The same geniuses who brought you the S & L debacle are at it again, their latest product is the subprimes. From St Reagan's deregulation to GWB's government of Incompetence Inc., we see once again how superior the private sector is to the government, and how the "magic hand" of the market works. To think that all this is happening under "the first MBA president"!
Not only his administration could not shoot straight in Iraq, but his financial buddies do not seem to be able to add.
Let's see:
The dollar is sliding, soon to reach 2USD for 1 Euro. Should be good for US exports except we have nothing left to manufacture after all our plants have been moved to China.
The Euro is appreciating. Not so good for Europe either because they will not be able to sell all these very expensive Airbuses, BMWs and Godivas.
What we have here is both dereliction of duty in terms of financial prudential regulation and ideology as shown by the obstinate tax cuts for the rich , which ended up blowing the budget deficit.
Add to this 3 trillion $ for the war bill and you have an economy where the administration, selected by a group of financiers, gives them the run of the kitty, until the whole structure collapses. In the Congo they call it "corruption".
Sure the dollar was overvalued. And it is true that "irrational exuberance" has been followed by "irrational pessimism", but the family that has been foreclosed, the old couple on a fixed income, and the 5 to 8 million unemployed caused by this crisis will be excused if they see it differently.
The subprime:
In defiance of prudential banking rules, astute bankers forced variable interest loans down the throat of the poor, unable to ever repay. In order to spread the risks, these loans were bundled with others , and securitized, to be sold all over the world as "risk investment". All the banks which hoped to get rich quick are now going under. Confidence, the only value that makes you think that you will get goods or services against a piece of paper , has vanished. Banks no longer trust banks. The source is dry, credit will be much rarer , and much dearer. Less credit means less borrowing, which means less consumption, which in turn means less production and more unemployment.
The ponzi scheme is over, one more bubble has burst.
Oil and other commodities such as steel, coal, food etc.. are going through the roof. If you cannot park your profits in US dollars, why not speculate on oil futures? (30 to 40 % of the price of the barrel is pure speculation on oil futures. Add 10 to 15% from political jitters, and you have 110$ a barrel.)
Soon, the system will recover its sanity. Then, the price of oil and all other commodities will plummet, at first way below their average value, to 20, 30$, to stabilize around 50/60$ a barrel. In the meantime various producers and investors will be ruined. The whole game consists in bailing out first, and cashing in!
This is not a US crisis. Today, the economic and financial system is global. All indicators seem to point to a mild recession rather than a long one The US corporate sector is very robust, and productivity is at an all time high. The cost of labor is at an all time low, thanks to R. Reagan's deregulation and destruction of unions. Real wages in the US have not increased since 1980! (It is interesting to note a concomitent slide in the health status of the nation and in the US education level as discussed recently in the Senate with the visiting ITUC.)From nr 3 in 1979, the US ranks 27 for education in the OECD in 2006, and it went from n10 to nr 40 in health care in spite of spending the most per inhabitant.
The US will recover soon because banks are well capitalized. Mortgages are still at a historical low. A large inventory of foreclosures will welcome the excess liquidity once the storm has passed. Good bargains will be on offer in stocks after the recent decapitation. It will be time to buy low.And when oil and other commodities reach their natural level, inflation will decrease and the US economy will sit pretty.
The "BRICS", Brazil, India and China are doing very well. They will be good customers for US services.
Africa is growing at 6,5%, Latin America at 8% and Asia at 10%.
Conclusion:
This is not black Monday. True, the US will lose 1 trillion dollars , on top of 3 trillion for the war. But the US economy is running at 57 trillion dollars. Instead of being consumers, Americans will learn to be savers.
BUT, the failure of International Institutions to play their surveillance role has been revealed, and the kleptocratic nature of the current administration has come to light.
Sovereign Funds will come to the rescue of the main US and European financial establishments, except that their owner countries are among the least democratic on earth.
It could be the beginning of Oswald Spengler's warning about the twilight of the West. In the meantime it is a lesson for all the voters who thought it was all right to elect an idiot for president, provided he was surrounded by good advisers.......
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