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The Global Test Most Will Fail: Surviving The Bust That Inevitably Follows A Boom
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Now that virtually every nation is entering the bust phase, all are being tested.
Booms powered by credit, new markets and speculation are followed by busts as night follows day. This creates a very difficult test for every nation-state facing the inevitable bust: how does the leadership deal with the end of the boom?
As the world is about to learn once again, the "fix" may make the next bust even more destructive.
Let's start by reviewing what conditions generate booms.
1. An undeveloped nation gains access to new credit, markets and resources and go through a "boost phase" much like a rocket lifting off when suddenly abundant finance capital ignites the country's latent growth potential. When a country with little to no public or private debt suddenly gains access to essentially unlimited capital, growth explodes.
One variant of this is the discovery of vast new resources that quickly attract capital (for example, oil) or that generate new wealth (for example, gold).
The modern example of a developing nation gaining access to new credit, markets and resources is of course China, but this model also describes America in the 1790s and early 1800s, and many other nations in various phases of their development.
2. A new sector opens up in a developed nation's economy. A recent example is the Internet, which exploded in a boost phase from 1995 to 2000. In these cases, the new sector simply didn't exist, and the boost phase is as spectacular as the ones in newly developing economies.
Example from American history include the railroad-fueled boom of the 1870s and 1880s and the advent of electric light and later, radio.
3. A previously "safe" sector is financialized as the assets are collateralized into vast mountains of debt and leverage, both of which fuel runaway speculation.
The mortgage-backed-securities and subprime-fueled housing boom of 2002-2008 is a recent example of this: a safe, conservative sector (mortgages and housing) was rapidly financialized into a speculative frenzy.
Eventually this boost phase burns thru all the productive investments and moves into mal-investment, rampant speculation and outright fraud as insiders take advantage of new entrants. In the U.S., this occurred in the early 1890s once the construction of railroads had moved to the over-indebted, speculative mal-investment phase.
The same post-boost phase bust occurred in 2000 after the dot-com frenzy had run its course.
The difference between the three booms is that busts that are limited to one sector are easier to manage than busts in the entire economy. The problem with the subprime housing bust was that it wasn't limited to housing or mortgages--the speculative boost phase had infected the entire financial system.
When entire economies enter the bust phase, the nation's political, social and economic foundations are tested. If they aren't rock-solid, the country enters a crisis that is often marked by war, economic collapse and political destabilization.
The political and financial leadership that won plaudits during the boost phase for wise management is loathe to accept the bust phase as necessary medicine for over-indebtedness, speculation and mal-investment. Instead, the leadership attempts a series of hastily assembled financialization "fixes" aimed at returning the economy to the boost phase of rapid growth: fiscal and monetary stimulus, lowering interest rates, etc.
These have the same effect as tossing gasoline on a fire. Debt, leverage and speculation are ignited, but since the productive investments have long been made, all that's left is unproductive mal-investment and speculative bets.
Exhibit A is the global economy's soaring debt, with China's vast expansion since 2007 as the prime example of "fixing" Degrowth with vast mountains of new debt that flow mostly into speculative wormholes and mal-investments such as empty malls, airports, sports facilities and cities.
Now that virtually every nation is entering the bust phase, all are being tested. So far, virtually all are in denial and still trying to 'solve" the Degrowth/speculative bust reality with the same old financialization tools.
That these will fail is as predictable as night following day.
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I beg to differ, the world economy has been in a bust since 2001, a bust masked by excessive borrowing, primarily by Fed money printing and the creation of derivatives by Wall Street.
Charles still can't believe how wrong he's been on timing.
It'll be a while before he can brag that he was 4 years too early
This just in from the crack up boom and money chopper department:
http://yle.fi/uutiset/kela_to_prepare_basic_income_proposal/8422295
Here's to all those future 800 zooro sneaker pimps.
Replacing all the 70 or so Federal poverty programs with a simple basic cash income for all is not such a bad idea. It would save billions in administrative costs. It would give prudent, creative people the freedom to experiment without risking homeless and starvation. It would also give lazy, dissolute people the means to drug themselves into oblivion, solving our dependency problem one overdose at a time.
Prudent and creative to the point of having multiple false identities?
My freedom to experiment will require a small capex outlay and health entertainment budget.
For Finland, it might work. For areas with mouth breathers who cant plan beyond the next banana they shove in their mouth, the policy would result in a lot of starving people wearing gold colored Jordans.
Which is of course why my idea won't happen -- basic income would just become the 71st Federal anti-poverty program, and far from the last.
What those mouth-breathers really need is a master to keep them fed, clothed, working, and out of trouble. They must be slaves not a faceless government bureaucracy, but to an actual human being who meets them on a regular basis.
My half-brother is exactly that sort of mouth-breather, and he's white. Fortunately, he's also gay, and he's spent the last 25 years with an older man who keeps his life from spiraling back into total chaos.
Some folks benefit from the rigor of military service, some want to be harmless scientists driving Subaru, and many, far too many, think they'll be a Kardashian, if they just eat enough Haagen-Daz.
I'm frankly surprised they're letting them have fiat instead of keeping it digital and within the system like EBT, but maybe the man's under the table industries have been suffering for lack of fiatz.
Information we know, with no advice. Great.
Australia's household debt is impressive. It's no wonder they're in store for some serious pain given the deepening global depression we're in.
Canada is pretty high also, eh.
Am too lazy to check - but it is probably mortgages (record house prices) and credit cards.
I have wondered if maybe this will turn out to be a good thing?
As our commodity exports die, our export balance of trade number goes bad - BUT given that we don't really make anything here (Aust) anymore - with high household debt / falling discretionary income - eventually imports are going to fall dramatically too...
I see the crash (worst case) ending in a world war, as desperate superpowers grab for resources and try to shed excess populations. A messy end to a lot of folks. As in "We nuked some folks, but WTF, now they don't have to feed them".
What I see is another 9/11 staged event (x 1000 or more in magnitude) used to mask the collapse. In the ensuing chaos, it will be difficult to pin blame on anyone. "Well who could have predicted _____ [fill in the blank]?"
So you're saying what goes up must come down, eh?
Now all this debt - to whom is it owed, because it ain't gonna be https://www.youtube.com/watch?v=E7t8eoA_1jQ
Let's start by reviewing what conditions generate booms:
1. Crooked Banksters
2. Crooked politicians
3. Crooked lawyers
4. Crooked Corpoations
5. Unlimited amounts of freshly printed fiat.
6. Suppressed prices of gold & silver.
7. Unlimited stock buybacks.
8. No rule of law.
9. No rules period.
10. 299 million sheep slumbering away peacefully.
They'll try every trick in the book: NIRP, helicopter money, banning cash, bank holidays, capital controls, price controls, nationalization of industries, trade wars, shooting wars.
In other words, anything except allowing the painful but necessary correction: debt write-offs, bankruptcies, prosecution of white collar crimes, massive cuts in government spending, an end to the empire, ending central banking, and a return to sound money.
Sadly, those bread and circus revival tricks will work quite well on a large enough portion of the population to masq their insanity for who knows how much longer.
I fear you're quite right with a "Tonkin a day" resonating for irrational action on the part of the jingoistic masses.
"Let's start by reviewing what conditions generate booms."
Ill-advised government backstops of essential markets.
US .gov has got the biggest military in the world gassed up and ready to rock'n'roll. On the homefront, they've embedded 1000s of armored 'RESCUE' vehicles, SWAT teams, and militarized thugcops in every mid-sized town or city. They've got mercs on the payroll who are used to 'search'n'destroy' missions on at least 3 continents. And they've got their emergency piggy bank worth $80 trillion (US citizens currently count this sum as their personal assets). What do you think US .gov is worried about?!?
China dumping treasuries, losing world dollar hegemony, Syria, Ukraine, Iraq, Ferguson, and it's time for the election circus so operators will be standing by.
Not everybody agrees with this thesis. Here is a different view from MSM :
http://www.theguardian.com/world/2015/nov/01/barack-obama-right-europe-w...
http://www.wsj.com/articles/u-s-bond-market-takes-flight-an-upbeat-sign-...
Corporate bonds market up.
Selling paper to buyback stocks may look like a boom, but it still seems like someone trying to hand me a funny-smelling bag.