The Virtual Economy 05-01-09 mpg [The Real] Economy On The Ropes Must Read - While Bernanke may have avoided a global bank-run, the bleeding continues in housing, business investment, manufacturing, industrial capacity, and global trade. Every sector is falling precipitously with no end in sight. Even worse, nothing has been done to remove the trillion dollars of toxic assets from the banks balance sheets which is causing credit to tighten even more. Treasury Secretary Timothy Geithner has failed to take advantage of the uptick in investor confidence to resolve the problem of underwater banks. Instead, he has stubbornly stuck with his Public Private Investment Program (PPIP) which has made less than $6 billion in transactions so far. Unless the banks are restored to health and their balance sheets repaired, a sustainable recovery will not be possible. According to Bloomberg, 6 of the 19 largest banks (which contain 75% of the system's total assets) are insufficiently capitalized:" The author’s basic conclusion is that Bernanke has kept the financial sector from imminent collapse....for the moment. That's it. That's all they've done so far. Despite spending trillions of dollars for their various and ingenious transfer programs to the wealthy while also backstopping and guaranteeing trillions more in toxic waste, the author is still very dubious about the prospects for a sustained economic recovery anytime soon. And that certainly would seem to be the case. From this website's editor's perspective the banks aren't solvent using any normal bookkeeping standards and are highly unlikely to become solvent for at least the next decade. In addition to the prospect of having to deal with these zombie banks for years, everyone can also look forward to at least another twelve to eighteen months of ongoing economic deterioration, followed by years of continued stagnation. During which the Fed will continue its ineffective quest to inflate the economy by printing and giving away trillions more....to the Banksters of course. Despite all these efforts, or more properly because of them, the situation in eighteen months will be exactly the same as it was a year ago, or for that matter ten years ago. Assets will still be "over-valued" relative to those that could be purchased just about anywhere else in the world. There will still be no disclosure on what the banks are actually holding, the Fed will be on the hook for an additional five to ten trillion dollars, manufacturing will be decimated and will remain so because it will still be cheaper to manufacture in most other parts of the world, unless of course the dollar collapses completely. The housing market will stay depressed for a decade. Real earnings of the American worker will continue to stagnate as they have for the last thirty years, and for the same reasons. The US-NRE will by that time be mired in at least three, possibly four, ongoing wars of occupation. And finally, we as a nation have yet to experience the predicted "credit card default crisis" and "commercial real estate crisis". However the financial sector by then, flush with about fifteen to twenty trillion dollars worth of paper promises from the Fed, will be sitting pretty and looking good. It will probably occupy forty percent of the US-NRE’s economy producing about that much of its GDP. All of it by "manufacturing" additional bits and pieces of paper and "shuffling" this blizzard of "financial products" (new versions of toxic waste) from millions of accounts to millions of other accounts with the usual staggering mark-up and interest rate charges. It's become obvious by all this frantic activity for the last two years that most of the economists currently employed by the Government, and almost all of the elites in this nation, have developed a firm and abiding belief in the new, improved, "Virtual Economy™". The fervent belief the if you counter-act a massive wave of economic contraction, which they of course created by their first attempt at creating a virtual economy, with an equally massive wave of engineered inflation (a version of the Black-Scholes formula perhaps?) you'll achieve a "balance" of some sort and be able to maintain their "sacred system” of "wealth accumulation", now known as paper production. More importantly from their prospective they'll get to continue the "status quo". They believe this approach will enable them to keep their privileged position on top of the economic pyramid for a long time to come, no matter how much destruction the implementation of this perverted economic doctrine may cause to the "base" of the pyramid. The elites therefore appear willing, for the moment only, to settle for becoming larger frogs in a possibly much smaller pond, or to put it another way, they're willing to settle for continuing to occupy the top of a possibly much smaller - and much shorter - economic pyramid. However something has got to give in this arranged, titanic struggle, of economic forces and like the incredibly shrinking GM Corporation, what's going to give is the "base" of the US-NRE's entire "real" economy. What the new financial aristocracy have successfully achieved by all these shenanigans is a massive, and permanent, decline in the standard of living for just about everyone else in the country. A decline that will become apparent as soon as the value of the dollar begins to reflect the permanently shrunken state of this nation's "real" economy, just exactly as GM's stock has already reflected the shrunken state of that company's "real" future income, assets and prospects At best given these factors it looks like the US-NRE will undergo the equivalent of Japan's "lost decade" followed by a massive increase in inflation around 2020. Essentially a more destructive variant of what occurred in this country during the '72 to '82 "ten year cycle". That's at best of course. At worst, given the deflation that's occurring, there still exists a significant chance, although it looks to be somewhat diminished to the great surprise of this website editor, that the US-NRE will experience an old fashioned, long term, Depression. The conversion of bigger and bigger chunks of the US-NRE's "real" economy into a "virtual economy" every ten years however does not bode well for this nation's future prospects. Obviously at the end of the next eighteen months, (assuming the elites are able to get away with their little cock-eyed scheme), the elites intent will be to make every employee (that includes the self-employed) in this country work twice as hard for even less benefits for the next ten years while taxing them as much as they can to reduce the "virtual portion" of this economy to something a little more manageable. Since in the end they'll be forced to increase that portion of the virtual economy by another ten or twenty trillion dollars in just four short years, (that figure does not include the Federal deficit -- yet) they'll probably run out of any economic maneuvering room to do so. In other words they could lose the race to deflation-depression and/or crash the currency. Only time will tell. – mpg For more on this issue see....Enforcing the Rules -- Too Little, Too Late - 02-27-09 |