Not a crisis, an epiphany: the FIRE Economy is not coming back

[jdv]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

Ever looked at the impact of WWII on the US economy?

I'm speaking well outside my area of knowledge, but as I recall reading here that one outcome of WWII was that the United States held 80% of the world gold reserves after WWII. That coupled with the fact our infrastructure had not been destroyed put the US at an advantage following WWII.

I'm not sure that's the outcome I'd expect from Iraq and Afghanistan.

[labasta]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

Just for reminiscing ;)


Little Miss Naughty (aka little miss asbo)





Mr. Nosey(aka meddlesome ratbag)



Mr. Greedy (me at times)





Little Miss Bossy (half the female population)





Mr. Mean (is a gold bug scrooge - my fav character "no" lol)





He-man (at around 35 secs this message is for the speculators and robber barons among us (includes myself at times). If only they had watched He-man, we wouldn't be in the difficulty we are today lol.)




ENJOY!

[labasta]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

Also, in the the He-man cartoon check out 4:15.

If only our bankers had watched this He-man episode, they could start to clean up their act. It's ok, really, I know you have stolen the nation's wealth. We won't lynch you and send you to prison, just come clean and don't run away to Puerto Rico or Israel or wherever you think of holing up. We just need to see your books.

[orion]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

EJ, I would have thought Japan would give us more ideas. Do we have to let the system reset by hopefully a managed fall or keep throwing things at the wall till life takes over and gives us something else to worry about (world war, major world wide catastrophe, etc)? How about your experience with corporations, haven't we hit the typical mature corporate dead end where the fun growth stage is gone (we just don't get those highs from new debt like we used to)? I think of this with the infrastructure idea as yes we need it but unfortunately we won't get the bang out of it like China who is building from scratch and can use newer technologies without the probelm of dealing with existing technology and locations. Reinvention and accepting this is going to be a gnerational plan, that's the ticket

[jtabeb]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?


assuming the existing currency system persists?

That would not be a good (safe) premise to operate under.

[orion]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

EJ, Another concept I have to answer your question is PSYCHOLOGY, pretty much 80%. I think this is why Japan is still in a funk, no sexy program / plan. This is also the factor that had driven the stock markets so high. The 20% of details and serious basis is just that because whatever plan is going to be imperfect. So back on pschology we should include;

1) Bold and big, involve all segments of population
2) Appeal to justice so have some tough punishment for some of the guilty
3) Appeal to sacrafice, we need to save more, use less hopefully doing so without any new laws
4) Do things we have put off (energy, infrastructure, not too many things to keep us focused)
5) Make it bipartisan (if we can't put our differences somewhat behind us now we really are toast)
6) Find a bipartisan leader! We really need someone who can convince everyone to work together, and probably not a politician or ex bank official, say Warren Buffet or business leader, they need name recognition, fantastic speaking ability, and down to earth character.

[don]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

The Depression: A Long-Term View
by Immanuel Wallerstein

The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering a mere recession. Don't believe it for a minute. We are already at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation, with all its negative consequences for ordinary people. Or it might take the form, a bit less likely, of a runaway inflation, which is simply another way in which values deflate, and which is even worse for ordinary people.


Of course everyone is asking what has triggered this depression. Is it the derivatives, which Warren Buffett called "financial weapons of mass destruction"? Or is it the subprime mortgages? Or is it oil speculators? This is a blame game, and of no real importance. This is to concentrate on the dust, as Fernand Braudel called it, of short-term events. If we want to understand what is going on, we need to look at two other temporalities, which are far more revealing. One is that of medium-term cyclical swings. And one is that of the long-term structural trends.


The capitalist world-economy has had, for several hundred years at least, two major forms of cyclical swings. One is the so-called Kondratieff cycles that historically were 50-60 years in length. And the other is the hegemonic cycles which are much longer.


In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has been slowly declining since the 1970s. George W. Bush's follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of U.S. hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come. There is not much that anyone can do to change this.


The Kondratieff cycles have a different timing. The world came out of the last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn in the history of the modern world-system. It reached its height circa 1967-73, and started on its downturn. This B-phase has gone on much longer than previous B-phases and we are still in it.


The characteristics of a Kondratieff B-phase are well known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be -- the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan -- have intervened in the market regularly and importantly -- 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) -- to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.


In the past, once a depression wreaked its havoc, the world-economy picked up again, on the basis of innovations that could be quasi-monopolized for a while. So, when people say that the stock market will rise again, this is what they are thinking will happen, this time as in the past, after all the damage has been done to the world's populations. And maybe it will, in a few years or so.


There is however something new that may interfere with this nice cyclical pattern that has sustained the capitalist system for some 500 years. The structural trends may interfere with the cyclical patterns. The basic structural features of capitalism as a world-system operate by certain rules that can be drawn on a chart as a moving upward equilibrium. The problem, as with all structural equilibria of all systems, is that over time the curves tend to move far from equilibrium and it becomes impossible to bring them back to equilibrium.


What has made the system move so far from equilibrium? In very brief, it is because over 500 years the three basic costs of capitalist production -- personnel, inputs, and taxation -- have steadily risen as a percentage of possible sales price, such that today they make it impossible to obtain the large profits from quasi-monopolized production that have always been the basis of significant capital accumulation. It is not because capitalism is failing at what it does best. It is precisely because it has been doing it so well that it has finally undermined the basis of future accumulation.

What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. As everyone pushes in whatever direction they think immediately best for each of them, a new order will emerge out of the chaos along one of two alternate and very different paths.


We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.


As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.

---

Immanuel Wallerstein is Distinguished Professor Emeritus of Sociology, State University of New York at Binghamton. Among his numerous books are The Modern World-System (1974, 1980, 1989), Unthinking Social Science (1991), After Liberalism (1995), The End of the World As We Know It (1999), and The Decline of American Power: The U.S. in a Chaotic World (2003). This commentary was published on 15 October 2008. © Immanuel Wallerstein, distributed by Agence Global. For rights and permissions, including translations and posting to non-commercial sites, contact: rights@agenceglobal.com, 1.336.686.9002 or 1.336.286.6606. Permission is granted to download, forward electronically, or e-mail to others, provided the essay remains intact and the copyright note is displayed. To contact author, write: immanuel.wallerstein@yale.edu. Visit the archive of Wallerstein's previous commentaries at <www.binghamton.edu/fbc/cmpg.htm>. These commentaries, published twice monthly, are intended to be reflections on the contemporary world scene, as seen from the perspective not of the immediate headlines but of the long term.

[ST]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?

If an un-exitable, un-ending, debt deflation spiral is impossible in a global fiat system where all players or at least large enough western players try to re-inflate via co-ordinated attempts, perhaps they just haven't tried hard enough yet? esp. in light of the CDS markdowns to come?

If a financial driven event is being evolved into an economic event where does that put market pricing? It seems to me markets are pricing in economic events which are overblown at this point (?)

Unfortunately, I am also on the high seas having made my wager overseas on the bet that Chindia's real economies would be largely insulated from this financial driven event and betting that re or re-re-flation must work in a fiat system eventually.

What the market seems to be saying to me is that the derivatives related losses are much, much higher than is known yet.....or that no injections have actually worked through to the economy yet because not enough time has passed or because banks refuse to.

What happened to the central banks bypassing banks and becoming everyone's lender? Where do businesses get their loan apps for the Federal Bank of the Federal Reserve? or in my case where do my small and large commodity producers submit their apps based on Asian growth of 5%? (at which rate commodities would be used far in excess of two years ago)

Where are the globally coordinated stimulus packages pushing spending and building of bridges to nowhere?

[serge_oc]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

Problem may be in taking past performance for granted. For example:

1. Wars cannot any longer lead the economy. My point: want a big war? Need to involve Russia and China. Want drawn out prolonged conflict that will leave domestic infrastructure intact? Go back to 1939 or maybe 1971. We fire guided super smart missile to Russia, don't expect them to fire one back. Rather expect an American city leveled in a nuclear blast.

2. Time frames. What's happening now is a classic example of music chair game. Money flows, everyone buys mortgage, money stops. Us bankers entered few numbers in a computer, heck now we own real property through repossession!! Once we have enough of the world, we let money flowing again.

What, CBs can't produce enough money? Come on. Sure they can. But not without igniting inflation. They will make enough money to cover top dogs and give them ability to spend like crazy acquiring assets while the rest of us worry about our little ROI and pathetic retirement plans.

The only lose cannon here is some countries not playing by the rules and finding their own way largely independent of the wholesome seriousness of 'liquidity', 'solvency', 'stock' etc.

Whaaat, they don't think beads of sweat on Big Ben's and Paulson's shining forehead is the most traumatizing event EVER?

If that happens, than there will be war, but not for the purpose of stimulating the economy, but for the domination and more likely survival of the global banking cast. In that case, duck....

[FRED]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

After attempts to re-inflate a re-inflated bubble economy fail, what do you do next?

If an un-exitable, un-ending, debt deflation spiral is impossible in a global fiat system where all players or at least large enough western players try to re-inflate via co-ordinated attempts, perhaps they just haven't tried hard enough yet? esp. in light of the CDS markdowns to come?

If a financial driven event is being evolved into an economic event where does that put market pricing? It seems to me markets are pricing in economic events which are overblown at this point (?)

Unfortunately, I am also on the high seas having made my wager overseas on the bet that Chindia's real economies would be largely insulated from this financial driven event and betting that re or re-re-flation must work in a fiat system eventually.

What the market seems to be saying to me is that the derivatives related losses are much, much higher than is known yet.....or that no injections have actually worked through to the economy yet because not enough time has passed or because banks refuse to.

What happened to the central banks bypassing banks and becoming everyone's lender? Where do businesses get their loan apps for the Federal Bank of the Federal Reserve? or in my case where do my small and large commodity producers submit their apps based on Asian growth of 5%? (at which rate commodities would be used far in excess of two years ago)

Where are the globally coordinated stimulus packages pushing spending and building of bridges to nowhere?

This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

[Charles Mackay]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

Yes, agreed. ...and stocks will continue to be deflated by commodities in the years to come. Check out the major trend line break and the rate of change extremes in '29 and '2000 !



Stocks valued in commodities went down until 1949 (20 years) implying that this time around maybe you could cash out of your gold, energy, and commodities and start buying equities again in around 2020.

[Ed]

What happened ...?!

Generic:

The bubble burst because it formed.
The bubble formed because asset price histories that look like cocaine intoxications were/are kept out-of-sight.
See for example:
“Real Dow & Real Homes & Personal Saving & Debt Burden” at
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html

[ST]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

Fred - First let me say how glad I am to be here. Thanks for sharing the knowledge.

I had thought that this current reflation was the main mechanism by which the dollar would ultimately be depreciated, once the repatriation scramble for dollars/yen halts....so that there is no decision to be made between reflation or any alternate should reflation fail, as the question poses.

Isn't depreciation the result of reflation under our current circumstances? So in that way, no decision is required - the policy of inflation is already underway and only timing is the open question(?)

[phirang]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

This thread is here to elicit feedback. In our view, Ka-Poom Theory holds that there are not many options on the menu.

1. Depreciate the dollar, a natural result of capital outflows as foreign central banks run out of money to send to the US. That part of Ka-Poom Theory appears to be happening.

2. That means all of the "fixed" expenses that foreign governments used to fund in the US now have to be funded by the US, with negative implications for the US fiscal position, which wasn't so hot to begin with.

Yea, all that hot money must be flowing into Shanghai or Moskva...:rolleyes:

[bobola]

Re: Not a crisis, an epiphany: the FIRE Economy is not coming back

My personal answer on what to do to get ready for the Poom is to buy a well built aluminum sailboat, sell the house and all the stuff that won’t fit in the boat, live on it on the SE coast while we work and save more, liquidate all assets and move the money offshore in several currencies and stock up on gold and silver coins. Secured down low in sailboat PM makes great ballast.

When I was single I had a paid for go-anywhere 35’ sailboat but little money in the bank. That was 13 years ago.

Today I’m married, boat sold long ago, work a corporate job, 7 years into a 15 year mortgage & building up the 401k and various other investments. If/when the big Poom hits, and things get very bad, such as civil unrest, what then?

Are we heading for a Y2K type doomsday scenario, but this time it’s for real?

Any thoughts?