"The task of government right now is not to prop up doomed systems at their current scales of failure, but to prepare the public to rebuild our systems at smaller scales."That's a quote from Kunstler's latest at Clusterfuck Nation, "What's Next?" (click quote to read original). The title is not only a very good question, it's the only question worth considering.
- Jim Kunstler
If you can, please suspend ideological and hopeful thinking for a few minutes. Let go of what's "thinkable" and "unthinkable" to ponder this scenario . . .
Unless I misunderstand all things economic, "wealth" is created in two ways. Either "stuff" is stolen and controlled by the few and a price is exacted for its redistribution or it is owned and administered in community for the common good. Capitalism, theoretically, is sort of a balance of those two ways, dependent upon some people in the community being paid by the few to make "stuff" out of the "stuff" that the few control.
For this system to keep working, "stuff" has to have some value. In real life, most "stuff" has value only if someone can actually pay for it, regardless of how much some wants it. For example, presently I am too impoverished to buy a car, no matter how much I want one. So cars have no real value for me. A twenty year old Corolla with 300,000 miles on it, for sale for $200, is as valuable/worthless to me as an '09 Escalade on the lot "worth" $50K. Good old supply and demand.
The only way that demand has been fueled for many years is by the extension of credit. Extension of credit assumes that,eventually, lent money will be paid back, plus interest. This means that lent money is assumed to have value, too. But just like that Corolla or that Escalade, if I can't afford to buy money, it has no value to me.
Also, it's really not a great idea for me to lend money to someone who can't afford its price. If I do so, I'll lose a great deal of my money. I most certainly will never get my interest ("profit") back. As soon as I lend that money to someone who can't pay it back, it ceases to have value, as does whatever that person "bought" with the money. This creates a vacuum and, eventually, the whole shebang goes bang and collapses in on itself.
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In "Second American Revolution to Begin in 2009?" at The Smoking Argus Daily, Allison Bricker writes . . .
For those of us who choose to delve past the soundbite constraints of the old media, it is not hard to see that the problems our Republic faces cannot be cured or swept under the rug with the premiere of another season of “American Idol”. This ponzai scheme of fractional reserve banking is tumbling. The talking heads who in the beginning of 2008 were still exuberantly advising investors to buy financial stocks like Bear Sterns, Merrill Lynch, and Goldman Sachs have finally been exposed as nothing more than charlatans and shills for the the criminals on Wall Street.2In short, we've been living on borrowed money, but it has little value. Now we're living on borrowed time. It is not possible to solve a credit crisis by simply borrowing more money, any more than it's possible to solve an alcohol problem by drinking more booze. The problem is not its own solution.
Fellow readers, the same batch of Keynesian sycophants who kept condescendingly telling us the bailout was far too complex for “average people” to grasp are the same group of hacks who now instruct the masses that President-Elect Obama will offer Americans a miraculous salvation via the hands of even bigger government and continued deficit spending.
Honestly, there is no fix to the card game so long perpetuated against us and our posterity. The collapse is entering free fall status and will only be exacerbated by the impending default of commercial real-estate mortgages. My suggestion; educate your family and friends, buy food and toiletries such as razors and soap. Secure the things your family will need eighteen months from now, not iPods, BlueRay DVD players, plasma televisions, et al. If you have children, heed the advice of Peter Schiff, purchase the shoes and the clothes they will need next year - now, before the Dollar devalues . . .
It's even worse than that, however. Consider this - "the best predictor of future behavior is past behavior". Cenk Uygur, writing ("The Flaw in the System: The Bankers Don't Care About the Banks") at HuffPost, points out . . .
Alan Greenspan says he is in a "state of shocked disbelief" that the concept of self-interest did not protect the banks from taking excessive risks and destroying themselves. But he, along with Tim Geithner and Larry Summers and many others, are missing the fundamental flaw in the system. The bankers don't care about the banks; they care about the bankers.So all the Obama largess is just going to reward the past behavior and ensure its continuance. To confirm this for yourselves (in addition to reading in full the three pieces I've already cited), you might want to devote an hour to watching this video at Edge, "Reflections on a Crisis", in which one of the phenomena discussed is how financial managers betrayed both stockholders and customers and killed their companies. In the US, the SEC has been fully complicit in this grand theft and homicidal juggernaut. It is impossible to expect that these "revolutionary" (in the strictest terms) managers will behave differently or be punished.
The enlightened self-interest of the bank executives has been separated from the interests of the banks they work for. In the 1970's, the banks were still privately owned. So, the guy up at the top wanted to protect his company, his interest and his money. If his executives took unwarranted risks with the boss's money, they were goners. But these days the people at the top of these companies don't own the companies. It's not their money . . .
So, now we have Tim Geithner and the rest of Treasury working so hard to prop up not just these failed banks - but these failed bank executives - because we don't want government running these large companies. The self-interest of the market will do a better job of managing these companies. But it hasn't - because of this fundamental flaw.
These executives did not actually fail. They succeeded wildly. It's just that they had a different goal - to take home as much money as they possibly could for themselves. Mission accomplished!
I don't blame them. The system is set up wrong. Almost anyone in their position would have done the same - and will continue to do the same as long as we are foolish enough to keep pouring money into these companies. They are going to try to move every nickel they can from our pockets into theirs . . .
So. What's next, indeed?! I would venture that we're looking at something like Kübler-Ross's model of the five stages of grief: denial, anger, bargaining, depression, and acceptance. Unfortunately, the great majority of Americans are in the first stage and, as Kunstler points out, Obama just ain't helpin' with his mantra of "hope" and "change". Obamania is actually hindering the change that will be needed to survive this collapse. In other countries, we have seen lately, there has already been a noticeable movement to the anger stage, with mass demonstrations and even strikes and riots. That will takes place here in the forseeable future, I'm afraid.
For several months, high level "officials" in the political, financial, and military sectors have been playing the warning siren in anticipation of "civil unrest" and making preparations for government response. I've come to believe that to some extent this is a self-fulfilling prophecy and may be used as a justification for "pre-emptive" actions, rounding up and detaining the "usual suspects. The raids in St Paul as the DNC was convening was a decided preview.
Know well that any "popular uprising" will surely be dealt with swiftly and harshly. I have cautioned strongly and often against violence and strong protest, but I've taken a whole lot of flack for that. Suffice it to say, you'll not see me joining you in the streets. At best, I just think it's a waste of time . . . and you might just get your ass killed, certainly locked up and/or beaten up. Remember infiltrators and provocateurs. I've also disparaged the "survivalist"/take to the badlands with spam and assault rifle crew. This is will not result in survival, believe me . . .
The movement through Kübler-Ross's stages will have to take place, I suppose, but I sense that some of us already are near or at the acceptance stage. In spite of having been accused of everything from cowardice to treachery, I plan to take the highest road I can: living cheaply and simply, attributing value only to what I need; giving and accepting help when and where I can; and trying to live life, rather than fight it. This government and dead economic system will not help me with any of that with their present course, for those who are not evil are just plain dumb.
Be at and about peace.
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