Imploding Bubble Economies: Stephen Lendman

September 29, 2011
Imploding Bubble Economies
By Stephen Lendman

Imploding Bubble Economies - by Stephen Lendman

Major media downplay imploding economies.

Economic meltdown comes in stages. Recognition takes longer. Tout TV pundits stay in denial longest, calling crisis conditions a normal correction.

Reality suggests otherwise with US unemployment approaching 23%, home foreclosures multiplying, and poverty levels double or more official distorted numbers that artificially hold them down.

Longtime market expert and regular Progressive Radio News Hour guest Bob Chapman says Eurozone countries are collapsing.

They're "in a state of contagion with six of its sovereign members in serious financial trouble....The creators of the EU, euro zone, and ECB have a failing monstrosity on their hands," an out-of-control debt bomb.

"There is absolutely no way a financial crisis can be avoided," and it's already been unfolding since 2008. No combination of countries can bail out others in crisis "without destroying themselves. Can 21 nations find $4 to $6 trillion to bail out six?"

Impossible! "Fragile isn't the word for it. Neither is contagion. The operative (word) is abject failure," heading for collapse.

Economist David Rosenberg sees "imminent" Greek default. In mid-September, its one year treasury yield exceeded 100%, telling intrepid investors it already happened for those willing to buy worthless junk.

At a dismal 57.8 reading, University of Michigan consumer sentiment also spells trouble. 

In comparison, it was 70.3 in September 2008 when Lehman Bros. collapsed, 81.8 in September 2001 after 9/11, 97.4 in October 1998 after Long Term Capital Management faced imminent bankruptcy and Russia defaulted on its debt, and 89.3 in October 1987 when Wall Street had its largest ever one day decline (22.6%).

On September 16, Global Europe Anticipation Bulletin's (GEAB) latest economic update headlined, "Global systemic crisis - Fourth quarter 2011: Implosive fusion of global financial assets," saying:

Over many months, nearly $10 trillion and 15 trillion in "ghost assets....have gone up in smoke. The rest (and probably much more) will vanish in" Q 4.

GEAB sees a "perfect storm" coming "that will make the summer problems look like a slight sea breeze." Six elements, in fact, already are apparent:

(1) America's congressional "super committee" won't resolve budget austerity tensions.

(2) As a result, automatic cuts required will cause a political crisis. Moreover, this "automatic function (will) generate major disturbances in the functioning of the state system" because it amounts to executive and congressional abdication of decision-making authority.

(3) Other credit rating agencies will join S & P in downgrading US credit. Diversifying out of Treasuries will follow.

(4) Federal Reserve money printing can't go on forever. At some point, it'll have to resort to jawboning and market manipulation, but those tactics have short to intermediate-term shelf lives.

(5) America's debt will keep increasing dramatically "as tax revenues are already in the process of collapsing..."

(6) Like his 2009 jobs plan, Obama's new one won't work even if Congress approved it which it won't.

The combination of the above elements "will trigger (a) major financial shock," perhaps much greater than in 2008.

Financial expert and investor safety advocate Martin Weiss agrees, saying:

"We stand on the threshold of one of the most dramatic financial disasters of our lifetime."

Greece's imminent default "threaten(s) the largest economies in the history of civilization - the European Union and United States."

Financial analyst Claus Vogt believes growing numbers of German politicians and European central bankers realize "Greece is long past the point of no return."

It's bankrupt but hasn't said so. Soon enough others will. It's not a liquidity problem. It's a solvency crisis too far gone to fix. 

All the bailouts and quick fixes piled on more of them won't put Greece back together again. And behind it comes Ireland, Portugal, Spain and Italy. It's just a matter of time.

In fact, Greek default alone is more serious than Lehman's 2008 collapse that triggered market mayhem. It's because Western banking and its entire financial system never recovered, so is much more vulnerable to economic shocks now than then.

Even though G-7 countries promised to save weak ones, who'll save them when they fail? Who'll save America, especially Main Street mired in Depression with baked in the cake austerity assuring worse ahead, not better?

Already credit is tight. Expect further tightening with interbank lending freezing up at any price. Private credit markets also with small and intermediate size businesses as well as consumers unable to get loans.

As bad as conditions are now, expect worse ahead. It doesn't matter how much money is printed. Job markets have collapsed with no effective policy initiatives to revive them. Rhetorical promises substitute for meaningful initiatives to stimulate growth. They're not forthcoming so expect decline.

In America, virtually everything points down, including business and consumer sentiment, production, retail sales, employment, housing, credit, and growth.

Rosenberg compares today's credit contraction crisis to the 1930s and Japan in 1990 when its equity and real estate bubbles collapsed. Subsequent downturns were protracted. Recoveries were "fragile and soon aborted."

A major difference between conditions now and Japan then was its 20% saving rate that let households "hold together as housing, commercial construction, and capex (capital expenditures) collapsed."

In contrast, Americans are way over-leveraged enough to require years more needed to reduce it to normal levels. As a result, household purchasing power will be greatly restrained.

Pent-up discretionary demand is absent to reduce debt and interest payment burdens. Rosenberg calls it a "secular downsizing shift."

Moreover, despite zero interest rates, banks aren't lending and consumers aren't borrowing as they're up to their ears in debt. They need less, not more. As a result, it'll keep receding for years. It represents a generational semi-permanent shift, promising protracted negative or weak growth.

Rosenberg also calls it "the movie of (past decades) in reverse: savings growth (replacing) discretionary spending."

Frugality is in, frivolity out. From the early 1980s through 2007, debt surged, leaving household balance sheets way overstretched. 

Declining demand and supply of credit ahead has "profound implication for interest rates, inflation, economic growth and corporate earnings." 

The only positive is one day the pain will end. So far, it's nowhere in sight as economic contraction continues.

Expect angry Americans to react. Perhaps they'll replicate disruptive protests across Europe. 

Trends analyst Gerald Celente explains that when people lose everything and they have nothing else to lose, they lose it.

As America sinks deeper into Depression, perhaps that day of reckoning approaches. 

For long-suffering households, it can't come a moment too soon.

Stephen Lendman lives in Chicago.
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.

http://www.progressiveradionetwork.com/the-progressive-news-hour/ .

Hard Times Getting Harder

Hard Times Getting Harder - by Stephen Lendman


America's greatest Depression

Americans are being hammered economically, politically and socially. Paul Craig Roberts quoted Vladimir Putin calling America "a parasite on the world."

PR manipulators present a virtuous image. Roberts said "Putin understated the burden that America is on the world. How much longer will (it) put up with" our virtuosity?

Death, destruction, and global economic wrecking defines its agenda. Libya at peace became a hellish charnel house. Mainstream Americans suffer greatly in deepening Depression.

Political Washington fattens itself on campaign cash, hanging out to dry struggling millions. Trends analyst Gerald Celente says it's time for direct democracy -  "tak(ing) power out of the hands of politicians and put(ting) into the hands of the people."

With their own self-interest at stake, bet on them getting it right. With politicians on the take, they do it only for fat cat contributers, and the bigger the bribe, the more they get.

Depression Defines Today's Economy

Gluskin Sheff chief economist Dave Rosenberg calls what's ongoing "a modern day depression," saying:

A Depression, "simply put, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs," or what passes for them with benefits mostly to corporate favorites and super-rich elites.

It's defined by a "series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble(s) are completely wrung out of the system."

Using a baseball metaphor, Rosenberg says we're "in the third inning of this current debt deleveraging ball game." 

In other words, after three tough years, many more lie ahead for ordinary working households suffering most.

"You know you're in a depression when interest rates go to zero and there is no revival in credit-sensitive spending."

How can there be with banks hoarding nearly $2 trillion in cash. A classic "liquidity trap" occurs when private sector lending dries up.

Depressions usually follow bursting asset bubbles, especially housing ones. Before his August 2007 death, economist Kurt Richebacher warned about them in a 2004 commentary 

titled,"Property Bubbles: Beware of Property Bubbles." 

Citing "economic and financial imbalances," he said America's growth depends "entirely on the continuation of the frenetic housing bubble." 

However, "all bubbles end painfully, housing (ones) in particular. They're an especially dangerous asset bubble because of their extraordinary debt intensity." 

They cause great harm by extracting wealth (through refinancing) from rising valuations and by "heavily entangl(ing) banks and the whole financial system as lenders." 

Thus, property bubbles have historically been the main cause of major financial crises, notably Depressions.

Late 1980s Japan was a striking example. Its stock and property bubbles burst together, but the former got most attention. The "property deflation continued for 13 years (with) calamitous effects on (its) banking system through a horrendous legacy of bad loans." 

Japan's "building sector" also suffered and "never recovered from the depression following its (late 1980s) excesses."

Richebacher wondered if America faces the same fate, asking, "Is the US economy in better or worse shape today (in 2004) than in 2000 (as it faced recession)? Is it in a self-sustaining recovery?" 

Absolutely not, and he was right, saying "it is in dramatically worse shape" because of years of binge borrowing. 

Also because of leveraged asset purchases and soaring imports. The former involves no income creation. The latter destroys it. Moreover, this type borrowing is unproductive dead-weight debt, "yielding to debtors no future flow of income from which to" service it. 

As a result, a bad ending is assured. In summer 2007, it arrived with painful, deepening effects. Over three years later, growing millions can explain America's economy better than trained experts by relating their current state.

Rosenberg says Depressions result from "bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories."

Moreover, when true unemployment hovers around 23%, and half of those looking did it fruitlessly for six months or longer, "you know you are in something much deeper than a garden-variety recession."

Instead of soup lines in streets, they're "in the mail - 99 weeks of unemployment checks for over 10 million jobless Americans," and many others end up losing them.

In addition, secular change affect attitudes toward debt. Discretionary spending and homeownership plans are altered or curtailed until hard times give way to better ones.

"More fundamentally, in a recession," government stimulus revives economic growth. In Depressions, at best, it's kept from getting worse. Many bucks don't deliver enough bang to spur sustained upward momentum.

"In a recession, everything would be back to a new high nearly three years after" the economy contracted. Currently, "everything" is still below December 2007 levels.

Under normal conditions or garden variety recessions, all the monetary, fiscal and bailout stimulus would revive a "roaring" economy. Because it failed shows Depression conditions exist. That's what bond prices are signaling, with yields approaching Japanese levels. At near zero, it hasn't worked.

Even with current government deficits around 10% of GDP, double Great Depression levels, bucks injected to stimulate bang fell flat.

A decade of credit growth excess created the current mess. No quick fix will end it. Another $5 trillion "has to be extinguished either by paying it down," walking away from it, or having it socialized.

With 10-year Treasuries around 2%, the message not only is something is very wrong but that years are needed to fix it. Even then, only if good, not counterproductive, policies are employed.

At the same time, "epic changes" are occurring in how households allocate budgets, especially regarding discretionary spending and debt at a time they're undergoing a prolonged deleveraging cycle.

Years of credit expansion were fueled by no-doc loans (requiring no documentation), low-doc ones, liar loans, NINJA ones (with no income, jobs or assets), 0% vendor financing, subprime mortgages, risky Alt-A ones, and option ARMs (adjustable rate ones) with negative amortization.

From the mid-1960s through mid-1980s, household debt to income was 70%. In 2002, it was 105%. In 2007, it hit an all-time 140% high, and it's still 120%. It shows years more deleveraging are required to return it to normal levels.

In fact, "for the first time in recorded history, the entire $70 trillion household balance sheet is in a long-term process of shrinking." 

It suggests rising savings and weaker private sector growth. It's also deflationary at a time essential commodities are rising, including food, energy, and medical care, key items in every household budget.

Bottom line reality is protracted pain ahead for working households, no matter what policy measures are employed.

Given counterproductive ones proposed and planned (including austerity when stimulus is needed), expect hard times indeed ahead to get harder.

A Final Comment

No wonder America's middle class is disappearing. At its current pace, it won't be long before it's gone.

In his book titled, "How the Economy Was Lost,"  Paul Craig Roberts said it's gone and won't come back until "free trade myths are buried six feet under."

"America's (19th and) 20th centur(ies) economic success was based on two things. Free trade was not one of them. (It) was based on protectionism (and) British indebtedness." 

US economic ascendance eroded by abandoning traditional practices and preaching "free trade" dogma, neoliberalism, globalization, and the disease of offshoring. As a result, "American cities and states lost tax base, and families and communities lost jobs," replaced by fewer lower paying ones.

"The pressure of jobs offshor(ed), together with vast imports, has destroyed the economic prospects for all Americans....Doing a good job, providing a good service, is no longer the corporation's function. Instead," goal one is cutting labor costs, exporting high paid jobs to low wage countries, and hollowing out America for profit.

As bad as it's been it may get worse with millions more white-collar jobs vulnerable to offshoring. They include high paying positions in information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services. 

In other words, any job, high or low level, performed effectively anywhere will be moved to the lowest paying locales, abandoning America and other higher cost ones.

At the same time, major media scoundrels won't explain it or the truth about America's troubled economy.

Instead, consensus lying reports slow growth but no recession at a time of deepening Depression. In other words, coverup and denial substitutes for hard truths when they're most needed.

In his latest summer review, Gerald Celente says America's "economy is in collapse. Nothing the White House, Congress or the Federal Reserve tries to do to stop the crash" is working.

Everything tried fell flat. Operating on life-support, when the plug finally is pulled "and the money pump stops, the US economy will go down and" take much of the world with it.

It shows financial destruction can be as painful as military might. Either way, ordinary people suffer most, especially when governments they rely on don't help.

That's the state across America and Europe. It's why activism, not apathy, must confront what only will worsen unless effectively addressed. 

Of course, responsible leaders are needed to do it. They're, in fact, nowhere in sight, so it's up to voters to clean house for better ones. 

Given Americans' choice between bad or worse, it may be beyond reach, but what option is there than to try.

Visit Stephen Lendmens 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.Stephen Lendman lives in Chicago.  

How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War

By Stephen Lendman

How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War

by Stephen Lendman

ISBN: 978-0-9833539-4-2 192 pp. $16.95 2011

SYNOPSIS 

The 1913 Federal Reserve Act let powerful bankers usurp money creation authority in violation of the Constitution's Article I, Section 8, giving only Congress the power to "coin Money (and) regulate the Value thereof...."

Thereafter, powerful bankers used their control over money, credit and debt for private self-enrichment, bankrolling and colluding with Congress and administrations to implement laws favoring them.

As a result, decades of deregulation, outsourcing, economic financialization,
and casino capitalism followed, producing asset bubbles, record budget and national debt levels, and depression-sized unemployment far higher than reported numbers, albeit manipulated to look better.

After the financial crisis erupted in late 2007, even harder times have left Main Street in the early stages of a depression, with recovery pure illusion. Today's contagion has spread out of control, globally. Wall Street got trillions of dollars in a desperate attempt to socialize losses, privatize profits, and pump life back into the corpses by blowing public wealth into a moribund financial sector, failing corporate favorites, and America's aristocracy.

While Wall Street boasts it has recovered, industrial America keeps imploding. High-paying jobs are exported. Economic prospects are eroding. Austerity is being imposed, with no one sure how to revive stable, sustainable long-term growth.

This book provides a powerful tool for showing angry Americans how they've been fleeced, and includes a plan for constructive change. 

TABLE OF CONTENTS 

Dirty Secrets of the Temple
Capitalism and Freedom Unmasked

Greenspan's Dark Legacy

A Short History of Government Handouts to Bankers and Other Corporate Favorites

Quantitative Easing: Elixir or Poison?

Fraud in Washington

Obama's Anti-Populist Budget and Deficit Fix

The Recession Is Over, the Depression Is Just Beginning

Manipulation: How Markets Really Work

Goldman Sachs: Master of the Universe

Financialization: The Rise of Casino Capitalism

Class Warfare Jeopardizing American Workers' Security

Waging War on America's Workers

Permanent Debt Bondage from America's Student Loan Racket

On the Chopping Block: Social Security, Medicare and Medicaid

The Federal Reserve Abolition Act

Public Banking: An Idea Whose Time Has Come.

AUTHOR 

Stephen Lendman is a writer and broadcaster. His work is exceedingly widely distributed online, with his articles carried on numerous listservs and websites such as OpEd News, Cyrano's Journal, Information Clearing House, Countercurrents, Rense, AltNews, Uruknet, Global Research, Counterpunch, and more.

In early 2007, he began regular radio hosting, and now hosts The Progressive Radio News Hour on The Progressive Radio Network.

He's the co-author with J.J. Asongu of The Iraq Quagmire:The Price of Imperial Arrogance.

He holds a BA from Harvard and an MBA from Wharton.

Available directly from Clarity Press, amazon.com, amazon.co.uk or our distributors in the USA, UK/Europe/ Middle East, Malaysia/Singapore, World Clarity Press, Inc.
http://www.claritypress.com. ;

REVIEWS 

"Stephen Lendman has been tireless in exposing the hidden forces behind the news, on everything from political economy and human rights to social justice and workers' rights. His writings draw from a wealth of knowledge and deep conviction. I'm delighted to see him tackle the problem of private banking and government collusion and what I believe is the key to the solution--public banking."

ELLEN BROWN, Web of Debt

"Steve Lendman is one of America's leading critics,whether it involves exposing collusion between Wall Street and Washington, the Obama regime's support of the Israeli occupation of Palestine, or the frame-up of Muslim citizens by the attorney general. Fearless,thoroughly documented and judicious in his judgement, Lendman's essays are a major contribution to the struggle for social justice in America." 

JAMES PETRAS

"I think this text is terrific, just what is needed, very clear, informative beyond most people's ken, easy to read, and of ultimate importance to steering economic and political recovery. The Capitalism and Freedom chapter is right in biopsy. The book just keeps on going with brilliant full exposure." 

JOHN McMURTRY

Unequal Freedoms: The Global Market as an Ethical System

"A comprehensive understanding of Wall Street's manipulations of markets, money and power to the detriment of working people everywhere is badly needed. Stephen Lendman's new book 'How Wall Street Fleeces America,' is the answer."

PETER PHILLIPS
President Media Freedom Foundation/Project Censored 
 

"Stephen Lendman has written a brilliant, passionate, and humane analysis of the current economic disarray in which we now live. Picking up where Thorstein Veblen left off, Lendman links our catastrophic economic situation to the robber- baron mentality in corporations and the failure of government to act as the enforcer of morality. His analysis is full of concrete illustrations of this latter-day barbarism, and is accessible to the everyday person, as well as intellectuals. This book should be required reading in business schools as well as  Congress." 

STJEPAN G. MESTROVIC 
Professor of Sociology, Texas A&M University

"Stephen Lendman's latest work covers a great many interconnected subjects that affect not only the United States but everyone in the world. The aspect of investment in America today is shown to be nothing less then the robbing of the American people by a criminal syndicate, known as Wall Street, banking and the Federal Reserve. A good deal of this is based upon the Federal Reserve Act and the ability of major private banks to control American society. The players have turned the financial world into one vast casino and when the players lose large amounts of money the public is allowed to bail them out. This book digs deeply into many of the contributing parts of what is wrong with the financial system of America and the world today. Stephen Lendman has a great gift for writing and research and all his readers are the 

BOB CHAPMAN 
Editor of the International Forecaster

"Stephen Lendman has a breadth and depth of understanding of world and national affairs virtually unmatched among other public intellectuals today. With this exceptional collection of reflections upon our financial and budgetary crises, he clarifies and illuminates the dark and obscure recesses of policies and programs that, although ostensibly intended to promote the interests of the people, all too often have the opposite effect, enriching and strengthening the wealthy at the taxpayer's expense. Let us hope this book will be followed by many more!" 

JAMES H. FETZER 
McKnight Professor Emeritus, University of Minnesota Duluth

""Stephen Lendman is a true citizen journalist and scholar. After a long and successful business career, Lendman took it upon himself to use his retirement as a springboard for a new career as an analyst of political economy. With great acumen, Lendman calls out economic charlatans and cuts straight through the core of so-called bull markets to tell the truth about how the powerful fleece the public on a daily basis. Lendman not only traces the history of the current financial calamity, he offers common sense advice on what we can do about it. A solid, fact-based read for anyone trying to make heads or tails of what's happening in today's economy." 

MICKEY HUFF 
Associate Professor of History, Diablo Valley College, Director, Project Censored

"There are many descriptive, narrative accounts about Wall St. and the current economic crisis available to readers today. But Stephen Lendman's new book takes the analysis far deeper than a simple narrative. Lendman emphasizes and focuses on the connections between Wall St. actions and the political system in Washington. How money operates on both sides of the street -- the banking and the political--is described in detail. The reader is left with a broader, deeper understanding of why the recent crisis happened and where it may well be headed. Most importantly, the author does not shirk from calling the outcomes of the Wall St.-Washington alliance for what it represents: the emergence of a new kind of class war in America. Readers will find of special interest his innovative views on banking and public banking. Lendman's book is definitely one not to be missed."

DR. JACK RASMUS
Professor of Economics, Santa Clara University
Author: Epic Recession: Prelude to Global Depression