nice read. thought you might like a change of pace.
Black Swan song Commentary: Economic sound bites sound alarm on coming financial Armageddon
By Paul B. Farrell, MarketWatch Last update: 7:35 p.m. EDT April 21, 2008
ARROYO GRANDE, Calif. (MarketWatch) --
...hot economic sound bites Washington and Wall Street probably hopes you missed. In a world where nobody's really "connecting the dots," here's your chance to do it. Play with some of these gossipy "bites" from the far corners of the financial world and connect the isolated "dots" into a whole prediction of the future: 1. Warning: It's not a 'Black Swan' if it wasn't 'improbable!'
Seems everyone's talking about Nassim Nicholas Taleb's "The Black Swan: The Impact of the Highly Improbable." But is he really telling us the "true story" behind the housing, subprime-credit meltdown that's sinking us ever deeper into a recession? Or were recent events not only probable and predictable but obvious, even intentional and well-known for years in Washington and Wall Street?
Keep these questions in mind as you struggle to "connect the dots" and predict the future. Why? Because you're "probably" being mislead again about the "probability" of a new, bigger meltdown dead ahead, with a high "probability" of a long-term "no-growth" economy.
2. 'Bad Money' is now America's 'real economy'
Onetime Nixon strategist, Kevin Phillips just published a brilliant analysis of today's problems: "Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism." He tells me we're all "failing to connect the dots," failing to see our "nation's deepening tragedy" in historical context. "Bad Money" (mainly Wall Street and its buddies in real estate and insurance) has been building for over two decades. In one brief generation our total debt quintupled to $50 trillion. Manufacturing was cut in half, from 25% to 12%, while "Bad Money" doubled, from 10% to 20%, in our GDP. Now "Bad Money" is the world's "real, real economy," setting up a new and bigger disaster.
3. 'Economic Armageddon' dead ahead?
Four years ago Steven Roach, chairman of Morgan Stanley Asia, warned that we had only a 10% chance of avoiding "economic Armageddon." George Soros, Bill Gross, Jeremy Grantham and others saw it coming. But not politicians: Alan Greenspan, Ben Bernanke and Henry Paulson knew, but they hate having their ideologies challenged.
So when the meltdown hit last summer, they made excuses. Refused to take responsibility. Invented "blueprints" to perpetuate the outdated free-market economics that got us into the mess. Warning: Myopic politicians and their pandering ideologies, not economists, will trigger the eventual Armageddon. 4. Can anything stop this 'lethal chain of endless bubbles?'
Phillips quotes Roach: The Fed has "mismanaged the biggest risk of our times ... America's bubbles have gotten bigger, as have the segments of the real economy that have been infected." Higher interest rates are "the only hope America has for breaking the lethal chain of endless bubbles." But "endless?" Maybe not, as long as Washington and Wall Street remain obsessed with "growth" as America's main economic goal.
"Biofuel" was Wall Street's hot new commodity. So Congress gave Big-Farma billions in subsidies for ethanol. Result? Disaster! World food prices skyrocketed 83% in three years. Rice is up from around $100 a ton five years ago to $1,000 a ton in the last few days on some world markets. And food riots are scaring not just leaders in developing countries, but in the U.S., the United Nations, IMF and World Bank. Still, we ignore the real problem: Demanding, consuming -- and wasting -- too much oil.
6. Congressional subsidies for ethanol ... a global disaster!
Stocks, Options & Futures Magazine put events in a historical context: We're repeating 1970s errors in "the worst spate of economic mismanagement since the Great Depression. A huge policy mistake: Stock market historians are fond of noting that bull markets do not die, they are killed. Economists are fond of noting that inflation simply does not happen, it is created by policy decisions."
Bottom line: "The present situation in the food and agriculture sector falls into some combination of ineptitude and reckless abandon ... The subsidized production of ethanol from corn was a gigantic policy mistake."
7. Irony: Fed's emphasis on growth will kill economic 'growth'
Wake up: The Fed's charter is simple. In theory, it is balancing economic growth and inflation control. In practice, growth invariably wins. Result: Fed decisions exacerbate, expand and extend recessions as history repeats.
They've lowered rates again, proving that "growth" remains the dominate economic policy driving not just at the Fed, but all of Washington, Wall Street and Corporate America, as ideology trumps common sense.
8. America's economic failures are spreading worldwide
From the International Herald Tribune: Under a photo of "Emma Linnane in her apartment in Dublin. Its value has decline by $100,000." Opening line: "The collapse of housing bubble in the U.S. is mutating into a global phenomenon" -- Spain, India, the Baltics.
"This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes, but also jobs ... the downturn could turn into a wholesale collapse."
9. Weak politicians and strong lobbyists running America
In spite of deepening problems, it's business as usual in Washington. Politicians are lost souls, incapable of solving problems. Why? Lobbyists run Washington: The New York Times says lobbyists are loading the homeowners' relief bill, the "Foreclosure Prevention Act," with huge unrelated tax credits for big businesses, automakers and airlines.
10. 'Core inflation' is a Washington hoax
Making matters worse: The producer price index is up 7%. And yet Washington is obsessed with "core inflation," preferring the lower 2% CPI index. Net result? Policy-makers ignore food and energy inflation. But that just makes inflation worse!
Reagan's Council of Economic Advisers chairman, Marty Feldstein, warned in The Wall Street Journal that keeping interest rates low is "only fueling inflation and political instability around the world." The real fear: Honesty about inflation will force Social Security payments up.
11. America's free-market policies failing world economies
"Free market forces are vital," says Columbia University economist Jeffrey Sachs in "Common Wealth: Economics for a Crowded Planet." But in U.S. News and World Report, he warns that free market forces "are limited when you have people so poor they are essentially isolated from markets."
Sachs estimates that it would take less than 1% of the income of developed countries to end poverty. But greedy leaders fear a loss of power if the poor prospered. Result? Expect more riots and rebellions, worsened by protectionist tariffs and regulations in developed countries.
12. Warning, Adam Smith's 'growth-at-all-costs' is dead
In "Deep Economy" environmental economist Bill McKibben warns that our self-indulgent focus on growth-at-all-costs is ending: "For most of human history the two birds "More" and "Better" roosted on the same branch ... that's why the centuries since Adam Smith have been devoted to the dogged pursuit of maximum economic production." But "Better has flown a few trees over." Today, not only is growth no longer creating a better world for the vast majority, "greater wealth no longer makes us happier," not even the rich.
13. Are entitlements killing America's revolutionary spirit?
Maybe it's all in our heads: Since 1776 "too many Americans have twisted the sensible right to pursue happiness into the delusion that we are entitled to a guarantee of happiness," says Susan Jacoby in "The Age of American Unreason." "If we don't get exactly what we want, we assume someone must be violating our rights."
14. Black Swan? Or last step before 'no-growth' economics?
So how did you "connect the dots?" Do you believe today's recession is an "improbable" Black Swan? Or was it not only probable and predictable years ago, but are we now seeing 14 clear signs of an even bigger meltdown dead ahead? Now here's the ultimate question challenging you and me: If Wall Street and Washington are killing Adam Smith's "growth" principle as America's main economic goal, how will a "no-growth" world economy impact your daily lifestyle, investment strategy and retirement nest egg?
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