Imploding Bubble Economies
Economic meltdown comes in stages. Recognition takes longer. Tout TV pundits stay in denial longest, calling crisis conditions a normal correction.
Reality suggests otherwise with US unemployment approaching 23%, home foreclosures multiplying, and poverty levels double or more official distorted numbers that artificially hold them down.
Longtime market expert and regular Progressive Radio News Hour guest Bob Chapman says Eurozone countries are collapsing.
They're "in a state of contagion with six of its sovereign members in serious financial trouble....The creators of the EU, euro zone, and ECB have a failing monstrosity on their hands," an out-of-control debt bomb.
"There is absolutely no way a financial crisis can be avoided," and it's already been unfolding since 2008. No combination of countries can bail out others in crisis "without destroying themselves. Can 21 nations find $4 to $6 trillion to bail out six?"
Impossible! "Fragile" isn't the word for it. Neither is contagion. The operative word is "abject failure," heading for collapse.
Economist David Rosenberg sees "imminent" Greek default. In mid-September, its one year treasury yield exceeded 100%, telling intrepid investors it already happened for those willing to buy worthless junk.
At a dismal 57.8 reading, University of Michigan consumer sentiment also spells trouble.
In comparison, it was 70.3 in September 2008 when Lehman Bros. collapsed, 81.8 in September 2001 after 9/11, 97.4 in October 1998 after Long Term Capital Management faced imminent bankruptcy and Russia defaulted on its debt, and 89.3 in October 1987 when Wall Street had its largest ever one day decline (22.6%).
On September 16, Global Europe Anticipation Bulletin's (GEAB) latest economic update headlined, "Global systemic crisis - Fourth quarter 2011: Implosive fusion of global financial assets," saying:
Over many months, nearly $10 trillion and 15 trillion in "ghost assets....have gone up in smoke. The rest (and probably much more) will vanish in" Q 4.
GEAB sees a "perfect storm" coming "that will make the summer problems look like a slight sea breeze." Six elements, in fact, already are apparent:
(1) America's congressional "super committee" won't resolve budget austerity tensions.
(2) As a result, automatic cuts required will cause a political crisis. Moreover, this "automatic function (will) generate major disturbances in the functioning of the state system" because it amounts to executive and congressional abdication of decision-making authority.
(3) Other credit rating agencies will join S & P in downgrading US credit. Diversifying out of Treasuries will follow.
(4) Federal Reserve money printing can't go on forever. At some point, it'll have to resort to jawboning and market manipulation, but those tactics have short to intermediate-term shelf lives.
(5) America's debt will keep increasing dramatically "as tax revenues are already in the process of collapsing..."
(6) Like his 2009 jobs plan, Obama's new one won't work even if Congress approved it which it won't.
The combination of the above elements "will trigger (a) major financial shock," perhaps much greater than in 2008.
Financial expert and investor safety advocate Martin Weiss agrees, saying:
"We stand on the threshold of one of the most dramatic financial disasters of our lifetime."
Greece's imminent default "threaten(s) the largest economies in the history of civilization - the European Union and United States."
Financial analyst Claus Vogt believes growing numbers of German politicians and European central bankers realize "Greece is long past the point of no return."
It's bankrupt but hasn't said so. Soon enough others will. It's not a liquidity problem. It's a solvency crisis too far gone to fix.
All the bailouts and quick fixes piled on more of them won't put Greece back together again. And behind it comes Ireland, Portugal, Spain and Italy. It's just a matter of time.
In fact, Greek default alone is more serious than Lehman's 2008 collapse that triggered market mayhem. It's because Western banking and its entire financial system never recovered, so is much more vulnerable to economic shocks now than then.
Even though G-7 countries promised to save weak ones, who'll save them when they fail? Who'll save America, especially Main Street mired in Depression with baked in the cake austerity assuring worse ahead, not better?
Already credit is tight. Expect further tightening with interbank lending freezing up at any price. Private credit markets also with small and intermediate size businesses as well as consumers unable to get loans.
As bad as conditions are now, expect worse ahead. It doesn't matter how much money is printed. Job markets have collapsed with no effective policy initiatives to revive them. Rhetorical promises substitute for meaningful initiatives to stimulate growth. They're not forthcoming so expect decline.
In America, virtually everything points down, including business and consumer sentiment, production, retail sales, employment, housing, credit, and growth.
Rosenberg compares today's credit contraction crisis to the 1930s and Japan in 1990 when its equity and real estate bubbles collapsed. Subsequent downturns were protracted. Recoveries were "fragile and soon aborted."
A major difference between conditions now and Japan then was its 20% saving rate that let households "hold together as housing, commercial construction, and capex (capital expenditures) collapsed."
In contrast, Americans are way over-leveraged enough to require years more needed to reduce it to normal levels. As a result, household purchasing power will be greatly restrained.
Pent-up discretionary demand is absent to reduce debt and interest payment burdens. Rosenberg calls it a "secular downsizing shift."
Moreover, despite zero interest rates, banks aren't lending and consumers aren't borrowing as they're up to their ears in debt. They need less, not more. As a result, it'll keep receding for years. It represents a generational semi-permanent shift, promising protracted negative or weak growth.
Rosenberg also calls it "the movie of (past decades) in reverse: savings growth (replacing) discretionary spending."
Frugality is in, frivolity out. From the early 1980s through 2007, debt surged, leaving household balance sheets way overstretched.
Declining demand and supply of credit ahead has "profound implication for interest rates, inflation, economic growth and corporate earnings."
The only positive is one day the pain will end. So far, it's nowhere in sight as economic contraction continues.
Expect angry Americans to react. Perhaps they'll replicate disruptive protests across Europe.
Trends analyst Gerald Celente explains that when people lose everything and they have nothing else to lose, they lose it.
As America sinks deeper into Depression, perhaps that day of reckoning approaches.
For long-suffering households, it can't come a moment too soon.
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Stephen Lendman: I was born in 1934 in Boston, MA. Raised in a modest middle class family, attended public schools, received a BA from Harvard University in 1956 and an MBA from the Wharton School at the University of PA in 1960 following 2 years of obligatory military service in the US Army. Spent the next 6 years as a marketing research analyst for several large US corporations before becoming part of a new small family business in 1967, remaining there until retiring at the end of 1999. Have since devoted my time and efforts to the progressive causes and organizations I support, all involved in working for a more humane and just world for all people everywhere, but especially for the most needy, disadvantaged and oppressed. My efforts since summer 2005 have included writing on a broad range of vital topics ranging from war and peace; social, economic and political equity for all; and justice for all the oppressed peoples of the world like the long-suffering people of Haiti and the Palestinians. Also co-hosting The Global Research News Hour, occasional public talks, and frequent appearances on radio and at times television. Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site sjlendman.blogspot.com and listen to The Lendman News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.
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URL: http://www.a-w-i-p.com/index.php/2011/09/29/imploding-bubble-economies
