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When the so-called financial crisis erupted at the end of 2007, we immediately opined it was just one of the manifest problems that continue to afflict the modern world system. At the time almost all conventional thinkers and establishment experts were seriously engaged in their (usual) superficial analysis of the protracted problematic. Soon there followed all sorts of voodoo recommendations/policies. Some actually ended up making the situation much worse than it should have been. For example the US government debt escalated from 40% to 70% of GDP in the last four years, without delivering much! Misdiagnosis subsequently followed by false remedies are replete in our make-believe world where concrete reality is suspended in favor of fantasy and this prevails in almost all sphere of existence; economic, environmental, cultural, etc.
Five years into the economic/financial crisis, the experts are still at it and the politicos pontificate (non-stop) about their latest decisive measures that are going to stop the crisis on its track. These regular pronouncements are aired every time the political honchos meet, which is now a fortnightly affair. The situation on the other hand continues to deteriorate and is becoming increasingly intractable. In our opinion, the crisis is on its way to disrupting the whole global economic system, hence by implication the whole system of collective social organization.
From the look of things, the politicos just don’t seem to get it. We admit their understanding of the global economy is too shallow to allow enough room for implementing drastic measures to alleviate the crisis. We believe such measures must necessarily be based on a deeper understanding of the prevailing world system in toto! The politicos assume, albeit falsely, that by tinkering around the edges the whole problem will just go away. They pray their latest policies would bring some respite until it is time for them to pack. Pathetic! That is why we repeatedly say politicos are not leaders, rather they are mere followers; followers of polls, followers of lobbyists’ sentiments, whims of corporations, etc. Be that as it may, we will now look at one of the major underlying causes of the current financial/economic crisis.
First and foremost, financial crisis just don’t come about from nowhere. The severe ones to reveal themselves there must be, a priori, a financialized economic system that is well entrenched i.e. one that has successfully superseded the productive sector of the economy for an extended period of time. In other words, it is an era when finance has already morphed from being a means, to an ultimate end on its own. Only then can we have a financial crisis of massive proportion, like the one we are having now. Contrarian thinkers/investors have always been very skeptical of the euphoric ideology that dominated the world’s economic/financial scene of the past four decades. This ideology was essentially based on the following idiotic assumptions; one can make something out of nothing, specially in modern finance, growth can be had without limit/constraints, debt can be accumulated without end, debt is wealth, etc, etc. It is such hubris that has exasperated the ongoing crisis. See Kunstler’s article next column.
The financial analyst, John Mauldin, not a radical thinker by any stretch of imagination, but more of an establishment contrarian, published a book this year (with a colleague) that has an ominous ring to it; ‘The Endgame.’ In the book he elaborated factors that are behind the prevailing as well as impending crisis. According to him, we have now entered the last phase of the global financial game. See his article on page 50. To their credit, few senators and congressmen (US) invited him (somewhat secretly) to brief them about the subtle mechanics of the troubled global economy. Also to his surprise, he found that many of them actually had quite a good grasp of the whole problematic. Even though many of them were convinced the whole global economic edifice was sitting on a quick sand, they were not willing to reveal their conversion to the general public, lest panic sets in! Though they were scared s…., their preferred position was that of the ostrich; bury your head in the sand and pray for a miracle!
Two years ago we predicted that Greece, Spain and Italy, (to say nothing about the smaller economies of Iceland, Ireland, Portugal, etc) would have difficulty raising needed funds from the global debt market. In fact, we emphatically said, they will ultimately go bankrupt, (one way or the other) even if massive bailouts were organized by the remaining solvent collectives of the global economy. Today this scenario is playing out in the open and the very game of bailouts itself is becoming untenable. This is because the troubled countries taken together consist of a significant portion of the Eurozone economy. Moreover, they are also not insignificant in the scheme of the wider global economy. As a result they might well be ‘too big to bail!’
“We all know we have seen the end of an era, and now we have courtside seats to watch the Endgame unfold. We are watching the end of Act I: The Debt Supercycle. Now we will get to see how Act II: The Endgame plays out.” John Mauldin and Jonathan Tepper. Good Day!