Wednesday, April 15, 2009

Why this Crisis May be Worse than the Great Depression

by Len Hart, The Existentialist Cowboy

About one percent of the nation owning more than about 90 percent of the rest of us combined not only foresaw the impending crash but planned to benefit from it. GOP types have traditionally gotten rich by playing 'last man out loses'! A race to be first to 'get out' has triggered many a panic creating bargains to be picked up, fortunes to be made on the inevitable upside. The big difference now is that --this time --there may not be an upside.

The sheer size of this crisis is worrisome. During the Great Depression, the US still had viable industries that had not yet been exported to China by way of the Bushes and Wal-Mart. The US manufactured automobiles, refrigerators, radios and, later, televisions sets. The steel industry created Pittsburgh. Autos made Detroit. America's work and labor were the sources of its wealth. The right wing exploitation and export of that wealth is the source of our current poverty, the financial collapse and our impending slide into third world status. An increasingly tiny elite is the cancer upon the body politic and economic.

The US oligarchy demonstrates why it so foolhardy to transfer so much wealth to so few so quickly. These 'few' foresaw the crisis and triggered it by bailing out early. It is left to the rest of us to pick up the tab.

Something like 50 trillion dollars in derivative debt is far bigger than even the stock market. Derivatives are collateralized debt obligations, leading to the erroneous conclusion that 'debt is money'. The current crisis is proof that it is not. Moreover, anyone who has ever taken a course in accounting knows the accounting equation: net worth = assets - liabilities. That the money changers swapped these instruments did not change the accounting equation. Money owed you is not money in the bank --a lesson that is, of late, very expensive.
Many have said that 'we are doomed'! Our borrowing will be financed by our own savings. Already, Beijing is poised to become the financial capital of the world.

We can thank Wal-Mart and GOP policies for that outcome. In previous articles, I have traced the rise of the Axis of Wal-Mart/China to the faustian bargain Bush Sr cut with Chinese poohbahs as he paved the way for Nixon's infamous visit to the Forbidden city back in 1973. The quick rule of thumb: whenever the US is betrayed, you can be sure to find a GOPPER in hiding whenever the shit hits the fan.

Lately, it has become fashionable to 'spread the guilt' around! What's up with that? I suspect another scheme, another right wing tactic. Fact is GOP 'trickle down' policies have had the measurable effect of enriching just one percent of the nation's population. When the GOP has been caught holding the blood-dripping dagger over the corpse I am in no mood to listen to crap like: 'but Democrats are 'bad' too!' Not this time! Democrats were in office but eight years out of thirty! But in those measly eight years the trend in which wealth flows upward was reversed only to be undone by Bush Jr.

So --if you wish to dilute the open/shut case against Reagan/Bush/Bush Jr cite me some facts and spare me the bullshit!

It was not so long ago that a Democratic president had left to his incompetent GOP successor a whopping budget surplus, a growing economy, the lowest unemployment in decades, and --for Republicans --the most worrisome trend of all: the rich were no longer getting richer as they had done during the Reagan/Bush years. I can think of only one group of people who are most miserable when times are good! REPUBLICANS!

Historically, Republicans have always benefited from recessions.
  1. Recessions are not caused by declining stock markets but seem always to be accompanied by them and are often predicted by them. Republicans play the game of 'last man out wind', taking their profits in numbers that often cause the panic. Only insiders benefit. Others are forced to take their losses.
  2. A depressed market becomes an opportunity for the elite oligarchs to get back in. This elite, in fact, controls the market. Everyone else is exploited by the oligarchs.
  3. It is easy to make money 'selling short' if you have an insider's knowledge of the market. That fortunes were made short-selling subsequent to the 911 attacks seems to me persuasive, perhaps conclusive evidence that 911 was an inside job. What was known by whom and when? No wonder Bush covered up 911. The answer to those questions would have exposed a murderous conspiracy, perhaps 'insiders' inside Bush's criminal and treasonous administration.
  4. Unemployment always rises during times of recession. Should they survive, companies will hire from a larger labor pool at lower wages, lower salaries, reduced benefits, and less vacation or sick time. The GOP despises the Clinton years --not because they were bad but because they were good years and fondly remembered. Europe after the Black Death has that much in common with the Clinton years. The labor supply had been depleted by plague. A would-be employer often had to accede to a worker's demands--better working conditions, more money, a place to live! The serfs had been freed and it was the beginning of the end for Feudalism. I had hoped that a less traumatic cataclysm would have already freed modern day "corporate serfs." Alas! My hopes are dashed. If the US survives at all, you can rest assured that the ruling elite will hire from an impoverished and growing labor pool. Wages and salaries are sure to be inadequate and, as a result, the 'recovery' (should there be one) will be slower for it.
  5. Only the oligarchs benefit when many businesses go out of business during depressions which have the effect of 'weeding out' the competition, consolidating oligarchical gains. A conservative, therefore, is someone who supports a free market when it benefits him and the oligarchy at every other time.
  6. Recessions are not always accompanied by a decline in prices. As many businesses fail, competition is decreased and higher prices result. Given the demand for a particular product, a company may actually earn more money selling fewer units. The difference comes out of your ass. Such demand is called: inelastic, i.e. revenues increase as prices increase --even if total sales should fall.

Unless someone blows the whistle or exercises some clout, the increasingly tiny elite of just one percent of the US population will be even richer at the end of this ruinous and tragic financial collapse. You can be sure the oligarchs foresaw the collapse and hastened it. You can be sure that they alone will benefit from it as they have benefited from every other such crisis in US history.

Depressions are defined by a 'contraction' of the supply of money. It has been asked: 'where did all the money go?'. Much of it was exported to offshore bank accounts in anticipation of a domestic collapse. But much of that money didn't really exist. It was just paper. It became fashionable to consider DEBT as money. But debt is not money and never was. Anyone who has ever considered the significance of the accounting equation --capital equals assets MINUS liabilities knows the truth of it. Nor is 'debt' money for those holding the paper. Loans are good only when backed up by collateral or, in some cases, one's earnings and ability to re-pay. As in all crashes, a 'bill' has come due but cannot be paid.

If debt is not money, what is? A question that was debated just prior and during the Great Depression and, again, in the 1980s. At that time, there were attempts to create a stable ERM --an Exchange Rate Mechanism for European currencies. A gold standard was also discussed. In both cases, it was 'labor' that sucked up the costs of implementation which consisted of efforts to force manufacturers to keep costs down. Again --it is not wealth that trickles down. It is 'costs' that always trickle down and labor is always expected to suck up the costs and consequences of such schemes.

More recently, a 'gold standard' was discussed. Who would have borne the costs of such a scheme when it became clear that the US cannot back up but a fraction of its 'currency' with gold? Ron Paul, I believe, advocated a tax rebate for precious metals purchases. That would have hastened the collapse by encouraging a run on the dollar! But, in fact, the ordinary working person does not invest in precious metals and, if he had done, the decline in consumer spending would have brought about the collapse of our economy even sooner and, arguably, the effects would have been even worse.

Following is a PBS NEWS HOUR Interview with Nassim Nicholas Taleb of October, 21, 2008. A Famous economist, Taleb authored "The Black Swan". Also appearing on the video is Dr. Mandelbrot, professor of Mathematics. Both point out several reasons that make the current crisis worse, more serious than the Great Depression.

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