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<title>charles hugh smith-Why the Present Depression Will Be Deeper than the
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<p class=MsoNormal><font size=3 face="Times New Roman"><span
style='font-size:12.0pt'><br>
<b><span style='font-weight:bold'>Why the Present Depression Will Be Deeper
than the Great Crash of 1929</span></b> </span></font><font size=2><span
style='font-size:10.0pt'> (June 4, 2009) <br>
<br>
<br>
<i><span style='font-style:italic'>Galbraith's conclusions about the causes
of the Great Depression point to why the current Depression will be deeper.</span></i>
<br>
<br>
<br>
<b><span style='font-weight:bold'>Continuing our analysis of <a
href="http://www.amazon.com/gp/product/0395859999?ie=UTF8&tag=charleshughsm-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0395859999"
target=resource>The Great Crash of 1929</a><img border=0 width=1 height=1
id="_x0000_i1026" src="cid:image002.gif@01C9EA16.BED9E1A0" style='border-bottom-style:
none;border-bottom-width:medium;border-left-style:none;border-left-width:
medium;border-right-style:none;border-right-width:medium;border-top-style:
none;border-top-width:medium;margin-bottom:0px;margin-left:0px;margin-right:
0px;margin-top:0px'> </span></b>by John Kenneth Galbraith: by understanding
the causes of the Great Depression as elucidated by Galbraith, we can observe
the differences between the present and 1929. These reveal why today's
Depression will be even deeper than the 1929-1941 one and why today's policy
"fixes" as pursued by that great student of Depression, Ben
Bernanke, are fighting the last war--a Keynesian stimulus strategy doomed to
catastrophic failure. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>I hesitate to call this topic "important" because
such announcements instantly cut my readership in half.</span></font></b><font
size=2><span style='font-size:10.0pt'> Thus I am inclined to call this topic
"edgy," "explosive" and "contrarian," all of
which sound more interesting than "important" (yawn). <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Galbraith begins his exploration of causes by noting that
"economics does not allow final answers on these matters. But, as usual,
something can be said."</span></font></b><font size=2><span
style='font-size:10.0pt'> <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>First,
he demolishes the notion that abundant credit caused a speculative orgy. <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>The long-accepted explanation that credit was easy
and so people were impelled to borrow money to buy common stocks on margin is
obviously nonsense. (page 169) On numerous occasions before and since credit
has been easy, and there has been no speculation whatever. Furthermore, much
of the 1928 and 1929 speculation occured on money borrowed at interest rates
which would have been considered especially astringent. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Far
more important that rate of interest and supply of the credit is the mood.
Speculation on a large scale requires a pervasive sense of confidence and
optimism and <b><span style='font-weight:bold'>conviction that ordinary
people were meant to be rich.</span></b> (emphasis added, CHS) <o:p></o:p></span></font></p>
</blockquote>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Next,
Galbraith looks to the wellspring of credit which has been virtually
nonexistent in our current speculative boom: savings. (Or at least domestic
i.e. <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
savings.) <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>Savings must also be plentiful. If savings are
growing rapidly, people will place a lower marginal value on their
accumulation; they will be willing to risk some of it against the prospect of
a greatly enhanced return. <o:p></o:p></span></font></p>
</blockquote>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Speculative excess is somewhat self-regulating--or should
be unless manipulated by the very state which is pledged to protect the
economy from such excesses.</span></font></b><font size=2><span
style='font-size:10.0pt'> Galbraith notes: <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>Finally, a speculative outbreak has a greater or
less immunizing effect. The ensuing collapse automatically destroys the very
mood speculation requires. <o:p></o:p></span></font></p>
</blockquote>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Moving from the causes of speculative excess to that of
Depression, Galbraith rejects a cyclical cause: </span></font></b><font
size=2><span style='font-size:10.0pt'>"No inevitable rhythm required the
collapse and stagnation of 1930-1940." <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>As for
the business cycle--expansion of plant, credit and inventory once
over-extended, requires a contraction to restore balance--Galbraith grants it
viability, but he rejects it as the cause of the Depression: <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>In 1929 the labor force was not tired; it could have
continued to produce indefinitely at the best 1929 rate. The capital plant of
the country was not depleted. In the preceding years of prosperity, plant had
been renewed and improved. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Finally,
the high production of the twenties did not, as some have suggested, outrun
the wants of the people. There is no evidence that their desire for
automobiles, clothing, travel. recreation or even food was sated. A
depression was not needed so that people's wants could catch up to their
capacity to produce. <o:p></o:p></span></font></p>
</blockquote>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>So then what did trigger the Great Depression?</span></font></b><font
size=2><span style='font-size:10.0pt'> Galbraith sets aside the speculative
collapse itself for a moment and digs for problems in the real economy. He
begins by noting worker productivity rose by 43% between 1919 and 1929 even
as wages, salaries and prices all remained comparatively stable. This enabled
increasing profits, which due to the large income disparities of the era,
flowed largely to the well-to-do. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>What
did the wealthy do with this new-found capital? <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>A large and increasing investment in capital goods
was a principal device by which the profits were spent. (page 175) It follows
that anything that interrupted the investment outlays--anything, indeed,
which kept them from showing the neessary rate of increase--could cause
trouble. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>The
effect, therefore of insufficient investment--investment that failed to keep
pace with the steady increase in profits--could be falling total demand
reflected in turn in falling orders and output. <o:p></o:p></span></font></p>
</blockquote>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>As I understand this, the proximate cause was a vast income
disparity which placed much of the prosperous era's profits in the hands of a
small wealthy class, who then mal-invested the profits.</span></font></b><font
size=2><span style='font-size:10.0pt'> If that isn't ringing some bells in
your head, then please recall that income disparity, which fell from
1946-1970 or so, has been rising ever since. Bingo--profits flowed
increasingly into the hands of a elite wealthy class who then
squandered/mal-invested the vast profits, undermining the entire economy. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Galbraith then turns to the causal relations between the
collapse of the speculative stock market and the ensuing Depression.</span></font></b><font
size=2><span style='font-size:10.0pt'> Once again, Galbraith fingers income
disparity: 5% of the populace garnered a full third of personal income. <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>This highly unequal income distribution meant that
the economy was dependent on a high level of investment or a high level of
luxury consumer spending or both. The rich cannot buy great quantities of
bread. If they are to dispose of what they receive it must be luxuries or by
way of investment in new plants and new projects. <o:p></o:p></span></font></p>
</blockquote>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>As the
stock market crashed, those with the most to lose--the wealthy--found their
cashflow and capital massively crimped. Since the entire economy was
dependent on them spending and investing freely, the economy crashed, too. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>You see where this leads in terms of the 1990s-2006 boom.</span></font></b><font
size=2><span style='font-size:10.0pt'> The stupendous profits skimmed in the
great dot-com boom flowed disproportionately into a few hands, who then
mal-invested the gains (in a macro context) in a completely unproductive
burst of overbuilt housing and commercial real estate. The ensuing bubble
drew in all those who in Galbraith's words believed they deserved to be rich
and as those hapless speculators crashed they took the entire middle class of
homeowners with them. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Galbraith also fingers two other causes of the Great
Depression: Faulty corporate structure and flawed banking structure.</span></font></b><font
size=2><span style='font-size:10.0pt'> The parallels to the present are
achingly obvious; here's Galbraith's terse description: <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>The fact was that American enterprise in the
twenties had opened its hospitable arms to an exceptional number of
promoters, grafters, swindlers, imposters and frauds. This, in in the long
history of such activities, was a kind of flood tide of corporate larceny. <o:p></o:p></span></font></p>
</blockquote>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>As
gargantuan as the flood of corporate larceny was in the 20s, the present era
certainly exceeds it by a large margin. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Here is Galbraith's trenchant comment about the banking
practices of the 20s:</span></font></b><font size=2><span style='font-size:
10.0pt'> <o:p></o:p></span></font></p>
<blockquote style='margin-top:5.0pt;margin-bottom:5.0pt'>
<p class=MsoNormal><font size=2 face="Times New Roman"><span
style='font-size:10.0pt'>Since the early 30s, a generation of Americans has
been told, sometimes with amusement, sometimes with indignation, often with
outrage, of the banking practices of the late 20s. In fact, many of those
practices were made ludicrous only by the depression. Loans which would have
been pefectly good were made perfectly foolish by the collapse of the value
of the collateral he had posted. <o:p></o:p></span></font></p>
</blockquote>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>The same, I fear, cannot said of the present: millions of
guaranteed-to-default mortgages made to impossibly unqualified borrowers were
never good nor prudent.</span></font></b><font size=2><span style='font-size:
10.0pt'> The same can also be said of millions of auto/truck loans, millions
of credit cards, millions of home equity lines of credit, etc. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Even
worse, of course, the banks of the present era achieved heights of leverage
via off-balance sheet derivatives, the securitization of mortgages and other
financial legerdemaine that even the greediest, most venal bankers of the 20s
could not even imagine. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Lastly, Galbraith blames "the dubious state of the
foreign balance," i.e. the imbalance of foreign trade and flow of funds.</span></font></b><font
size=2><span style='font-size:10.0pt'> In 1929, the problem seems to be that
the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
was a magnet for capital inflows even as it managed a trade surplus. That
imbalance doomed the global economy. Now of course we face the opposite
imbalance but the same result will follow: the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> continues to run a
staggering, unprecendented trade imbalance even as it sucks up an
unprecedented share of global capital/savings. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Galbraith concludes:</span></font></b><font size=2><span
style='font-size:10.0pt'> "Had the economy been fundamentally sound in
1929 the effect of the great stock market crash might have been small. But
business in 1929 was not sound; on the contrary it was exceedingly fragile.
It was vulnerable to the kind of blow it received from Wall Street." <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>You mean like the evaporation of $12 trillion wealth we've
just experienced in the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>?
</span></font></b><font size=2><span style='font-size:10.0pt'><o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>But the present is far more fragile and vulnerable than the
<st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
economy of 1929, for the following reasons.</span></font></b><font size=2><span
style='font-size:10.0pt'> In 1955 Galbraith could not possibly have foreseen
or anticipated these current conditions: <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>1. A
Federal government which since the "Reagan Revolution" of 1981
(e.g. don't tax and spend, just borrow and spend) has borrowed during
so-called good times on a scale once reserved for rare Keynesian stimulus to
combat serious recession. Thus we find ourselves at unprecedented levels of
debt (comparable in terms of GDP to the entire cost of World War II) and our
current Depression has barely begun. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>2. A
corrupt-to-the-core corporate structure riddled with bogus accounting,
reliance on financial trickery for profits and misdirected/worthless
regulatory oversight. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>3. A
banking sector of such debauchery and fraud that the excesses of the 1920s
are reduced to the pranks of slighty-naughty choirboys and girls. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>4. A
Federal system of entitlements (Medicare, Medicaid and Social Security) which
has grown far faster than the underlying economy for decades and now threatens
the very solvency of the government itself, so stupendous are the future
obligations. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>5. A
global military hegemony which costs more than all the other militarys and
intelligence operations of the entire world put together. The <st1:country-region
w:st="on">U.S.</st1:country-region> military consumes more oil than the
nation of <st1:country-region w:st="on"><st1:place w:st="on">Sweden</st1:place></st1:country-region>
(9 million residents). <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>6. An
industrial, transportation and energy infrastructure that, rather than being
rebuilt during the past 26 years of debt-based "prosperity," has
crumbled in a long decline. Rather than invest in electrical power grids and
energy-efficient transport systems, the U.S. squandered the trillions of
borrowed dollars on toys, gewgaws, electronics made elsewhere, malls and
commercial towers with only transient value and millions of bloated,
inefficient poorly constructed homes no one needed or could afford:
"assets" which were not productive at all, "assets" which
are now capital traps on a scale heretofore unimaginable <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>7. A
paucity of <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
savings (and thus of domestic capital) with only one historical parallel: the
depths of the Great Depression when unemployment was 25%. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>8. A
huge reliance on financial leverage, debt, borrowing and trickery for
corporate profits; the U.S. exports soybeans, increasingly worthless dollars
and "financial innovations" which are now exploding in economies
from Ireland to India with the destructive force of superweapons. In exchange
for this dubious paper, we have accepted actual tangible goods from the rest
of the world. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>They
are now slowly waking up to the fact they've been conned on a scale few can
grasp. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>9.
Globalization has reworked the global supply chain in an astonishingly brief
period of time. As a result, the arbitrage of currencies (foreign exchange
a.k.a. forex), wages, governance (less is more profitable) and environmental
regulations (zero is the most profitable) have all placed advanced
post-industrial economies like the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> at great structural
disadvantages. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>10. The
U.S. claims to be competitive but much of this competitiveness is highly
selective and thus illusory. Everything in the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region>--labor, goods, buildings and
taxes--is high-cost, overregulated (except for finance, banking and
governance) and vulnerable to unpredictable lawsuits and officially
sanctioned looting. Other than recent immigrants, non-U.S. employers find the
workforce is often surly, unappreciative, narcissistic, entitlement-obsessed,
unhealthy, poorly educated, unmotivated and more inclined to get-rich-quick
schemes than actual enterprise or productivity. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>The
middle management labors under impossible demands to enrich stockholders next
quarter and heavy turnover insures few stay in any job long enough to learn
it effectively. Team cooperation is a doublespeak fraud imposed by
"facilitators," creating a phony work environment where employees and
managers alike pretend to care. This bogus environment breeds a looting,
game-the-system mentality in which everyone is grabbing for all they can
before retirement, restructuring, reassignment, resignation or getting fired.
<o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>A
"quarterly profits are God" mentality reduces the workforce (even
the good workers) to units of input which are pared back or hired without
regard to morale or loyalty. This managerial and cultural pathology makes a
mockery of worker loyalty and breeds the very qualities of distrust and
"I got mine" attitude which undermines both productivity and
workplace happiness. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>11.
Last but certainly not least, the <st1:country-region w:st="on"><st1:place
w:st="on">U.S.</st1:place></st1:country-region> economy is highly depedent
on cheap, abundant fossil fuels--the very fuels which are in the global depletion
phase, happy stories about unlimited natural gas and tar sands to the
contrary. <o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>For all these reasons, we can anticipate the Depression
currently unfolding will be deeper, longer and more destructive than the
Great Depression.</span></font></b><font size=2><span style='font-size:10.0pt'>
<o:p></o:p></span></font></p>
<p><b><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-weight:bold'>Let's recount the chain of events which partly parallel the
Great Depression and partly diverge in meaningfully more destructive ways
from that previous era:</span></font></b><font size=2><span style='font-size:
10.0pt'> <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>1. The
postwar income convergence (i.e the rise of the great middle class, the
reduction of poverty and the relative reduction of the Plutocracy's share of
national income) reverses in the early 1970s as the "true
prosperity" of the postwar era ends and is replaced by income flowing
increasingly to the top as stagflation, globalization and the decline of dollar
gut the purchasing power of the middle class. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>2. The
rising productivity of the 50s and 60s slips to the flatline through the 70s
and early 80s, only picking up again as computer software and hardware
revolutionize the back office, sales, manufacturing, just-in-time
shipping/production, etc. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>3.
Concurrent with this gradual return to productivity is the rise of finance as
the key profit-center of corporate <st1:country-region w:st="on"><st1:place
w:st="on">America</st1:place></st1:country-region>. As income skews ever
more heavily to the top 1%/5%, then capital (productive assets) become ever more
heavily concentrated in the hands of the financial Plutocracy. The top 1% now
owns some 2/3 of the nation's entire productive wealth. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>4. As
profits rise (from rising productivity) then the profits flow not to wages
(which remain flat to down 1975-2009 for all but the top 10% professional
class) but to those who own the capital. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>5. As
the middle class experiences a decline in their income and purchasing power
(for reasons cited above: declining dollar, rising income disparity, and
wages falling due to global wage arbitrage) then they turn more and more to
borrowing and ever greater debt to fund what they have been brainwashed by
the media to believe is "the American dream" of imported luxury
goods, bloated homes, vacuous cruises, etc. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>The
only other mechanism available to the middle class to increase household
income is for <st1:PersonName w:st="on">Mom</st1:PersonName>/Aunt/Grandmom to
enter the workforce, which she does in the tens of millions, with
sociological consequences which are still unfolding. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>6. This
advert/media-driven desire to borrow to fund the "good life" is
hugely profitable to the money-center banks, which expand rapidly into
mortgage securization, derivatives and consumer credit to the point that they
come to dominate corporate profits. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>7. The
financial Plutocracy, observing that actually producing goods is not very
profitable unless you can fix prices as per ADM (Archer Daniels Midlands) or
gain government subsidies and tax giveaways (oil lease depreciation, etc.)
sinks its capital into the FIRE economy (finance, insurance and real estate),
eschewing real-world investments as comparatively unprofitable. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Though
rarely noted, this is a longstanding trait of capitalism stretching back to
1400-era <st1:City w:st="on"><st1:place w:st="on">Venice</st1:place></st1:City>.
When trade became less profitable than mainland farmimg, the Venetian Elite
stopped funding trading and bought farms on the mainland. As a side effect, <st1:City
w:st="on"><st1:place w:st="on">Venice</st1:place></st1:City> ceased to be a
military and trading power. But the Elite remained immensely wealthy. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>8. As
the tech bubble expands, middle-class investors see the Plutocracy (those
with enough capital to qualify as angel investors and vulture, oops, I mean
venture capital) reaping huge gains, and they enter the dot-com stock bubble
buildup with a vengeance. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>9. In a
happy accident, the Soviet Empire collapses just as productivity begins its
computer-fueled rise in the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
In a so-called Unipolar World in which <st1:country-region w:st="on">U.S.</st1:country-region>
military, political and financial influence is unrivaled, non-U.S. investors
seek the relative safety and high returns (based on appreciation of the
dollar) of <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
financial instruments. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>10. The
dot-com bubble implodes in a speculative meltdown (dot-bomb), and retail
investors (a.k.a. the middle class 401K investors) are devastated. The
ephemeral wealth they once possessed, however briefly, fuels their
speculative desire to get into the next get-rich-quick game, which just so
happens to be "something everyone understands:" real estate and
housing. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>11.
Having exhausted the dot-com play, Elite capital is seeking a new high-profit
home. The miracles of derivatives (CDOs, credit default swaps, etc.) and
securitized debt (mortgage tranches, etc.) open up vast new opportunities for
leverage, off-balance sheet shenanigans and outright fraud/debauchery of
credit. As chip wafer plants disappear from <st1:place w:st="on">Silicon
Valley</st1:place> (too dirty, too costly, etc.) then they're replaced with
paper: mortgage-backed securities. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>12.
Sniffing gold in them thar exurban hills, the under-capitalized and
over-indebted <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
working class and middle class reach for the chalice of easy-money gold:
leveraged real estate. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>13.
With the Federal financial regulatory agencies in a
Republican/Democrat-enforced somnambulance, the coast is clear for brigands,
shysters, fraudsters, con artists, liars, cheats, and assorted riff-raff in
the realtor, mortgage and appraisal businesses, who all feed the ravenous maw
of the money-center banks' apparently limitless appetite for real estate
assets to securitize and leverage in exotic and highly profitable ways. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>14. For
a wonderful five years circa 2001-2006, the game is afoot and no-down-payment
Jill and $100 million bonus Jack are immensely enriched. Meanwhile, the
underlying real economy is becoming ever more imbalanced and ever more
fragile as real production and real productivity plummet as everyone rushes
to the speculative riches of exurban McMansions and malls. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>15.
This last best speculative leveraged bubble pops, gutting a Wall Street which
had grown utterly dependent on leverage, debt, gamed/fraudulent accounting
and bubbles for its rising profits. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>16.
Doubly devastated by the implosion of housing and their stock investments
(mostly in retirement funds), the middle class faces the terrible
consequences of its 26-year stupor of ever-rising debt and leverage. Alas,
the Emperor's clothes are revealed as remarkably transparent. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>17. Just
as in the Great Depression, to its great surprise, the Elite has also
suffered catastrophic losses and declines in capital and income. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>18.
Having borrowed and squandered trillions of dollars since 1981 on
unaffordable entitlements, military misadventures and assorted worthless
bridges-to-nowhere pork spending, the Federal government (The Fed and the
Treasury) finds that its ability to borrow its way out of its current debt
hole somewhat annoyingly limited. The rest of the world has finally caught on
to the con, and Chinese university students are openly mocking Treasury
Secretary Geithner's Orwellian claim of "we support a strong
dollar." The miracle is that he was not pelted with tomatoes and tarred
and feathered for making such absurd statements. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>19.
With the global media concentrated in a scant few corporate hands (less than
10), this pulling away of the curtain is deleted/excised from media coverage
in a ruthless campaign of pure "green shoots" propaganda. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>20. As
the wheels fall off the <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region>
economy and the bubbles cannot be re-inflated, fruitless attempts at holding
back the tide with incantations (stop, tide, I am Obama/Geithner/Bernanke!)
and loopy sand castles (the bottom is in, buy now! Green shoots are sprouting
everywhere except in the real economy!) abound. Unresponsive to propaganda,
the real world grinds down into a global Depression without visible end. <o:p></o:p></span></font></p>
<p><font size=2 face="Times New Roman"><span style='font-size:10.0pt'>Is this
"edgy" enough to be worthy? I hope so. <br>
<br>
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<p><i><font size=2 face="Times New Roman"><span style='font-size:10.0pt;
font-style:italic'>"This guy is THE leading visionary on reality. He
routinely discusses things which no one else has talked about, yet, turn out
to be quite relevant months later." <br>
--Walt Howard, commenting about CHS on another blog.</span></font></i><font
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