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Who Benefits When Bubbles Burst?
Submitted by Charles Hugh Smith from Of Two Minds
Who Benefits When Bubbles Burst?
Blowing speculative bubbles cannot possibly lead to organic growth because speculative bubbles fatally undermine the real economy.
An astute reader recently posed an insightful question: we all know who benefits from asset bubbles in stocks, bonds and real estate--owners of assets, banks, the government (all those luscious capital gains and rising property taxes), pension funds, brokers and so on. But who benefits from the inevitable collapse of these asset bubbles?
If asset bubbles end badly for virtually every participant, then why does the system go to extremes to inflate them? This is an excellent question, as it goes right to the heart of our dysfunctional Status Quo.
Broadly speaking, there are three possible answers:
- The system has no choice left but to blow serial bubbles.
- Bubbles are domestic opportunities for Shock Doctrine-type crises that enable further consolidation of power.
- Those in charge of the Status Quo believe the fantasy that the next bubble will usher in the long-awaited return to organic growth, i.e. expansion that isn't dependent on central bank stimulus, enormous fiscal deficit spending, ginned-up statistics, etc.
Let's consider each possible answer more closely.
1. The system has no choice left but to blow serial bubbles. The financial/fiscal Powers That Be have reluctantly accepted that the era of organic expansion driven by rising public/private debt is over for structural reasons, but they have no alternative to maintaining the current power arrangement (i.e. vested interests operate the system to their own benefit) other than serial bubbles.
In other words, it's not that the vested interests benefit so much from the collapse of the bubble-du-jour; blowing speculative bubbles is the only tool left for maintaining the illusion that the current arrangement is permanent and sustainable.
In this scenario, the Status Quo has no Plan B should the next speculative bubble fail to inflate.
2. Bubbles are domestic opportunities for Shock Doctrine-type crises that enable further consolidation of power. Naomi Klein's landmark study of how manufactured crises are used to justify further consolidation of power in the hands of the few, The Shock Doctrine: The Rise of Disaster Capitalism, provides a blueprint for how the easily predictable crises of financial bubbles popping can be used to extend the power of central and private banks and various government agencies.
In this scenario, the state (government) and the vested interests that control the state are largely immune to the losses generated by the deflation of speculative bubbles, thanks to the state's ability to borrow essentially unlimited sums of money to cover the losses incurred by private speculators.
Profits are privatized, losses are socialized. Banks and other financier speculators reap outsized gains during the bubble's inflation, and the state covers their losses when the bubble pops.
The central banks are able to extend their already vast powers with ease during the financial crisis of a bubble popping, and this expansion of financial power is symptomatic of the general dominance of financialization over the economy's productive assets.
The problem with this scenario is there are limits on the system's ability to inflate speculative bubbles. Eventually the economy is so hollowed out by debt and speculative excess that bubbles can no longer be inflated. The end result is power has been fully consolidated in the hands of a few, who are then responsible for fixing the post-bubble economy they created to further their own power and wealth.
Post-bubble economies cannot be fixed if the current power structure remains intact, so the Powers That Be face an impossible task.
3. Those in charge of the Status Quo believe the fantasy that the next bubble will usher in the long-awaited return to organic growth. As absurd as this may seem, I don't think we should discount the naivete, real-world inexperience and credulity of those in power--not just in the state, but in think-tanks, academia and central banks.
Keep in mind that these organizations ruthlessly select out dissenters and those with real-world experience. Those who question the Status Quo arrangement in academia, think-tanks, state agencies, central banks, etc., are weeded out: passed over for advancement, sent to Siberia, marginalized or fired. Those left in charge have little real-world experience outside the cloistered halls of power, and little willingness to risk their own rise to power by questioning the Keynesian Cargo Cult's serial bubble-blowing as the magic that will spark organic growth.
This quasi-religious faith cannot be questioned, for the simple reason there is no Plan B. There is no official policy alternative to the Keynesian Cargo Cult's serial bubble-blowing, because any alternative would necessarily disrupt the existing power structure.
It doesn't really matter which answer we choose; blowing speculative bubbles cannot possibly lead to organic growth because speculative bubbles fatally undermine the real economy.
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the answer is the thieves. bubbles are
created for the audience of thieves who
seed the bubble enterprise and then sit
back to watch the "pop", pop. it is
all related to the dominance of the speculative
money architecture structure, system and designated
function and places of participants. it replaced
outright ownership of people, slavery, and
coined the term "debt peonage".
i think we talked and posted about this before,
over the last 5 years, no?
Citizen scientists, post your data!
Massive Radiation found in Atmosphere
Very interesting findings on my last airplane flight. It was during the day, so good lighting, and no adjacent passengers, so I could do plenty of Geiger testing without getting anyone upset.
I have video and pictures are will place these into a post at Nukepro when I can
There was considerable radiation differences in different areas on the flight path, and at the same cruising altitude. Basically 11 CPS to 15 CPS. CLICKS PER SECOND! not per minute, per second!
The upper atmosphere is FULL of radiation. Much more so than 20 years ago. Cosmic radiation is various stuff, and what you will pick up on an Inspector Geiger will be gamma. There is no beta radiation in Cosmic.
http://nukeprofessional.blogspot.com/2014/11/massive-radiation-found-in-...
http://www.solarstorms.org/FAAAirlines.html
"...Air travelers are exposed to cosmic radiation levels that are higher than the cosmic plus terrestrial radiation levels normally encountered on the ground. In the contiguous United States at ground level the average dose equivalent rate from cosmic plus terrestrial radiation is 0.06 microsievert (0.006 millirem) per hour (NCRP 1987b). At an altitude of 35,000 feet, for example, the dose equivalent rate from cosmic rays is about 6 microsieverts (0.6 millirem) per hour (O'Brien 1978, as revised)...."
That is a 100x increase in radiation at 35K feet, compared to ground level.
Sorry that radiation level in normal at typical aircraft crusing altitude. You clearly are not much of a "nuke professional". If you were you would also understand the concept of average and variance, along with a "time constant" for dynamical systems.
Bubbles are financial violence and warfare waged against working class by the moneyed class. Framing the violence in the language of so-called "market" in which the moneyed leisure class can murder, plunder and gang rape everyone else financially makes the entire class free from legal punishment so that they can keep committing murderous financial atrocities forever. If you go back and revisit the dawn of the Great French Revolution, you can see many similarities of social ills through even many dissimilarities. In other words, this can be the dawn of the begining of a brand-new epoch.
Let me quote Paul Virilio:
We are living in an epoch which is as important as the transition from the Middle Ages to Renaissance. This means that everything which used to serve to form a view, the entire public view of the past is presently being hollowed out, depleted. And a new public view has not yet been created. The view has burst like a glass. One is not sure anymore of what one sees. Therefore, also the doubt in the aesthetic of seeing. Aesthetics can only develop if there is a more or less common view of the world. At present this is, however, not the case. Our seeing is done separately, individually. An aesthetic of seeing does not exist in reality. Here we are faced with a basic change, a mutation of life. We are in the process of changing the world.
— Paul Virilio, French Philosopher, 1991
You people don't get it at all. Monetary heroin is too tough a habit
to shake, and the poor addicted souls on Wall Street are the real victims of the War on Drugs. How can they possibly be expected not to blow bubbles when bubble blowing nets them the highest quality monetary heroin money can buy? Zero per cent interest rates and free money nets more hookers n' cocaine than you can shake a stick at. Why in God's name would any self respecting Wall Street money whore want to give that up for a bunch of whiners that want to work, or buy a new car, or house? The Wall Street maxim is 'kill or be killed' and as soon as that old adage comes to fruition, all the whiners come out of the woodwork en masse to complain. Frankly, if you could get free money at zero per cent interest you would be screaming at the top of your lungs for MOAR just like the Wall Street money whores are presently doing.
It's really not their fault because the monetary heroin dealers live on the same block and everyone goes to the same parties every week
without fail. The problem is the environment that all these poor souls had to grow up in. They are all victims just like the 99% are.
Where is the sympathy for the Devil? Are you people heartless or what?
<sarc off>
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Russians benefit when their surreal world of $100 oil bursts.
Ordinary Russians must be loving the cheap gas.
Here's a toast to the Russians!
There is a reasons CB's are now net acquirers of Gold......
Smith is a smart guy, I like his work, BUT in this case he wrote:
"Profits are privatized, losses are socialized."
hmmmm, the marginal income tax rate is 42%, and 60% of government spending (and correspondingly the government debt), is for entitlement programs, ie vote-buying programs and socialism,
Therefore
Profits are ALSO socialized = An irrefutable undeniable FACT.
The derivatives market gains from the collapse of bubbles. This is "disaster capitalism" at work.
Is this a trick question? Is a cigar going to explode in my face?
The answer is some of the investor/speculators who benefited financially when the bubble expanded.
Not all of them. The majority of them were happy to catch the bubble at the price 'X', and were happy to take a profit at 3, 4, 5 times 'X'. They may have ridden the bubble only 1/2 or 3/4 of the way to its max.
But those who manufactured the bubble's inflation are usually the ones who benefited the most by its collapse.
Case in point was the brief oil bubble from under $100 in late 2007 to July 2008. For 7 months the financial media trumpeted their belief and the macro rumor that oil was going over $150 a barrel. It traded for almost two weeks in the $140's, hitting a high of $147, before it turned south and bottomed at $34 a barrel.
The rumor mongers rode it up to $147 where they shorted it all the way down to $34. It probably would have gone lower except some nervous nellies started covering their shorts to beat out the others.
The answers are: #2 primarily; and "those with inside knowledge on the way up and down" (the banksters and their favorite predator allies).