Financial unraveling, coming Depression, new Haiku and more
(week of November 9, 2007)
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After reading today's post I am somewhat dismayed that some of your readers feel you are too gloomy. You have presented the facts and have pointed out the possible and probable outcomes derived from the facts. Instead of critically analyzing your argument and deciding whether to accept it, they want you engage in hope mongering on the Titanic. What would be immensely more purposeful is planning in case you’re right.
Engaging in the distraction of hope and unfounded optimism rather than a sober and thoughtful analysis of history is what got us into the situation we are currently facing in Iraq. Not only did they feed the hype that we would be greeted as “heroes” they bought into it themselves and failed to plan for any other possible outcome.
What is the answer to the global financial distortions we currently face? In the long sad history of financial disasters from Spain, France, Britain, China, Japan and the US, none has been successful in averting the crisis or fixing it mid-stream. In fact the efforts to “fix it” have always made things worse — and now it is a global problem.
In a species whose primary specialization is thinking we do well some of the time but when it comes to financial matters most fail to think, or think about all the wrong things -- we definitely don’t “learn” from past mistakes. Why any intelligent person ever gushed over Greenspan’s simplistic “just throw money at it” economic policies perplexes me. The choices in culling out economic excesses are rather small and none of them pleasant. One can either let market wipe out the excesses swiftly and brutally, or paper over the situation to delay the day of reckoning. Implicitly we prefer the latter because empirically that is what happens. We empower politicians to torture us and they oblige to hold on to power.
If you look at the Dow charts dating back to the early 1900’s booms and busts were frequent and short-lived, then we decided to “manage” the economy. The result, whether people like it or not, has been a trade off of swift and severe corrections that end quickly for decades long periods of economic malaise — ah, the exquisite pain.
If you look at the Dow chart in its entirety, from a market technician’s standpoint the Dow did exactly what it should do, i.e., it put in a long solid base and broke out into a long rise. What perplexes me, and once again calls into question the value of funni-mentals, is that during the times we actually were an economic powerhouse (produced stuff), growth was stable and the Dow rose in a sustainable fashion. As we come to the era of producing nothing but financial trickery and debt the Dow has progressively become more parabolic. Thoughtfully examining this truth in the context of history doesn’t invite optimism for the overall economic picture. Sure, as a trader I can prosper whether the market goes up or down but not everyone can trade.
BTW, what is happening today doesn’t just go back five years, it goes back to the 1970’s. We’ve been papering over the loss of economic might for a long time via the expansion of debt leading to serial asset bubble blowing, and globalization/illegal immigration forced normalization of wages. The day of reckoning can be postponed but it cannot be avoided indefinitely.
Keep the truth rolling; it may not set us free but at least we will retain our intellectual integrity which is just one of many subsets of integrity lacking in the FMSM.
I enjoy reading your blog - and you make many good points regarding the state of our economy. But, in your commentary "Empire of Debt I: The Great Unraveling Begins", you fail to take into account that governments around the world can "lend" these financial institutions whatever amount is needed to keep them afloat. As for these institutions paying back these loans, who says they ever will ?
I have been reading more and more discouraging articles about a meltdown of the economy, the next great depression, financial Armageddon, etc. So what if there is another depression ? I wasn't around for the one in the 1920s but, from what I understand, most people still worked, feed their families, and kept a roof over their heads. Times were tough, very tough for many, but they survived and eventually times got better.
If we enter another economic depression, which I hope we don't, I have no doubt that it will be difficult for many. But we will survive. And maybe these type of events are necessary every few generations, if only to clean out the system.
I returned (from vacation) to the grim news from Merrill
Stench , CITI , & other Wall Street firms , esp some Hedgies . Much
of what has been warned on your OTM Blog , has come to pass !!
The SubSlime Stench ; UNraveling of Hedgies ( unregulated , ALL, by
the way --- who will insure them ?? ) ; Wall Street & Main Street
shall very soon learn that ..... Credit & Debt are NOT same as CASH$$ !!
( OR, for that matter , a Bank 's ASSETS) ; The National housing
Crash Deepens , Foreclosures soaring ~ 100 % Yr / Yr etc ; AND ,
US Consumers (seemingly) still have NOT seen the Light ?? Inflation
is ( seems to me ) out of control , US Dollar into Freefall , Crude oil
metals & most commods are " Going Vertical " , & US economy is
slowing rapidly ( judge by car sales promos !! ) .
Given the sorry state of the US economy & global political problems ,
I send you the following Haiku (s) (A) a prior , & (B) is NEW :
A) House of Cards, Quaking
Foundations Cracked, & Sinking
Three Black Swans, circle
(NOTE: This was a prior Haiku ---- maybe the Three Black Swans are:
Housing Depression ; Collapse of the US Dollar ; Debts/ Hedge
Asset IMplosion ( and with those, goes the US Stock MKT );
B) The CHINA Syndrome
CHERNOBYL Credit Melt Down
CAN CITI SURVIVE ?????????
I as do you, Charles, sense that there is " SOMETHING " in the
American economic & global village, which portends a " Major Cataclysm "
about to unfold.
I think your columns are great as usual. I have tried to write about this a number of times, but what ends up on paper doesn't seem to explain what I am thinking.
Every time I leave a store with a cart full of groceries, I kind of giggle. The fact that I was able to get a cart full of groceries and give some dirty grey green paper always amazes me. I know that at the bottom of this is just faith. Why would any one lend any thing to the U.S. or California for that matter and receive a bond due in thirty years.
The only thing that backs up the paper is faith.
If the Dollar goes in the toilet it's going to be like Rome. It will be generations before things stabilize again. I think a few generations of war and plagues will get rid of the dead wood and renew the human spirit. I hope I get to hang around long enough to see the end start.
Life won't be that interesting unfortunately, so I guess it's time for the dollar to go up. What form will it take who knows, but I read dollar bulls are down to about 8 per cent. May be Europe will finally start breaking up. Italy or Germany or France pulling out would do it. Maybe the Chinese will split up into War Lord societies, India is really a bunch of independent states held together by organized crime.
Because of the geographic isolation of the U.S. and the food growing capability I see America as the major default place.
Once things start to go a little bit bad the wars will start or maybe that’s what's happening now. It's easy to kill people, actually that is the foundation for our nation, 25-50 million dead Indians.
So, some thing has to happen to save the dollar, I would like to see the oil exporters eat oil and drink sand.
Well pleasant thoughts, and where the hell are we going to go.
Good thoughts on Google advertising. As you know, I have Gmail and I never look at the
ads much less click on any of them. In fact until reading your article I had forgotten
that they were even there. When I just now checked my email, I looked to see what kind
of junk showed up. Unless nonsense, that's what. I am very anti-advertising, even though
one of my degrees is in marketing. I have not watched tv in years and no longer listen
to radio, part of that is because I hate being bombarded with stupid advertising. NPR is
not too bad, since for the most part they only list the sponsors name.
I question how well any advertising works. It would be money down the drain if everyone
felt the way I do. I purposely avoid businesses and products that have advertising that
annoy me. I wonder what part of our GDP is from the billions spent trying to get people
to buy products or services that they either can't afford or don't need.
I know your busy but I seem to be on a roll.
Let us review: The U.S. is the number three oil producer in the world, if we included Canada and Mexico, North A. would be way over the top the top producer.
The great Euro, how much oil do they produce? Nada, not much, nothing. How about Japan, they produce less then the Euro.
I think some people will be cold this winter.
It's to much fun to bash the great Satan to think straight.
* * *
I read your great piece on The Unraveling again. I could be easily persuaded that this could be the beginning of the end for our complex civilization. Our local, national and world systems for the distribution of food, water, raw materials, energy etc. could already be in the process of unraveling.
I surf the net looking for things changing at the margin. It is clear that modern civilization is ending for the 2-3 billion third Worlders. Africa, India, China, every country has people slipping below the line.
It took a thousand years to build up these systems, if some thing happens and the system stops it will be a long time before it starts again.
My favorite example is a beautiful home in the North East, I pick New York, it was heated and maintained for thirty years, then one February the gas or oil ran out, the house froze, the pipes burst, the house is ruined. One night and the house is ruined.
I could be wrong. If I had the storage space I would go out right now and buy a ton of rice and beans.
I continue to be struck in our money, political and social cultures at
the disconnect between manufactured reality and the little fat guy
behind the curtain. It's very deep, very neurotic. I think maybe only
economic hard times will wake us up and pull us together into a reality
based community that sees the necessity of helping one another. On the
other hand, it may push us into something very ugly if fear wins the
Meanwhile, my neighbors and friends think me nuts for building (no-no
in the city, it's a "tool shed") a composting outhouse in my back yard
and I'm planting a dozen apple trees soon, have built a composting
system and will soon be filtering/ drinking water from my rain barrel!
Thank you, readers, for such thoughtful contributions.
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