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Catastrophic flaws in the asset-based model
Because the new asset-based model relies upon serial asset bubble creation (inflation) in order to thrive, the model simply chokes and suffocates when the environment of the massive credit excess needed to grow such bubbles is removed.
Hence, Washington's policies in attempting to deal with this crisis are all centered upon recreating the massive credit excess that it hopes will "reboot" the model and bring it back to life by re-inflating the assets whose values have collapsed in this crisis.
Therefore, Washington and Wall Street aren't interested in, nor are they attempting to revert to the traditional income-based model. Rather, they are committed to sinking all their efforts and all America's wealth into rebooting the new asset-based model. The salient question here is whether the model can be rebooted without triggering a cascade of much greater damage than it has already wrought.
One can easily see that the new asset-based model is an extremely dangerous trade-off between rapid and easy wealth creation on the one hand and acutely increased vulnerability and instability on the other hand, for the asset bubbles grown under the model inevitably rupture, leaving mountains of toxic rubble in their wake.
And when an economy subscribes to and adopts this new model to an excessive degree, as both America and Britain have done, thereby investing their future too fully in that model, then that economy invites catastrophe when all viable assets have been "bubbled and ruptured" and there's nothing left to feed the model to keep it breathing. That is precisely where America and Britain have now arrived.
Asset bubbles are not new. They have existed and they have ruptured before, as in the Great Depression. What is new about the asset-based model is that, under the tutelage of such slipshod architects as former Federal Reserve chairman Alan Greenspan, the perilous prospects for massive "paper" wealth generation afforded by asset bubbles (which would be calculatedly produced) were then consciously incorporated into a new economic/financial model actually intended to supersede the traditional income-based model, a new model that was deceptively and successfully hawked to the dim political leadership in Washington and London.
Additionally, what is also new about the asset-based model is the raft of revolutionary new financial instruments and assets it fosters that ingeniously leverage the foundational asset bubbles in order to magnify "paper" wealth generation many times over.
Finally, what is new is the swiftness with which new asset bubbles have been created, their unprecedented proportions, and the sheer number of bubbles that have been produced in such a compressed period of time - primarily in the past 10-15 years - and the severe damage that has been caused by their rupture.
Well, the architects and adoptees of the new asset-based model have gotten what they aimed for. Their brainchild has, indeed superseded the traditional income-based model. America and Britain are inordinately dependent upon that new model for economic growth. Look at the severe repercussions they are suffering as a result of the crash of the model. Neither can hope to return to economic growth any time in the foreseeable future without the successful rebooting of their asset-based model - a prospect whose chances are slim to none.
Full-blown collapse of the new model
This severe recession is much less about the business cycle and much more about the collapse of the new asset-based model, and the fact that the US and UK cannot simply revert to the traditional income-based model to resolve their self-made crisis. They've both become far too committed to the new model.
A reversion would take a decade or more to accomplish, even if it could be accomplished, and in the meantime the rest of the world (where the traditional income-based model survives and thrives) would not wait for the US and UK, but would unquestionably overwhelm the two. (If the new model cannot soon be rebooted to thrive again, then that is going to happen anyway).
Attempting to reboot the new model carries gargantuan risks, whether it sputters back to life or stays dead. The colossal sums of new debt being racked up, the hyper-inflationary forces, the inevitable era of high taxation, the eventual severe damage to the US dollar and the British pound that is being set firmly in place, the undermining of the creditworthiness of sovereign debt, are just some of the risks.
As severely as America's "new economy" has been discredited in this crisis, which has infected the entire globe, who's going to buy its collection of severely tainted dollar-denominated financial assets even if the model does sputter back to life? And how much would anyone be willing to pay for them? America and Britain are in colossal trouble.
The present crisis, which is not merely a recession fueled by the boom-bust cycle, actually signifies the asphyxiation of the asset-based model. Oh, it may for a time keep flailing its arms about while it suffers its death throes, and it might even sit up on the gurney once or twice to protest its own demise, but it cannot get up and promenade again. It is on total life support and must eventually be declared brain-dead.
There have been warning signs of this impending death, but these were largely ignored or misinterpreted as merely part of the perpetual boom-bust cycle. One such warning sign was the destructive rupture of the equities and dot-com bubbles in 1999/2001, which wiped out many trillions of dollars of wealth, cast American's pensions into an irresolvable crisis and savaged America's lead role in the IT technology sector. Catastrophe, like what we're now witnessing, was only avoided (temporarily) back then because the Fed and Wall Street quickly collaborated on the swift creation of new bubbles in real estate and stocks. Now that these are rupturing, there are no remaining virgin assets to feed to the asset-based model. That's why efforts are underway to attempt to reflate the old, previously ruptured asset bubbles and all the innovative financial assets coupled to them.
The shape of this crisis, then, is a series of steps proceeding downward into the gloom for the US and Britain. The two powers are guilty of massive over-reach, and now they are suffering the terrible consequences. Sooner or later, these ongoing events that were inevitable, and that should have been foreseen before the new asset-based model was so enthusiastically and wholly adopted, will force the two powers to make the gut-wrenching, long reversion back to a more traditional economic model.
The longer their leaders resist this, the more profoundly painful and destructive the adjustment will become. Obviously, this situation provides a tremendous opportunity for the rest of the world, but especially for the increasingly wealthy and powerful states in the East, to capitalize in various ways. The ongoing crash of the US and UK liberal capitalistic incarnations of the asset-based economic/financial model also, therefore, signifies the collective rise of the Eastern managed-capitalistic (authoritarian) incarnations of the traditional income-based model.
W Joseph Stroupe is a strategic forecasting expert and editor of Global Events Magazine online at www.globaleventsmagazine.com
There's more at http://www.atimes.com/atimes/Global_.../KE22Dj02.html Nothing iTulipers don't know.
Because the new asset-based model relies upon serial asset bubble creation (inflation) in order to thrive, the model simply chokes and suffocates when the environment of the massive credit excess needed to grow such bubbles is removed.
Hence, Washington's policies in attempting to deal with this crisis are all centered upon recreating the massive credit excess that it hopes will "reboot" the model and bring it back to life by re-inflating the assets whose values have collapsed in this crisis.
Therefore, Washington and Wall Street aren't interested in, nor are they attempting to revert to the traditional income-based model. Rather, they are committed to sinking all their efforts and all America's wealth into rebooting the new asset-based model. The salient question here is whether the model can be rebooted without triggering a cascade of much greater damage than it has already wrought.
One can easily see that the new asset-based model is an extremely dangerous trade-off between rapid and easy wealth creation on the one hand and acutely increased vulnerability and instability on the other hand, for the asset bubbles grown under the model inevitably rupture, leaving mountains of toxic rubble in their wake.
And when an economy subscribes to and adopts this new model to an excessive degree, as both America and Britain have done, thereby investing their future too fully in that model, then that economy invites catastrophe when all viable assets have been "bubbled and ruptured" and there's nothing left to feed the model to keep it breathing. That is precisely where America and Britain have now arrived.
Asset bubbles are not new. They have existed and they have ruptured before, as in the Great Depression. What is new about the asset-based model is that, under the tutelage of such slipshod architects as former Federal Reserve chairman Alan Greenspan, the perilous prospects for massive "paper" wealth generation afforded by asset bubbles (which would be calculatedly produced) were then consciously incorporated into a new economic/financial model actually intended to supersede the traditional income-based model, a new model that was deceptively and successfully hawked to the dim political leadership in Washington and London.
Additionally, what is also new about the asset-based model is the raft of revolutionary new financial instruments and assets it fosters that ingeniously leverage the foundational asset bubbles in order to magnify "paper" wealth generation many times over.
Finally, what is new is the swiftness with which new asset bubbles have been created, their unprecedented proportions, and the sheer number of bubbles that have been produced in such a compressed period of time - primarily in the past 10-15 years - and the severe damage that has been caused by their rupture.
Well, the architects and adoptees of the new asset-based model have gotten what they aimed for. Their brainchild has, indeed superseded the traditional income-based model. America and Britain are inordinately dependent upon that new model for economic growth. Look at the severe repercussions they are suffering as a result of the crash of the model. Neither can hope to return to economic growth any time in the foreseeable future without the successful rebooting of their asset-based model - a prospect whose chances are slim to none.
Full-blown collapse of the new model
This severe recession is much less about the business cycle and much more about the collapse of the new asset-based model, and the fact that the US and UK cannot simply revert to the traditional income-based model to resolve their self-made crisis. They've both become far too committed to the new model.
A reversion would take a decade or more to accomplish, even if it could be accomplished, and in the meantime the rest of the world (where the traditional income-based model survives and thrives) would not wait for the US and UK, but would unquestionably overwhelm the two. (If the new model cannot soon be rebooted to thrive again, then that is going to happen anyway).
Attempting to reboot the new model carries gargantuan risks, whether it sputters back to life or stays dead. The colossal sums of new debt being racked up, the hyper-inflationary forces, the inevitable era of high taxation, the eventual severe damage to the US dollar and the British pound that is being set firmly in place, the undermining of the creditworthiness of sovereign debt, are just some of the risks.
As severely as America's "new economy" has been discredited in this crisis, which has infected the entire globe, who's going to buy its collection of severely tainted dollar-denominated financial assets even if the model does sputter back to life? And how much would anyone be willing to pay for them? America and Britain are in colossal trouble.
The present crisis, which is not merely a recession fueled by the boom-bust cycle, actually signifies the asphyxiation of the asset-based model. Oh, it may for a time keep flailing its arms about while it suffers its death throes, and it might even sit up on the gurney once or twice to protest its own demise, but it cannot get up and promenade again. It is on total life support and must eventually be declared brain-dead.
There have been warning signs of this impending death, but these were largely ignored or misinterpreted as merely part of the perpetual boom-bust cycle. One such warning sign was the destructive rupture of the equities and dot-com bubbles in 1999/2001, which wiped out many trillions of dollars of wealth, cast American's pensions into an irresolvable crisis and savaged America's lead role in the IT technology sector. Catastrophe, like what we're now witnessing, was only avoided (temporarily) back then because the Fed and Wall Street quickly collaborated on the swift creation of new bubbles in real estate and stocks. Now that these are rupturing, there are no remaining virgin assets to feed to the asset-based model. That's why efforts are underway to attempt to reflate the old, previously ruptured asset bubbles and all the innovative financial assets coupled to them.
The shape of this crisis, then, is a series of steps proceeding downward into the gloom for the US and Britain. The two powers are guilty of massive over-reach, and now they are suffering the terrible consequences. Sooner or later, these ongoing events that were inevitable, and that should have been foreseen before the new asset-based model was so enthusiastically and wholly adopted, will force the two powers to make the gut-wrenching, long reversion back to a more traditional economic model.
The longer their leaders resist this, the more profoundly painful and destructive the adjustment will become. Obviously, this situation provides a tremendous opportunity for the rest of the world, but especially for the increasingly wealthy and powerful states in the East, to capitalize in various ways. The ongoing crash of the US and UK liberal capitalistic incarnations of the asset-based economic/financial model also, therefore, signifies the collective rise of the Eastern managed-capitalistic (authoritarian) incarnations of the traditional income-based model.
W Joseph Stroupe is a strategic forecasting expert and editor of Global Events Magazine online at www.globaleventsmagazine.com
There's more at http://www.atimes.com/atimes/Global_.../KE22Dj02.html Nothing iTulipers don't know.
where do you find this stuff?
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