Wednesday, August 12, 2009

The Bailout Bubble

In my last post Amy Luft’s question on Answers I said ‘the lack of morality in the financial system has brought us to the brink of disaster.’ I was speaking from the generally accepted viewpoint that the worst of the credit crisis is over. But perhaps the worst is still to come.

My view of the present financial crisis, as conceived by my being a regular reader of certain financial sites, compelled me to move from equities to cash in my retirement plan many weeks ago (since the TSX reached 10,200 and the Dow 9,000). So I was already very sceptical about the strong recovery priced into the market at this level and expected a pullback. But the last few days (just as the mainstream media is getting lathered up about ‘the end of the recession’) I have come across some articles that frankly give me the willies.

First there was this post at Danielle Park's Juggling Dynamite, Risk aversion is back on :

At present levels, the S&P 500 is pricing in a significant earnings rebound for 2010 and emerging markets have been pricing a hearty resumption of western consumption. Both of these assumptions are seriously in doubt.
Today the Singapore Minister of Trade and Industry threw a blanket again on resurgent decoupling hopes, saying there were "few signs of a decisive turnaround in final demand in Singapore's key export markets." (…)
This time, thanks to the massive credit overhang, rate cuts alone are not able to revive the housing sector. Without the housing catalyst to kick-start and lever renewed consumption, growth has a massive headwind.

Danielle includes a clip, ‘Housing Mess is not over’, which gives a sobering update on US housing.

Then it was Marketwatch’s Paul B. Farrell and his article New bull, new bubble, new meltdown by 2012.

Yes, folks, a new bubble cycle is already in motion. You can feel the energy building, the kind that fuelled the meltdowns of 1998, 2000 and 2007. We never resolved the problems fuelling the dot-com insanity. We made matters worse feeding the subprime credit-derivatives disaster with cheap money, Reaganomics ideology and two costly wars. Lessons were never learned, nothing was resolved. Today matters continue deteriorating.
Behind the hoopla, the Wall Street conspiracy has dumped $23.7 trillion new bailout debt on taxpayers. The bill will come due.

What we are seeing is a new market bubble in the making fuelled by bailout-money. Instead of lending, banks are putting the money into the stock market. (I read that 75% of trades since the March low have come from the desks of Goldman Sachs). When this bubble bursts, it will be ugly.

Expect a major house-cleaning, a second American Revolution. We predicted the "Great Depression 2" around 2012. Well, we doubt taxpayers will passively sit one more time, like in the 1930s, in 2000, and the past few years. Next time voters will take a page from the history books about past revolutions in the American Colonies, France and Russia. A perfect storm will erupt in a massive global credit meltdown, bringing down Wall Street and the clandestine $670 trillion shadow central banking system.

But the article that really gave me the willies was this one from Global Research, Entering the greatest depression in history, by Andrew Gavin Marshall.

While there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.

Marshall ties together many threads and introduces us to Gerald Celente, head of the Trends Research Institute, the major trend-forecasting agency in the world.

Celente’s forecasts are not to be taken lightly, as he accurately predicted the 1987 stock market crash, the fall of the Soviet Union, the 1998 Russian economic collapse, the 1997 East Asian economic crisis, the 2000 Dot-Com bubble burst, the 2001 recession, the start of a recession in 2007 and the housing market collapse of 2008, among other things.

And what is Gerald Celente predicting will happen in the present financial/economic/moral crisis?

Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.

And just when you thought it couldn’t possibly get any worse. Guess what? It gets worse:

Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war... While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow.

You can watch a video of Gerald Celente embedded in the above article, and at the end of the video there is a selection of related videos.

I know all this has very little to do with my blog about Healing Philosophy, but I felt I had to share it with you since we are facing very challenging times and the more we can all be forewarned the better chance we have of getting through it.

And then again, perhaps it has a lot to do with philosophy and, eventually, healing.

1 comment:

Mariana Soffer said...

I think the problem that caused all this crisis and wrong being for so many people is highly related to the problem of Ego most of us have.

We all now that being egoist is completelly irrational because it ends up being a predjudice to oneself. Hut I think that we should reflect about this because it is currently working bad in our society.

So the breach existing between ignorance and knowledge is not insurmountable however, for there are those that exist at the edge between irrationality and reason that could cross the border in a way similar to what can often be witnessed by the limit crossing of communists/socialists changing to the Capitalist side. This change of position, however, cannot be accomplished by force, in a way identical to a smoker giving up smoking. The decision is personal, it comes from within. All that Objectivists can do is to spread their arguments as wide as possible, even if it means a repetition of effort. This will allow non-Objectivists to come in touch with Objectivist ideas. It remains then in the working of each individual’s mind to make the decision of change, a decision made on the basis of free will. Once the crossing has been made there’s a clear cut and no return to irrationality is possible, not due to some penalizing command as religions issue, but due to the sheer fact that reason has the only valid points of argument. Knowledge obtained cannot be reversed.

Discover The Tale of Genji, the 11th Century classic of Japan (click image)

Discover The Tale of Genji, the 11th Century classic of Japan (click image)
Kiyomizudera Temple has a large veranda looking out over Kyoto and beyond