ANALYSIS, Global — As I write this US markets are in melt down, the UK is bleeding, and Australian markets have lost 24% of their value.
“Now like before, the financial deals are so complex no-one understands them”
That was me, part of a post predicting the current unraveling a month ago (27/12), I was making a comparison between 1920s and today. Mass Delusions, 2008 downturn
The events appear to be happening event faster than I believed. And now according to numerous reports, in many major markets the Bear is likely among us.
Here’s how this happened.
How did an economic meltdown happen?
4 words. Confidence, Complexity, Credit, Cowboys.
Confidence: One possible answer is that everyone’s economy is tied to the USA and the US consumer. Malls are emptying. Most consumers security is tied to their home price.
Further, the USA is engaged in prolonged war it has not ‘won’, which has a psychological effect. And the country is ideologically at war internally.
Consumers who make up the market are smart to feel insecure.
Complexity: Also credit vehicles and instruments are so complicated that no one understands them. And they are cross-national and cross-sector, meaning that global economics is tied up like a big ball of string.
Credit: The banks were lending to anyone with or without a pulse, including sending credit cards pre-approved to a dog, and numerous dead people. Margin-lending hit $36 billion in Australia alone.
Cowboys: And then there is those bravado cowboys of the free markets in economics and in banking / trading. The same ‘why do we need government or regulation’ people.
There’s more to it of course.
Using trend analysis I was able to pick the top of the stock market (in writing, here).
In a speech in my 20s I also predicted the top of the dot-com market one month prior, although I doubt it is remembered by the Toastmasters I gave it to.
If you’re in Australia, I believe the bottom of the ASX All-Ordinaries is 4500. It’s hard to be accurate, but that’s my belief at current based on trends.
Who’s fault is an economic crisis?
You’re angry (lost money) and want to blame someone?
Try blaming the anti-regulation free marketeer traders & economists. i.e. very greedy people who want as few a barriers as possible to accumulating as much wealth as possible at others expense.
Here’s their chorus…
We don’t need safeguards? Why?
We can self-regulate to the sky,
The stock money will never stop,
We just have to get out before the top!
All you need is trade, trade, trade is all we need.
– That can be sung to the sound of “All you need is Love”
They have such noble arguments about why those people living on $1 dollar a day, are now better off living on $2/day, a highly dubious claim.
Read John Ralston Saul’s anti-globalisation book, The Collapse of Globalism.
But what about all those pro-globalization statistics?
The World Bank recently revised all GDP for countries, showing US economy still the world’s biggest, and China far smaller than thought. World Bank
This is important, because the inaccurate World Bank figures these replace have been the basis of most arguments made to most of us supporting free trade as the only answer.
At 2thinknow our position is that economic and social research should be done by first-hand sources, not statistics alone.
Economics should not be considered in isolation of the society, which has been largely the case until the new World Bank statistics. Which in turn do not go far enough.
Yet sunny lot of pro-globalisation free marketeers are still out amongst us. With their statistics and their attacks on an alternate informed viewpoint.
The market is the new God for these people. Perhaps they need to pray instead.
Despite the ashen faces of traders on the stock markets on the TV screen this cheerful bunch of ‘let it all hang out’, no regulation business people keep peddling their wares.
Will these guys ever learn?
Free marketeers cause almost every major bust, including the great Depression. (Caused by Harding’s wide open-for-business policy, Coolidge’s restraint and no regulations.)
(Former economics students who like to blame Smoot-Hawley should read Alfred Eckes or Maury Klein’s thorough accounts of the Great Depression.)
Even yesterday, I had someone quoting Milton Friedman at me. Friedman was far more nuanced (like Adam Smith) than a few ideologically-driven courses will admit.
In A Theory of the Consumption Function, Friedman may be a free marketeer, but he calls for the government to act as umpire.
The Reality
The reality is that we are sowing the seeds we reap.
There will be a bounce in the markets very soon.
But long-term economics mean those of us intertwined in the global economic ball of string will need to get a sharp knife.
There is longer term a perfect storm coming, even after a bounce.
Take care,
Christopher
Nice post. I agree with you on the causes and where the blame should lay.
Got one question: How are you preparing for this?
Jen:
> Got one question: How are you preparing for this?
It depends on circumstance but financially minimizing exposure to banks and major corporations as a source of income has been my major financial preparation. I started doing this in 2007 because I don’t see a rosy future.
But a lot of the behavior I see from corporates and some government is morally wrong. They have let greed and dogma justify immoral behavior or get in the way of a practical and ethical solution to any issue. Like your post on polar bear oil or NAO
You have a nice blog by the way, I agree about the US media , they are a large part of the problem. I like what YOU are doing!!
I blame Murdoch mostly. If you want a joke, he used to back the hard-left in the 1970s (ie borderline communists).
Philosopher Hobbes wrote about a society of self-interest. It seems many are using dogma to justify self-interest.
So I guess i don’t have all answers on what to do? I just know wrong when I see it. All periods have major mistakes, but this period of time is among the worst in recent history. Historically this has happened before in cycles.
I have plenty of ideas, but like many, I feel locked out of the process. Implementation becomes an issue. I think we all have to form a group, which is part of my goals, but we are all doing this whilst working to earn an income to pay the bills in a climate where inflation (at least in Australia) has been under-reported for a good 5 years.
Your ideas Jen? Hope that answered your question sort of?
Christopher
Dear Christopher,
May I ask why you ‘see’ a bounce before more pain? Why would the circumstances that might deliver the future pain, temporarily ‘allow’ for a bounce?
I really enjoy and benefit from your site!
Many thanks,
Errol
Christopher,
Honestly, I’m trying to figure out what to do. My personal situation is pretty nice because my boyfriend (who will probably be my partner for the rest of my life) has a Masters in mechanical engineering and specializes in energy efficiency. I worked in a horrible corporation while he was in school and now that he is making a decent income, we live on that (we have opted not to have children for the foreseeable future – I don’t know how we would afford them with just one income). My personal strategy is to just stay out of the corporate system, even if that means living with less money and possibly without children (a realization that breaks my heart). As for what to do with the money we do have, that is tougher. Do we keep it in banks or under the mattress? Do we close all our stocks or keep one or two and just let them ride for a few decades? I have no idea what to do. At this point though, I think because my livelihood is no longer controlled by a large corporation, I’m better off than most.
I think if people refused to work for companies that were behaving immorally on a large scale, that would be our best shot at turning things around. But as long as the collection of money and possessions is the main motivator for the average American, we are in real trouble.
Thank you, by the way, for the kind words about my blog. My readership is still quite small, but if I can open even one mind, I feel like I’m making a difference.
Thanks for your comments. Corporations and banks can be useful structures when they provide finance to enable business and home ownership.
We can’t disengage totally, and banking is one of the oldest professions. Money lenders in the bible! But to some extent we need to know our bank is socially, ethically and morally responsible. We can start by asking their employees how THEY are treated.
The bounce I spoke of happens because many people ‘in the know’ sell out before further falls, and human beings sometimes being optimists go bargain hunting too early.
At current, I believe the fundamentals are going down in the USA and many countries exposed to the US market.
Fundamental direction indicates a down trend.
And also we have given bankers/finance people too much power in our society, and over the long term that balance will need redressing.
They are just bean counters after all!
Christopher
Because the downtrend seems to be entrenching itself, I wonder if the eagerly awaited (at least by me)”bounce” in the stockmarket will be so short as to be almost non-existent? At the moment, the trend in the stockmarket appears to be one forward and two back.
Further, as people notice this trend, perhaps it will lead to an earlier sell-off than expected thereby further depressing share values?
Errol
found your site on del.icio.us today and really liked it.. i bookmarked it and will be back to check it out some more later ..
Dear Chris,
I have previously put posts on your site. This time I wish to acknowledge the part that information on your site played in my earlier decision to withdraw funds I had in Q Super, some of which were invested in shares. In the light of what has recently happened on the ASX, that decision has potentially saved me much money.
People are saying to me, “Don’t worry about it, it will turn around, it always has!” Depending on one’s age and particular circumstances, the time taken to ‘turn it around’,can be critical.
Thanks again for your site, and, do you have any latest thoughts on the current situation?
Kind regards,
Errol
Please not we cannot give specific financial advice.