The Nature of Capitalism (October 16, 2008)
When is "bad news" positive? When it enables us to re-orient our understanding to the proper contexts so we can make informed decisions. The worst thing a doctor can do to a critically ill person is gloss over their condition and offer false reassurances. We need to know the realities to make the decisions which will affect our very survival.
As a followup to Zeus Y.'s analysis of our financial system's legerdemain, frequent contributor Harun I. offers this contextual framework for capitalism (markets only allowed to go up variety), globalization, the loss of purchasing power and what he terms the "exponential expansion of debt" which has acted as the worm-ridden foundation of this decade's bogus "prosperity."
Here is a snapshot of a market which appears to only go up:
Bush: bank buyout needed 'to preserve free market'Thank you, Harun. With the loss of purchasing power in mind, I leave you with a chart of the Dow Jones Industrial Average and gold which charts how many ounces of gold were required to buy a "share" of the DJIA. Note that at Bear Market bottoms, the ratio is about one-to-one: one ounce of gold will buy one share of the DJIA. For instance, if the DJIA is 3,000, then gold is $3,000/ounce.
(all essays by Zeus Yiamouyiannis, Ph.D., copyright 2008)
Part I: A 70 Trillion Dollar Counterfeiting Ring
According to several sources the market for so-called "credit default swaps" last year alone was nearly equal to the total global GDP, around 70 trillion dollars by some estimates. Yet these derivatives have no discernible "origin" or value.
Part II: How the Credit Default Swap Scam Works
(Zeus Y., October 13, 2008)
Instead of asking the obvious, complex, and obscuring question, "What value DO they have?”, one should ask the elegant and simple question, "What value COULD they have?" Even a cursory examination would seem to indicate that the answer is either zero or less-than-zero.
Part III: Credit Default Swaps Create Less-Than-Zero Value
(Zeus Y., October 13, 2008)
Now, how can a supposed "asset" like credit default swaps have a “less-than-zero” (negative) value. First, credit default swaps were insuring debt. Debt is not an asset as I explained in previous essays, but a liability. Mistake number one was to confuse asset and liability.
Part IV: There Is Ultimately No Gaming the System: When the Micro Crash Reflects the Macro Crash
(Zeus Y., September 29, 2008)
The proposed 700 billion dollar bailout cannot really “work” from a system level. I know it’s real intention is to cover the butts of Wall Street investors, but you have the same problem in macro that homeowners have in micro. Nobody knows what homes are worth right now, so buyers are sitting it out. It isn’t about restricted credit (even though that is a factor). It isn’t about being too cash strapped to make a down payment (though that too is a factor). It’s about not wanting to be suckered into buying something that may still be overpriced.
And for your listening pleasure/amusement: Patriot Express (in disguise) sings Sarah Palin, Queen of the Red party. The lyrics helpfully pop up for your reading pleasure.
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
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