This page has been archived and commenting is disabled.
We Don't Have One Problem - We Have Three Interlocking Sets Of Problems
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The additional sets of problems added as "solutions" only guarantee that the third and final crash of asset bubbles just ahead will be far more devastating than the crashes of 2000 and 2009.
The conventional view tacitly assumes the global economy is dealing with one problem: recovering from the Global Financial Meltdown of 2008-09. Stimulating a "recovery" has been the focus of central banks and states everywhere.
Short-sighted political expediency is a hallmark of the modern state's reaction to crisis, but political expediency isn't the only flaw in the central banks/states' obsessive focus on "recovery;" it's not even the primary flaw.
The real flaw is the central banks/states don't even recognize that we face three interlocking sets of problems, not one. Each set of problems is layered on top of the previous layer, and each sets reinforces the other two. In other words, the entire problem set is more than just the sum of the three problem sets.
1. Financialization of the economy. As the post-industrial funk of the 1970s dragged on, the neoliberal ideology of liberalizing credit markets and eliminating the regulatory wall between investment banking and commercial/mortgage banking was presented as the fundamental fix to post-industrial stagnation: free up credit, leverage and speculation, and the results would be an expansion of asset prices and growth.
The first wave of financialization in the 1980s did indeed boost asset valuations and growth, but it did so by eroding the productive economy and the middle class that arose from gains in productivity. Financialization substitutes finance for productive investments, such that financial games such as originating subprime home mortgages become far more profitable than non-financial capital investments.
I've covered the immense structural damage wrought by financialization for years. Here is a small sample of essays from the 10+ pages of links available in the archives:
What's the Primary Cause of Wealth Inequality? Financialization (March 24, 2014)
Our "Let's Pretend" Economy: Let's Pretend Financialization Hasn't Killed the Economy(March 8, 2012)
The Heart of Financialization: Counterfeiting Risk-Free Assets (December 7, 2012)
Why have the central banks and central states allowed financialization to hollow out the real economy? Because they have no choice. As I explained in Why the State Has Failed to Reform Our Broken Financial System (October 16, 2014), extreme financialization is the last source of the monumental profits the state needs to fund itself, and the last source of economic "growth" in an economy gutted by previous rounds of financialization.
2. Extremes of credit, leverage, risk and speculation. As conventional financialization failed to reflate the asset bubbles of the late 1990s that crashed in 2000, central banks and states opened the doors to extremes of credit expansion, leverage and risk. Financial fraud and embezzlement became the models of choice as lenders and borrowers alike engaged in a monstrously profitable churning of securitized mortgages, liar loans, initial public offerings of companies with no hope of generating profits, and all the other tricks of the finance trade.
The inevitable result of these extremes of supposedly low-risk leverage and sleight of hand was the Global Financial Meltdown of 2008-09, when bubbles in credit, risk, stocks and real estate popped.
3. The central bank/state "solutions" to the Global Financial Meltdown are the third set of problems. The monetary/fiscal solutions--dropping interest rates to zero, printing trillions of dollars, yen, euros and yuan out of thin air and giving banks and financiers free access to all this loot, with the implicit promise that any bets that went bad would be backstopped by the taxpayers--have not only done nothing to repair the damage done by the first two problem sets but have unleashed even more destructive dynamics.
The analogy I have used is monetary heroin: the first hits of quantitative easing had an immediate effect on moribund assets. But each successive wave of monetary heroin has had diminishing effects as the addict became habituated to the endless stimulus.
The central bank solution to this habituation is to increase each new dose of stimulus. Unfortunately, at some point the dose becomes large enough to kill the addict: The Fed's Failure Complicates Its Endgame (July 30, 2014)
Each monetary/fiscal "fix" inflated a bubble that crashed. Rather than face the harsh consequences of financialization and successive waves of monetary extremes, central banks and states have elected to reflate the bubbles as the politically expedient solution that leaves the crony-cartel-state status quo intact.
But the additional sets of problems added as "solutions" only guarantee that the third and final crash of asset bubbles just ahead will be far more devastating than the crashes of 2000 and 2009.
The Coming Crash Is Simply the Normalization of a Mispriced Market (July 18, 2014)
»
- 17168 reads
- Printer-friendly version
- Send to friend
- advertisements -
We are fucked?
We can't solve problems by using the same kind of thinking we used when we created them. Albert Einstein
more to the point, that which cannot be sustained, won't be, and the "laws" of men are fucking irrelevant.
same as it ever was.
Browsed through article. I see no mention of the real problems we face: the stifling of human ingenuity through regulation, "laws" (scams), rentier-ism, and state violence.
IOW, the loss of human liberty.
Wanna create wealth and jobs? GET THE FUCKING GOVERNMENT OUT OF THE WAY.
"GET THE FUCKING GOVERNMENT OUT OF THE WAY." --
Very difficult to do when all those "private" corporations depend on fat government contracts.
Wake the fuck up.
get it away, make room for hilary.. just to make it worst, bigger.
always nice to replace inside DC a black golfer by a white lesbian saying on msm that putin is a 2nd hitler.
i'm very confident hilary is the key. in fact, not the key, but the trigger who result to decisions... leading to solve... some problems..here and there... around the world...i guess.
I don't think we'll last till 2016. We're sitting on a giant mountain of debt that sooner or later will have to be repaid and it will make very little difference where the default starts because the avalanche will be self sustaining very quickly and the knock-on effect will go global. Of course all the guilty parties will all claim that they didn't know it was going to happen but if we're lucky it'll take GS, JPM and the FED down with it.
Corporations and Banks are the government as they control it.
Corporations and Banks have been taken over by the M.B.A./H.R. eugenics crowd - you are only useful if you are a corporate drone.
Government has become the illusion of choice, representation, and liberty; which is why it is so expensive to maintain.
As de-industrialization took place it became necessary to unhinge from the Gold standard and gradually rescind post Depression reforms on banks and markets (Glass-Steagall, etc.) and get Women into the workforce to keep the consumptive debt ponzi churning.
The FED and Treasury Dept. robbing the public Treasury via levered debt, an un-payable debt - was the next logical step; along with endless wars of aggression which fed the Military Industrial Complex to defend the dollar status.
The debt and the dreams (read "the lies") are being transferred to future generations in the form of Student Debt, sub-prime auto loans, and HELOCS and reverse mortgages on Mom and Pop's home.
The three things Charles lists are true, but beyond that it is the decay of the society, the unraveling of the societal fabric of the rule-of-law and ethics and morality - that is the real house of cards.
Spot on. That which cannot be sustained, won't be. Hedge accordingly, because we are slipping into a modern "wild west" as the planet begins to experience what central planning gave the soviets back in the 80's-90's
Very difficult to do when all those "private" corporations depend on fat government contracts.
Then they're not really prvate corporations, are they? It is obvious to anyone paying attention to business in America that the government agencies are the only ones buying anything, as they are the only ones who have any money to spend. So getting back to my point about wealth creation, which you so not-so-subtly ignored, government contractiing does not produce wealth, does it? It merely transfers it from one group (taxpayers) to another (the rentier class).
Wake the fuck up.
Fuck you very much, douchebag. I was screaming about this shit 30 years ago, and no one fucking cared. So pretend I am standing next to you and stick your finger in your eye.
Charles, great document of the problems, but it would be nice to discuss realistic solutions.
not/wish list that will never happen. and please, just say it like it is, we are fuck beyond any non-violent solution!
because you are too smart to see it any other way. i do respect your research and intelligence on economics, but this is beyond economics. we are all parroting (the now) obvious, it is tyme for some tough love/hate solutions...
Agree. I might be all wrong, but is it hard to get new products into retail stores? Remember how Coke & Pepsi had control over the beverage distribution system? Isn't that the way it is...
- Monopolies and Oligopolies represent moats due to large amount of capital required to enter the market
- Brand names are very effective
- Real Cost to start a Factory is north of $2 Million when you look at taxes and all costs for first 4 years
- You compete directly with slave wages for products overseas, so in the USA it is better to attempt to produce a limited product line & package it yourself with no employees
- Labor Demand Crisis & overseas goods keeps profits and wages down for business owners as well
But craft beer Brewing has made huge entry into the beverage distribution system.
Question: Does an unemployed American have $2 Million USD in Credit to start a new product in a factory... or import a new product & package it here in the USA???
to your comment, china man or woman are coming here in droves with their china/connection and 10-20 million and running it to 40-80 million. language/connections no barrier...ps, sold my mcmansion to one in 08...
Thanks. I heard about some Cambodians in the 1990s... and looked around and saw pockets of foreign families that run certain stores... maybe liquor stores, convenient stores, laundries, restaurants.
The new economy can be okay if you share a house with many people... and use family members to work the business.
- SO maybe I'm just seeing something similar to the "old" the farm economy coming back in the USA, NOT Farms but ..... family businesses, with a sprinkle of indentured servants
- fix computers, Cell Phone Stores, recycle computers & cell phones?
A bit like that guy on youtube from Alaska who tought it was a good idea to get out of his truck to take a selfie with 2 bears that where sitting on the side of the road.
One does not get such opportunities often.
with real opportunity comes real risk unless you are in the "official" economy of course...
Real risk does not exist on the Street, at least the players think it doesn't....
Yes a once in a lifetime opportunity Lulz
lucky the bears weren't near border of a portugal cliff...
There's only one problem.
In the late '90's offshore drilling oil production was coming on strong and it looked like energy availablility wouldl continue to grow as the world's population grew.
The banks accordingly lent out like gangbusters, anticipating reasonable investment returns as the population grew and became Westernized. All of a sudden offshore oil drilling starts to peter out and the banks start trying to paper over their problem with derivatives, while waiting and praying for a "technological save"
Along comes "fracking" and "shale" ; problem is the return on costs is so low and the technology doesn't yield durable, long lasting outputs.
All of a sudden economies are contracting as all available energy resources are directed to supporting the core structures of the 20th century.
Nobody knows what to do next. The bankers and politiocs are all trying to figure who packed their 'chutes while the peons are screwed as infrastructure will blow out piece by piece as energy dwindles and bankers refuse to yield on the derivative shackles they hold over society.
I wanna see Yellen in Trainspotting 2. Love to see her chuck her shit at the wall.
SNAFU'D or just FUUUUUUUUuuuuuuuuuuuuuuuu'ed
lulz
Stimulating a "recovery"?? Think you got a misplaced 't' in there, C H-S. All they have done is simulate the recovery, it ain't real.
quotes around recovery implies that
Charles, it's all about the 'elites' buying everything themselves, they'll own the world and everything in it, not Banksters trying to figure out a way out of messes....that's nonsense.
Agree, this is a game and an opportunity like everything at GS, MS etc. How to goad ignorant politicians and bankers to create bubbles, fix bubbles by creating other bubbles. Sort of like the orangutan swinging from vine to vine, the game is to identify and make sure the next vine is there so you don't plummet to the ground.
If I had a Monopoly: I'd discourage job encouraging legislation and Treasury origination of loans for distribution systems or capital Expansion for small businesses... along with encouraging illegal immigration to keep Labor Supply High.
Sorry if that is incoherent.
I would Lobby to prevent new capital investment in the USA for new business owners, new small business expansion.
I would try to keep food & beverage distribution systems limited and under my monopolistic control.
Sure yeah, I'd want leverage for my network of bankers and myself. I'd want control over credit formation. I'd want government backing to socialize my loses.
The elites will have a problem if the world becomes worthless and history shows even the elites can be wiped out.
no arguement with charles today ... none whatsoever
I disagree with Charles, this has never been about banks chasing bubbles and trying to figure out how to fix broken things, at all.... it's about monetizing the debt and stocks and bonds so that the central banks own everything outright. I only wish they'd hurry up and get on with it and stop being such pussies.....just declare the 1 world central bank accountable to no one and be done with it already, pussies
nope. chasing bubbles it is.
advances in technology means greater productivity ... which SHOULD lead to a natural occurring DEFLATION. Blowing bubbles is (misguided) attempt to counter.
lowering interest rate and other financial games have allowed the UNcreditworthy (by old standards) to consume beyond their means.
growth by any means necessary (to ward off deflation)
Missed the real point by a mile.
no ... i didn't miss "real" point ... just yours
When this is over and done with, the economic world is going to look like Berlin on May 8th, 1945.
#&T$ET&#!!
or those metallic 3D puzzles... they never tell ya that those pieces are like razors and that you shouldn't let a 9 year old play with them...
http://www.tinydeal.com/3d-diy-sydney-opera-house-model-metallic-nano-pu...
Only 3 interlocking problems????
More like a 5,000 piece Jigsaw puzzle of interlocking problems.
They are all captured under this rubric: Locke's Law of Unintended, (and intended but not revealed) Consequences, otherwise known as Lorenz's Butterfly effect, with the difference being that the butterfly is not conscious of the havoc he has set in motion.
http://en.wikipedia.org/wiki/Butterfly_effect
can this train wreck over with so the creative destruction part happens?
Well, I agree with most of his big picture, but two things, first his "financialization" meme is way overdone, and second it's just not clear that the market needs to correct after all the banksters' shenanigans. It might correct *if* the shenanigans were unwound but that's the direction of causality. The only way it runs the other way, correction first and unwinding later, pretty much means collapse. The Fed doesn't like the sound of that, so we just truck on forward, but I don't see that it has any nearterm limits.
Now really, who ever said that? Nobody who meant it. The reason to deregulate US banks and remove Glass-Steagall was strictly so US banksters could meet the last basis point costs of Japanese and European banks. Guess that sounds pretty funny today but it was big news in 1980.
We have only three problems, theft, tyranny, and treason: Theft of our labor and product by the fraudulent-reserve Rothschild banksters supported, and backed up, by tyranny, and treason, of government.
An American, not US subject.
Nails it, but how many on this fucking planet actually work for their food and are honestly not dependent on some form of government largess....
tick tock motherfuckers.
kc.. plus 3 for concise 3! 3 T's, simple shit maynerd!
More should be said about Oligopolistic Behavior, Anti-Trust Legislation, and Money in Politics (And Gift Giving).
Plus Credit & Money can be considered a Utility.
Why do we need Banks, why let banks charge interest & fees, Banks do not add integrity to the system... If Banks can use off balance sheet transactions they are just "Gaming the System and adding corruption & Risk".
- If people can't create their own credit to take their own risks in business and in personal financing like education... then we are just slaves to "Elites" which are "Gaming"
"Nails it, but how many on this fucking planet actually work for their food and are honestly not dependent on some form of government largess...."
Thanks, however I must remind you that "government largess" begins and ends with government theft.
One of the goals of welfare is to divide us, and divert attention from their, the government's thefts, from us--"He, the welfare recipient, stole it, not us!"
"Kill the welfare recipient, and they'll make more. Kill the thieves, that fund welfare, no more welfare."
An American, not US subject.
Empires come and go. How they come about can vary, but how they die is always the same as people simply stop participating...
Same as it ever was...
get busy living or dying, just make a fucking choice already.
Everyone "Genius" that thinks they're trying to fix something is missing the idea behind a PRIVATE ENTERPRISE. The people that own the world (along with most people on this site) loath the masses. The only reason the oligarchy puts up with them is to do there bidding. I don't necessarily agree with them, however, we all know this is a finite world. The idea that everyone can live a consumptioned based life is impossible. The only way for population to increase is to have a cheap reusable energy source. Until then, the oligarchy will gather more of the resources at hand, and since they can still print and use fiat to do so, will do so. Every "crisis" will allow few and few people to own more of everything.
the only solution to our current problems --and i do mean current-----is to politically push through a set of laws allowing for RAPID AND MASSIVE BANKRUPTCY DISCHARGE AND NON-BANKRUPTCY DISCHARGE OF AS MUCH OF THE PUBLIC AND PRIVATE DEBTLOAD AS POSSIBLE.
for the treasury and fed, this would mean simply eliminating all intra-governmental debt. all of it.
for the government itself this would mean stiffing all sorts of pensionsers and vendor creditors. (treasuries held by the general public cannot be fucked with at all)
for the state governments and people --this would mean passing actiosn to eliminate state government penions, obligatoins of all sorts owed by consumers and borrwoers to one another and to their private and public creditors.
it would mean eliminating laws allowing for remainder debt after foreclosure, and expediting the foreclosure process.
it would mean actions on laws to shorten the period of time permitted for ALL action in favor of discharging and eliminating debts NOT FOR SETTLING THEM. settlements will be accelerated by the pressure of law/action upon the discharge framework.
radically increase the ability and benefits accrued to discharge debts, and the net result woudl be a HUGE incrase in the incentive to settle.
this is the ONLY REAL ANSWER.
this doesn't fix any long run problems with the credit bubble economic system we have, but it fixes the short term problems. TOO MUCH DEBT.
This proposal is drastic; but it definitely would work....PROVIDED THAT....extremely tight credit standards were put in polace and strictly enforced for several years thereafter, and the longer the better. This would have to include our Federal, state, and municipal governments.
It would give our economy a "reset". It would also realize that the world's largest debtor nation was/is a bankrupt. Property prices and wages would go down, as well as the cost of goods sold.
Don't expect the monied classes to hang around. the bulk of millionaires and almost all the billionaires will be moving out, at least officially.
The political upheaval that could follow would be extreme; and the outcome would be unpredictable.
But...we would all be debt-free! Would it be worth it is another matter.
you have zero clue what you are talking about. making rapid and easy bankrutpcy possible is how you get creditors to do their own homework.
RAISING INTEREST RATES is how you get savers to invest in treasuries instead of hairbrained mal-investment schemes like the fraud ipo stock market.
you don't need regulation or credit standards. look at the joke of the credit rating agencies. regulators get captured. you need strong discharge laws and structurally high interest rates on money so that the savers can make genuine risk free income on a governmetn that can PAY ITS BILLS without needing to print insane amounts of new money via the zirp treasury market..
Brilliant idea!! Totally rip off all the middle class savers even more. Give the government a clean slate so it can run up a whole lot more debt.
You obviously are well qualified for a job in the Fed or Treasury, maybe even in Congress.
you must be kidding. run up more debt? you do realize that if you raise the shit out of interest rates and STOP printing more money , which is what i suggested, you will have a massive tidal wave of NO ONE LENDING ANYTHING FOR A LONG LONG TIME UNTIL THE DEAD IS DISCHARGED. the point of that exercise is not to clear the forest to lend debt again in the super long run, the point is to rid america of the parasitic debt load it now endures to maintain the current virulent form of status quo infecting the nation.
encouragin people to BUY CASH means encouraging savings, and encouraging selling things for cash, rather than financing them.
the price of cars relative to incomes has gotten out of control in the usa because of financing. perhaps there are too many cars . and perhaps the car market needs to be 'reset'.
Btw :
Russia growth up to 1.1% in September from zerohttp://rt.com/business/199763-russia-gdp-september-growth/
There isn't enough talk about neoliberalism in this country and how ruinous it is.
Agree. Crony Capitalism is neoliberalism where insiders help their buddies with the help of the government who they ply with gifts & money... like a Banana Republic. And fits well with the Vulcans, the Neoconservatives.
Jeb is in for 2016, so I guess the CIA will back him along with the Neocons.
There are going to be winners & losers in the next decade. Those with friends on the inside and who have engineering skills and financial skills will be winners maybe.
An economy where Labor and the Middle Class is ignored... and where consumption falls... sounds like stagnation... Sounds like Spain or South America.
I suffer from Bulimia Cocaine Nervosa; Blowing my nose seconds after snorting a line.
The gubbermint suffers from similar wastage on a grander scale, obviously.
Saving and reinvesting = growth
Expending credit = debt
The levels of monetary heroin have reached behavioural toxicity for the economy, politics, Wall Street, Too-BIG-to-FAIL, and 'we the people'.
Sometimes junkies need to quit cold turkey in order to stay alive. The FED
needs to quit cold turkey or it will reach such a level of toxicity that it will
kill itself due to overdose and behavioural toxicity. Right now the FED has suppressed breathing [ZIRP no room to move up or down] and without
fresh air the FED will die from lack of breath. Moreover, the years of monetary heroin have created a dependency that is physical and psychological for markets, participants, and administrations. Monetary heroin addiction is fostering anhedonia throughout the World and this will lead to acting out on the part of the state and state actors. In brief, monetary heroin addiction will only lead to putting everything into hawk
at the pawn shop so that the junkies can score once again as they run back to the bowery to boot their junk. Furthermore, when the FED starts playing with 'Chinese Rocks' they will soon find themselves sucking 'Chinese cocks' just like the Heartbreakers and Dee Dee Ramone did on 53rd and 3rd in New York City. [See End of the Century]
Frankly, I don't thing the Americans want to see Janet Yellen hanging out on 53rd and 3rd looking for Chinese cocks to suck so she can get more 'Chinese Rocks' to inject at a cost to 'the street'. Let the junkies
in the FED die a junkies death before they drag you down to their level and you are facing death for living next door to a FED junkie. Tell the junkies that you will not support their next monetary heroin fix whatsoever. Perhaps the FED junkies will listen this time. One can always hope in the face of no hope IMHO.
The problem is our fallen nature and the depravity of man. We are hopelessly unable to "fix" our circumstance without the healing power of Christ.
That said they cannot stop printing because all the mal-investment of the last 6 years will come due. How many condos do we need anyway? Why does it cost so much for a college education? Who can afford medical insurance much less the actual cost of getting sick? Why is everyone trying to sell me insurance? Why is the 10 year rate less than 2% but my credit card rate significantly higher? Why does government cost so much? FIRE. Just as Mises predicted, destroy the currency or suffer a deflationary bomb when the mal-investment is liquidated. You pick 'em.
sschu
Growth though expanded credit to consumers, not expanded wages.
Growth through juiced assets values, not due to economic fundamentals driving markets higher.
Expanded money printing, instead of wealth creation through savings, via consuming less than one earns freeing that surplus for capital invetment in industry.
All the fundamentals of real economic growth have been trashed, and an economy of 1% 'ers is now the norm. The "wealth effect" of manipulated markets goes, mostly to the tiny minority holding the majority of assets.
Wages are driven down, this is seen as good for corporate profits. Saving is punished by ZIRP, this is seen as good as all money earned is spent. It is a sign of a communist economic system, only this brand of communism is the revolution of the 1% against the other 99%. The communism steals from the poor and middle and guarantees increased wealth at the top. A sort of "Ben Bernanke as the 1% 'ers Lenin".
Very true, and a big problem is this is creating the wrong kind of growth. Not all economic growth is created equal. If you spend money but afterwards have little to show for it, you have wasted it. Sadly much of the money America "invest it itself" each year through government spending and programs falls into this category.
Another problem is growth generated as a result of things like sub-prime auto loans. We need the right kind of economic growth, growth that is sustainable, with a purpose, well directed, and that has long lasting benefits. A great deal of our problems come from the poor quality of what we call growth. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/08/the-wrong-kind-of-growth.html
Jack, agree with 99% But the fixed income people are the poor or middle class. Seems to me more like US Fascism.
Besides, categories are blurred these days.
- communists are capitalists & Elitist (not just Elites being capitalists under secrecy, the whole countries are capitalist)
- Socialist use corporate wealth for PACs, foundations, and to get elected, plus they don't just fund welfare, they fund corporations and socialize the corporate loses
- Democrats take as much Corporate Money as the Republicans
- Democrats are now funding war, weapons, and authorizing suspension of individual rights and endorsing torture, drone strikes, and the NeoCon Agenda
- There is no difference in Washington between Democrats, Liberals, Conservatives, and Republicans in terms of Foreign Policy, and supporting the Neocon Agenda (a form of liberalism)
- I vote it is Fascism, but I can see how people say communism or socialism, there is no conservatives in Washington DC these days (or just 6 or so total)
After removing all the bad apples, except the really bad ones, we find the barrel still rotted and even more apples ruined.
Each time the rot gets harder to eradicate because of the increasing number of rotting apples..........
Are you allowed to post on this board if you are not paranoid? just wonderin..
Kinda sorta almost....how about the mathematical impossibility of the fractional reserve system when world debt saturation levels reach this point. So one of three problems is excessive greed.
Good article, my hat off to the author. Debt across the world is coming back to haunt economies everywhere. The euro-zone is in a far bigger mess than recent headlines and figures suggest. Most of the growth in the Euro-zone over recent years has been in Germany and that bright spot is now under pressure. Italy has been in recession for two years; France’s economy has been stagnant for months.
Now that Germany is in trouble, many economist think the chances of a Japan-style deflationary spiral have risen sharply. What it all boils down to is Germany can’t keep buying Greek bonds and other bad debt with German taxpayer money until the end of time. The article below looks at the corner Central banks have painted economies into by attempting to paper over reality and how these polices will hinders growth for as long as the eye can see.
http://brucewilds.blogspot.com/2014/10/global-economic-malaise-due-to-debt.html
CHS is accurate in what he says here, though I question the choice of 3 factors as it demotes some other important ones, things that he has talked about in the past and seem worthy of consideration (the end of easy oil, unsustainability of usury, excessive individualism destroying even families, globalisation, regulatory capture & corrupt courts, terrible ROI on military actions, etc).
Neoliberal banksterism is my #1 (also mentioned in CHS #1) and one of the biggest components of that is unfettered access to global labor markets. This destroys domestic jobs and incomes as cheaper foreign labor is used. (CHS does link to an earlier discussion of this as a side note but I'd definitely promote it as a top 3 factor).
Corporations love foreign labor because less money spent on wages means higher profits and more ammunition for taking down competitors that are slow to make the move. It gets sold to consumers as a positive because lower wage costs mean a flow through to lower prices, a win / win.
Only it's not a win / win because median incomes end up falling faster than prices. Even "cheap" prices due to foreign labor are expensive if you lose your job to foreign labor. So the middle class has been ruined by a loss of affordability as incomes decline relative to prices, an effect that is indistinguishable from inflation but does not show up in official measures of inflation.
Real median incomes in the USA have hit levels last seen after the recession of the early 1990's but are real prices at the same level? No. Thanks for nothing neoliberal globalisation. The result has been stealth US inflation.
http://research.stlouisfed.org/fred2/series/MEHOINUSA672N
There's nothing wrong with protectionist policy that results in higher prices (domestically produced goods and services) if wages are also high. It's all about the relative levels of the two (aka affordability). Just visit Switzerland to see what I mean. But if you dare criticise the sacred cow of "free trade" you'll be flamed away. So dominant are the neolibs that they even negotiate the TPP in total secrecy, despite it overriding national sovereignty.
http://en.wikipedia.org/wiki/Trans-Pacific_Partnership#Negotiation_secrecy
Furthermore, the loss of jobs to foreign labor pools also means a loss of training / skills / knowledge to those pools and that translates into a loss of innovation potential. These are large, indirect costs (externalities) to the losing nation that are never accounted for.
Finally, I know many ZHers have a liking for Austrian School economics (I do NOT), but just take a look at who it was that gave birth to neoliberalism:
http://en.wikipedia.org/wiki/Neoliberalism#Early_history
Good post. Financialisation of the economy is the issue. Layer upon layer of claims on future production (wealth) that is not going to take place.
As far as TPP, it is getting done under the cover of darkness in Australia. While all everyone talks about is housing. Funny how the RBA came out today blaming students for rise in inner Sydney prices.
http://www.smh.com.au/business/the-economy/students-driving-up-inner-city-property-prices-rba-20141028-11cqns.html
It will be pretty funny when university fees get deregulated and no one will be able to afford higher education, let alone inner city rents. Prices will flatline, they say. I say in a market based on in capital gains, prices will either go up, or down.
That article you linked to actually made me laugh for real. The interview at the start:
Q: "And as someone who owns an investment property, have you been enjoying the price growth lately?"
A: "[big smile]Oh, c'mon, absolutely, it's enabled me to borrow against that to look at investing in London, so yeah it's a good er, I mean if someone can do it I highly recommend it."
Yeah, because we all know that the epic real estate bubbles in Sydney and London are just going to stay inflated forever and housing is a really liquid asset that's easy to dispose of in a deflationary slump and doesn't cost anything in maintenance and transaction costs. Yep.
---
"Demand for student rental accommodation was driving up the premium for inner-city property in Sydney, but housing affordability in Australia generally was manageable, says the head of financial stability at the Reserve Bank of Australia."
Hilarious! Back when I was a student it was the opposite. Cramming 6 low-income students into a crappy rental property, regularly trashed by huge parties and always late to pay the rent because everyone was broke. Students were blamed for blighting the areas around campus and lowering prices but everybody knew that's just the way students are. Like hell any student could afford to buy a house.
More like wealthy Chinese are desperate to shift wealth out of China by any channel available to avoid Chinese regulations, so they send their families out to Australia (and the kids to Oz universities) and buy up as much real estate as possible (at any price) through the channels their "student" kids legally provide. That's the only channel through which students can be affording to push up prices.
There's the primary driver behind deregulating university fees too. The universities have seen the impact of wealth fleeing from China on Oz house prices and they want a slice of the pie with higher uni fees. Universities just love the full fee paying foreign students, even if it means turning a blind eye to abysmal academic performance, something that every lecturer knows but few will admit to ($s for grades). Forget education of the brightest students for optimal long-term economic return (meritocratic), nah, it's all about the $$$fees.
---
"The current low-interest, low-inflation, high-savings rate environment meant servicing mortgages today was no more onerous than 10 years ago", she said. "The affordability of a current mortgage is not unusually high," said Ms Ellis.
High-savings? HAH! In other words, high debt because debt is money in this system (every $ in savings is matched by > 1$ in debt (due to addition of interest)), so who has the savings and who has the debt is what really matters here with high savings in the hands of a few and huge debt dispersed into the hands of many being a death knell for an economy.
Then she's rolling out the mortgage affordability bollocks again completely ignoring that big principal at small interest is very different from small principal at big interest. Yes, the interest payments may be the same but she needs to consider which way rates are likely to move and the impact of it. A high rate on a small debt is low risk (the rate is likely to fall). A historically low rate on unprecedented (large) debt is an atomic bomb waiting to blow up.
It's telling that the dialogue on affordability has shifted to ability to make minimum interest payments rather than ability to pay the principal down.