- An except from Franck Biancheri's new book titled, "World
Crisis: The Path to the World Afterwards" states:
- "The (current) financial and economic crisis....marks
the end of the world order established after 1945." In 1991, the Soviet
Union dissolved, and since fall 2007, we've "witness(ed) the accelerated
decomposition of the 'Western pillar' with" America advancing disintegration.
- After decades "spent living in the myth of an 'ended
history' in which" Western ideology was triumphant, "it is almost
impossible to imagine 'a world after' " without Washington/Wall Street
dominance, "where 'Anglo-American' would not necessarily mean 'modern,'
and where the dollar would no longer be king."
- Neither our media or leaders "imagine the unimaginable."
They're "too busy trying to make us 'forget the unforgettable,' in
particular, the socio-economic consequences of the crisis throughout the
world." It creates problems and "unprecedented opportunit(ies)
to rebuild a 'world after,' provided" challenges can be seized and
dangers avoided. One thing's certain. New world ways will supersede one
olds, for better or worse. Buckle up. Things may get bumpy along the way.
- Real Analysis, What Wall Street Pundits Eschew
- Nearly daily from Canada, economist David Rosenberg provides
some of the best. He offers far different commentaries than corporate-sponsored
deception, extolling a recovering economy, claiming clear sailing ahead,
and hiding how Western workers are harmed.
- A recent Rosenberg chart analysis compared America's
economic decline/malaise to Japan's since the late 1980s. He began quoting
St. Louis Federal Reserve Bank President James Bullard last July saying:
- "The US is closer to a Japanese-style outcome today
than at any time in recent history." Perhaps ever, in fact, given
the level of past excesses, creating a monstrous debt overhang.
- Rosenberg's visual analysis showed a frightening post-bubble
decline in both countries by the numbers:
- (1) Since the mid-1990s, Japan's private residential
spending plummeted by nearly 60%. America, since 2006, matched it in much
less time, and the trend remains down.
- (2) Since 1988 in Japan, housing credit crashed from
over 20% annually to around 3%. US home mortgage liabilities peaked around
2003, moved sideways until 2007, then plummeted from around 13% annually
to negative numbers because of mounting foreclosures.
- (3) Japanese short term interest rates fell from 8.5%
(in 1990) to near zero in 1995 and remained there. US short rates fell
from around 5% (in 2007) to near zero where they're likely to remain indefinitely.
- (4) Over the past decade, the Bank of Japan (its central
bank) expanded credit exponentially, its level remaining at unprecedented
levels. In 2008, the Fed acted likewise, expanding its balance sheet recklessly
to help banks, not Main Street it ignores.
- (5) Fiscal policies in both countries created unprecedented,
dangerous, deficits. For over two decades, Japan had no surpluses. America's
last one was in 2001. It's been all red ink thereafter, especially since
- (6) In 1991, Japan began a protracted deleveraging cycle
as reflected in its 10 year government note yield and benchmark Nikkei
Index. It peaked on the last trading day of 1989 at nearly 39,000. Currently,
it's at around 10,500 with minimally many more years, maybe decades, needed
to recover fully.
- (7) From 1990 to today, Japan, post-bubble, experienced
over two decades of rolling recessions and recoveries. None of the latter
ones proved sustainable.
- (8) In post-bubble Japan and America, consumer inflation
(excluding food and energy) exhibited long-term declines. Japan's current
sub-zero level shows deflation. America's at 1% shows minimal inflation,
at least by CPI measures that are extraordinary unreliable.
- (9) The employment/population ratio in both countries
shows declines because of persistent unemployment, grossly underreported
in America to hide levels above 20%. The official 9.4%, the so-called U-3
level, is meaningless.
- A Second Rosenberg Analysis
- Worrying concerns in it include:
- (1) Grossly overvalued equity prices;
- (2) West Texas Intermediate oil prices above $91 a barrel.
Brent spot prices exceed $97. "Oil is being driven in part by speculative
- (3) Vacant housing units in America hit a record high.
So is the housing vacancy rate. Housing is in deep depression. Unless reversed,
sustained economic recovery is impossible.
- Before his summer 2007 death, noted economist Kurt Richebacher
titled his 2004 commentary: "Property Bubbles: Beware of Property
- the certainty that they all "end painfully, housing
(ones) in particular. They're an especially dangerous (type) asset bubble
because of their extraordinary debt intensity." Extracting wealth
(through refinancing) from rising valuations, and "heavily entangl(ing)
banks and the whole wealth financial system as lenders" assures a
bad ending eventually. Moreover, the longer excesses continue, the worse
the outcome and greater amount of time needed to recover.
- As a result, property bubbles have historically been
the main cause of major financial crises. In Japan and America alone, their
banking systems experienced "calamitous effects....through a horrendous
legacy of bad loans" that continue to plague both countries - besides
others, notably China with a far greater housing bubble than America's
at its peak.
- In 2010 alone, China built up to 15 million units. In
2006, America's bubble peak, only 2.5 million were completed. At the end
of the 1980s, Japan had a monstrous housing bubble. China's current one
rivals it, but so far it hasn't burst. Richebacher's warning, however,
bears repeating: "Beware of Property Bubbles." They all end badly.
- (4) Falling prices show America's house price deflation
- (5) At 26.5%, "(h)ousing is still the largest asset
on the baby-boomer balance sheet." Declining valuations affect their
spending and attitudes.
- (6) Real US unemployment and underemployment remain major
problems, neither showing signs of improving.
- (7) At nearly seven million, the total number of unemployed
Americans for 27 weeks or longer is a record high. At 45%, so is the ratio
of their numbers compared to total unemployment.
- (8) Youth unemployment among those aged 16 - 19 is a
record high. So is the adult male (aged 25 - 54) level.
- (9) Major sustained state and local cutbacks "remain
a key macro risk." Declining employment and investment levels are
two among other factors of concern.
- (10) America's public debt is a record high. So is the
issuance of government securities.
- (11) "The world is awash in (unsustainable) debt."
For example, in 1992, the "gross general government debt-to-GDP ratio
globally was 64%. Today it's 100% and rising, especially in America at
well over $1 trillion annually.
- (12) In countries like Greece, Ireland, Belgium, Portugal,
Italy, Spain, and others in Eastern Europe, default is either possible
or likely. In fact, "(d)efault risks (are) high and rising in the
- (13) Countries like Ireland are experiencing multi-year
unemployment highs along with falling demand levels.
- (14) the CRB Spot Commodity Price Index: Foodstuffs shows
an accelerating inflationary trend.
- (15) Since 2009, China's inflation has been increasing,
resulting in rising reserve requirement ratios and interest rates. Like
other nations that tried, China may learn painfully that engineered soft
landing attempts often fail, especially when trying to deflate monstrous
- After decades of spectacular growth, China passed Japan
in Q II 2010 to become the world's second largest economy. At its present
pace, it will surpass America as early as 2030, but it still has a long
way to go. Nonetheless, China stumbling will impact Asia and other regions,
especially where economies are weak.
- (16) Since November, China's stock market (the Dow Jones
Shanghal) has been declining, perhaps signaling "something about
emerging market growth."
- PIMPO's Bill Gross Assessment
- In his January Investment Outlook, he notes four major
factors of concern:
- (1) US wages continue to lag inflation and rising commodity
prices like food and energy.
- (2) Dollar depreciation will cut purchasing power "as
well as the global valuation of dollar denominated assets."
- (3) One consequence of trillion dollar deficits is the
need to finance them at very low rates "as long as possible."
He warns, however, that once "reflationary policies take hold, long-term
bondholders (will) lose their heads" as yields begin to rise, "reflecting
higher future inflation."
- (4) "Trillion dollar deficits add up, and eventually
produce a stock of debt that can become unmanageable." Witness Greece,
Ireland, Belgium, Portugal, Spain, Italy, other European countries and
earlier era Latin American ones.
- Mindless deficit spending has a price, including "higher
inflation, a weaker dollar and the eventual loss of America's AAA sovereign
credit rating." It's just a matter of time, Gross warning: "Fear
your head - fear your head."
- Municipal Bond and Public Pension Default Risks
- On 60 Minutes in late December, banking analyst Meredith
Whitney predicted from 50 - 100 "significant" municipal bond
defaults in 2011 (in cities, towns and counties, not states), totaling
"hundreds of billions" of dollars.
- The 2008 US record so far is $8.2 billion. Defaults at
multiples of that total would greatly impact the economy.
- Forecasting trouble, financial expert/investor safety
advocate Martin Weiss believes:
- (1) Rapidly sinking municipal bond prices "will
suffer one of the greatest collapses of all time."
- (2) It will affect other vulnerable bond markets, notably
mortgage-backed securities and long-term Treasuries.
- (3) When bond prices fall, interest rates rise, driving
up borrowing costs for business, federal, state and local governments as
well as consumer households.
- (4) "(T)housands of city and state governments will
have no choice but to gut their budgets, declare bankruptcy, and in many
cases, even shut down entirely."
- As a result, an American Greek Tragedy possibly looms
"in more ways than one." A million or more public workers may
lose jobs as Washington and deficit-burdened/budget-strapped states, cities
and local communities seek ways to cut costs. Way one is reducing staff
levels, the largest expense. Others include debt and pension obligation
defaults with trillions of dollars of liabilities at stake.
- Public pensions, if fact, face a trillion dollar crisis.
Orin Kramer, New Jersey State Investment Council chairman believes they're
underfunded by over $2 trillion, citing independent research he commissioned.
- Separate, so-called OPEB (other post-employment benefits)
obligations, are underfunded by at least another $530 billion, according
to the congressional Government Accountability Office's November 2010 estimate,
saying the figure is extremely conservative. Others put it at from $1 -
$3 trillion. The combination of economic weakness and mounting debt obligations
may mean inevitable debt and public pension defaults, as well as growing
numbers of municipalities declaring bankruptcy because Washington won't
- At issue is a federal/Wall Street scheme to reengineer
governments, downsizing them for profit at public worker expense through
lower pay, fewer benefits, and lost pensions to protect as many debt holders
as possible. Also to force cash-strapped states, cities and communities
to sell public assets cheap so banks and other corporate raiders can grab
them at fire sale prices.
- On January 7 in testimony before the Senate Budget Committee,
Fed chairman Bernanke said:
- "We have no expectation or intention to get involved
in state and local finance." States "should not expect loans
from the Fed," nor help from the Obama administration and Congress
in discretionary budget austerity mode.
- In their March 2010 "Trillion-Dollar Pension Crisis
Looms Large Over America" article, writers Paul Ingrassia and Imogen
Rose-Smith suggested "pension fund accountants might consider"
- "What's the difference between General Motors and
California," or Chicago, New York or Los Angeles? Unlike GM, they
haven't gone bankrupt so far, nor have they defaulted on their pension
obligations. Given today's crisis, with troubled communities across America
faltering, anything is possible anywhere anytime.
- Stephen Lendman lives in Chicago and can be reached at
email@example.com. Also visit his blog site at sjlendman.blogspot.com
and listen to cutting-edge discussions with distinguished guests on the
Progressive Radio News Hour on the Progressive Radio Network Thursdays
at 10AM US Central time and Saturdays and Sundays at noon. All programs
are archived for easy listening.