook and reality TV.

Love

Satan ahem I mean Janet :)

Thu, 09/18/2014 - 20:03 | 5232123 bescobar
bescobar's picture

More like 2-5 months away.

Thu, 09/18/2014 - 20:10 | 5232138 GooseShtepping Moron
GooseShtepping Moron's picture

Look, we all know the debt will never be repaid. It will be monetized, defaulted on, or repudiated. There will be social unrest, governments will topple, and there will probably be wars and revolutions. This is God-and-Nature's way of unwinding a debt bubble that we refuse to take responsibility for. Is there anything remotely new here?

Who is Golem XIV, and what was the point of this?

Thu, 09/18/2014 - 20:12 | 5232145 RaceToTheBottom
RaceToTheBottom's picture

Modern WS Finance is a Crisis designed to look like a business domain

Thu, 09/18/2014 - 20:25 | 5232197 Cthonic
Cthonic's picture

off topic:  smoothed new case rate (does not include DRC outbreak data):

 

18 Sep 14 - 113/day

16 Sep 14 - 101/day

12 Sep 14 - 92/day

08 Sep 14 - 86/day

04 Sep 14 - 75/day

28 Aug 14 - 69/day

22 Aug 14 - 59/day

20 Aug 14 - 54/day

19 Aug 14 - 46/day

15 Aug 14 - 54/day

13 Aug 14 - 40/day

11 Aug 14 - 37/day

08 Aug 14 - 54/day

06 Aug 14 - 55/day

04 Aug 14 - 57/day

02 Aug 14 - 43/day

29 Jul 14 - 38/day

27 Jul 14 - 23/day

23 Jul 14 - 12/day

17 Jul 14 - 10/day

Case Fatality Risk Estimate: 50%

Active Case Growth Rate: 4.7% per day

Health worker deaths/cases: 151/318 as of 14 Sep

(18 Sep release contains data through 14 Sep, updated to 15 Sep with info from MoH sites)

 

http://apps.who.int/iris/bitstream/10665/133833/1/roadmapsitrep4_eng.pdf

https://www.internationalsos.com/ebola/index.cfm?content_id=421&language...

Thu, 09/18/2014 - 20:46 | 5232272 Cthonic
Cthonic's picture

aid workers' throats slit,  bodies dumped in latrine

http://www.abc.net.au/news/2014-09-19/ebola-workers-journalists-found-de...

 

17 September
The [Nigerian] Ministry of Health has reported that there have been no new Ebola cases in the country for a week. The total number of confirmed cases remains 19 with 7 deaths. There are 4 contacts still under surveillance in Lagos and 344 in Rivers State. Over 520 contacts have been discharged from surveillance in Lagos and Rivers State.

https://www.internationalsos.com/ebola/index.cfm?content_id=418&language...

 

16 September
The [Senegalese] Ministry of Health reported that 74 contacts of the index case had been identified. None have Ebola. No new contacts have been identified.

https://www.internationalsos.com/ebola/index.cfm?content_id=395&language...

Thu, 09/18/2014 - 20:47 | 5232287 frankTHE COIN
frankTHE COIN's picture

It's HalfTime !

Thu, 09/18/2014 - 20:51 | 5232296 malek
malek's picture

I call bullshit on some points:

The so-called "low debt levels" of Ireland and Spain in 2007 are just accounting illusions. Both countries at that time already had vastly overinflated housing bubbles - and what are most of those overpriced houses bought with? Right, with mortgages a/k/a debt.
So both countries already had debt spiralling out of control before 2007, just at that time it was still private or bank debt which only after the bailouts became government debt.

Fri, 09/19/2014 - 04:27 | 5233007 Global Observer
Global Observer's picture

The debt the article is referring to is the sovereign debt, not private debt and sovereign debt for Ireland and Spain was low before the crash/bail out.

Fri, 09/19/2014 - 13:21 | 5234812 malek
malek's picture

Rrright, and vast overextended debt bubbles have no guaranteed impact on sovereign debt in some near future time, because bailouts will not be given??

But please continue with "lalala <stick finger in ears> I cannot hear you!"

Thu, 09/18/2014 - 20:55 | 5232305 rejected
rejected's picture

They are now arming school systems like they armed Social Security and Park Rangers. They are upgrading the emergency nine one one  system to Gig E. It will be their backbone for the rapidly forming federal police system.

From this, It is my opinion they think it's going down pretty soon. The speed of their readying seems to put it within a year,,, maybe year and a half. 

Thu, 09/18/2014 - 20:57 | 5232312 q99x2
q99x2's picture

theories which date back to the Victorian age

Technology will see that evolution takes place.


Thu, 09/18/2014 - 21:12 | 5232359 p00k1e
p00k1e's picture

'ie nothing learned at all'

 

 

"If you're playing a poker game and you look around the table and and can't tell who the sucker is, it's you."

- Paul Newman
 

astonishing. 

Thu, 09/18/2014 - 21:33 | 5232437 DOGGONE
DOGGONE's picture

We try to live indefensible truth, WITHOUT telling it!
"The Public Be Suckered"
http://patrick.net/forum/?p=1223928

Thu, 09/18/2014 - 22:47 | 5232618 moneybots
moneybots's picture

"The present global financial ‘crisis’ began in 2007-8. It is not nearly over."

 

It is nearly just beginning.

Thu, 09/18/2014 - 22:48 | 5232621 AdvancingTime
AdvancingTime's picture

 Both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that the advantages we enjoyed would continue.

Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. When we look closely debt does matter. More on why this system will fail in the article below.

http://brucewilds.blogspot.com/2014/08/modern-monetary-theory-is-wrong-d...

Fri, 09/19/2014 - 07:33 | 5233187 Mi Naem
Thu, 09/18/2014 - 23:12 | 5232681 tony bonn
tony bonn's picture

zh is on a roll tonight....first brandon smith's stupendously brilliant article, and this one as a good follow up. there was more insight in these 2 articles than in a 4 year degree from the typical diploma mill.

Fri, 09/19/2014 - 04:45 | 5233017 Ghordius
Ghordius's picture

I generally like Golem XIV, but I find that in this article he follows here a seen-elsewhere pattern of beginning the discussion in the US, and then zipping over to relatively unrelated matters in Europe

yes, before the crisis, several european countries had much lower gov debt levels. after the crisis, we see them higher, because of the costs of the crisis, mostly because of this impulse of saving banks with public money

nevertheless, the current political fight in europe is between those who think the countries should get moar into debt, and push moar credit, egged by London and NY bankers, and those who don't

let's have a look at today's debt levels: http://www.eudebtclock.org/

in Europe, the worst per capita gov debt is in Ireland with EUR 43'000 , while there are several countries below EUR 20'000

now I'm not a friend of generalizing with an average where europeans are not solidal with each other's debt, yet if the EU was similar to the US, 

the per capita debt level would be EUR 22'000

in the US, the per capita gov debt is USD 55'000

have a look on how the numbers are changing. for some countries, it's slower, for some, way, way faster. you see the pattern?

Fri, 09/19/2014 - 08:53 | 5233441 Otto Zitte
Otto Zitte's picture

Military or economic, the grinches require continuous crises to exploit Whoville. If you're not grinch you're little people.

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