Bubble, Bubble, Toil & Trouble
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton
by Jim Quinn
Who do you trust? Do you trust
the President? Do you trust Congress? Do you trust the Treasury Secretary? Do
you trust the Federal Reserve? Do you trust the Supreme Court? Do you trust the
Military Industrial Complex? Do you trust Wall Street bankers? Do you trust the
SEC? Do you trust any government agency or regulator? Do you trust the
corporate mainstream media? Do you trust Washington think tanks? Do you trust
Madison Avenue PR maggots? Do you trust PACs? Do you trust lobbyists? Do you
trust government unions? Do you trust the National Association of Realtors? Do
you trust mega-corporation CEOs? Do you trust economists? Do you trust
billionaires? Do you trust some anonymous blogger? You can’t even trust your
parish priest or college football coach anymore. A civilized society cannot
function without trust. The downward spiral of trust enveloping the world is
destroying our global economy and will lead to collapse, chaos and bloodshed.
The major blame for this crisis sits squarely on the shoulders of crony
capitalists that rule our country, but the willful ignorance and lack of civic
accountability from the general population has contributed to this impending
calamity. Those in control won’t reveal the truth and the populace don’t want
to know the truth – a match made in heaven – or hell.
“Most ignorance is vincible ignorance. We don’t know because we don’t want to know.” – Aldous Huxley
The fact that 86% of American
adults have never heard of Jamie Dimon should suffice as proof regarding the
all-encompassing level of ignorance in this country. As the world staggers
under the unbearable weight of debt built up over decades, to fund a
fantasyland dream of McMansions, luxury automobiles, iGadgets, 3D HDTVs, exotic
vacations, bling, government provided pensions, free healthcare that makes us
sicker, welfare for the needy and the greedy, free education that makes us
dumber, and endless wars of choice, the realization that this debt financed
Ponzi scheme was nothing but a handful of pixie dust sprinkled by corrupt
politicians and criminal bankers across the globe is beginning to set in. A law
abiding society that is supposed to be based on principles of free market
capitalism must function in a lawful manner, with the participants being able
to trust the parties they do business with. When trust in politicians,
regulators, corporate leaders and bankers dissipates, anarchy, lawlessness,
unscrupulous greed, looting, pillaging and eventually crisis and panic engulf
the system.
Our myopic egocentric view of the world keeps most from seeing the truth.
Our entire financial system has been corrupted and captured by a small cabal of
rich, powerful, and prominent men. It is as it always has been. History is
filled with previous episodes of debt fueled manias, initiated by bankers and
politicians that led to booms, fraud, panic, and ultimately crashes. The vast
swath of Americans has no interest in history, financial matters or anything
that requires critical thinking skills. They are focused on the latest tweet
from Kim Kardashian about her impending nuptials to Kanye West, the latest
rumors about the next American Idol judge or the Twilight cheating scandal.
Economist and historian Charles P. Kindleberger in his brilliant
treatise Manias, Panics, and Crashes details the sordid history of unwitting delusional peasants being
swindled by bankers and politicians throughout the ages. Human beings have
proven time after time they do not act rationally, obliterating the economic
teachings of our most prestigious business schools about rational expectations
theory and efficient markets. The only thing efficient about our markets is the
speed at which the sheep are butchered by the Wall Street slaughterhouse. If
humanity was rational there would be no booms, no busts and no opportunity for
the Corzines, Madoffs, and Dimons of the world to swindle the trusting
multitudes. The collapse of a boom always reveals the frauds and swindlers. As
the tide subsides, you find out who was swimming naked.
“The propensity to swindle grows parallel with the propensity to speculate during a boom… the implosion of an asset price bubble always leads to the discovery of frauds and swindles”– Charles P. Kindleberger, economic historian
- The Dutch tulip bulb mania
- The South Sea bubble
- John Law Mississippi Company bubble
- Banking crisis of 1837
- Panic of 1857
- Panic of 1873
- Panic of 1907 – used as excuse for creation of Federal Reserve
- Great Crash of 1929
- Oil Shock of 1974-75
- Asian Crisis of 1998
Kindleberger wrote his book in 1978 and had to update it three more times
to capture the latest and greatest booms and busts. His last edition was
published in 2000. He died in 2003. Sadly, he missed being able to document two
of the biggest manias in history – the Internet bubble that burst in 2001 and
the housing/debt bubble that continues to plague the world today. Every
generation egotistically considered their crisis to be the worst of all-time as
seen from quotes at the time:
1837: “One of the most disastrous panics this nation ever experienced.”
1857: “Crisis of 1857 the most severe that England or any other nations has
ever encountered.”
1873: “In 56 years, no such protracted crisis.”
1929: “The greatest of speculative boom and collapse in modern times –
since, in fact, the South Sea Bubble.”
Human beings have not changed over the centuries. We are a flawed species,
prone to emotional outbursts, irrational behavior, alternately driven by greed
and fear, with a dose of delusional thinking and always hoping for the best.
These flaws will always reveal themselves because even though times change,
human nature doesn’t. The cyclical nature of history is a reflection of our
human foibles and flaws. The love of money, power, and status has been the
driving force behind every boom and bust in history, as noted by historian
Niall Ferguson.
“If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.” – Niall Ferguson
Not only are our recent booms and busts not unique, but they have a common
theme with all previous busts – greedy bankers, excessive debt, non-enforcement
of regulations, corrupt public officials, rampant fraud, and unwitting dupes
seeking easy riches. Those in the know use their connections and influence to
capture the early profits during a boom, while working the masses into frenzy
and providing the excessive leverage that ultimately leads to the inevitable
collapse. As the bubble grows, rationality is thrown out the window and all
manner of excuses and storylines are peddled to the gullible suckers to keep
them buying. Nothing so emasculates your financial acumen as the sight of your
next door neighbor or moronic brother-in-law getting rich. As long as all the
participants believe the big lie, the bubble can inflate. As soon as doubt and
mistrust enter the picture, someone calls a loan or refuses to be the greater
fool, and panic ensues. This is when the curtain is pulled back on the
malfeasance, frauds, deceptions and scams committed by those who engineered the
boom to their advantage. As Kindleberger notes, every boom ends in the same
way.
“What matters to us is the revelation of the swindle, fraud, or defalcation. This makes known to the world that things have not been as they should have been, that it is time to stop and see how they truly are. The making known of malfeasance, whether by the arrest or surrender of the miscreant, or by one of those other forms of confession, flight or suicide, is important as a signal that the euphoria has been overdone. The stage of overtrading may well come to an end. The curtain rises on revulsion, and perhaps discredit.” –Charles P. Kindleberger – Manias, Panics, and Crashes
When mainstream economists examine bubbles, manias and crashes they
generally concentrate on short-term bubbles that last a few years. But some
bubbles go on for decades and some busts have lasted for a century. The largest
bubble in world history continues to inflate at a rate of $3.8 billion per day
and has now expanded to epic bubble proportions of $15.92 trillion, up from
$9.65 trillion in September 2008 when this current Wall Street manufactured
crisis struck. A 65% increase in the National Debt in less than four years can
certainly be classified as a bubble. We are currently in the mania blow off
phase of this bubble, but it began to inflate forty years ago when Nixon closed
the gold window. This unleashed the two headed monster of politicians buying votes
with promises of unlimited entitlements for the many, tax breaks for the
connected few and pork projects funneled to cronies, all funded through the
issuance of an unlimited supply of fiat currency by a secretive cabal of
central bankers running a private bank for the benefit of other bankers and
their politician puppets. Crony capitalism began to hit its stride after 1971.
The apologists for the status quo, which include the corporate mainstream
media, intellectually dishonest economist clowns like Krugman, Kudlow, Leisman,
and Yun, ideologically dishonest think tanks funded by billionaires, and
corrupt politicians of both stripes, peddle the storyline that a national debt
of 102% of GDP, up from 57% in 2000, is not a threat to our future prosperity,
unborn generations or the very continuance of our economic system. They use the
current historically low interest rates as proof this Himalayan Mountain of
debt is not a problem. Of course it is a matter of trust and faith in the
ability of a few ultra-wealthy, sociopathic, Ivy League educated egomaniacs
that their brilliance and deep understanding of economics that will see us
through this little rough patch. The wisdom and brilliance of Ben Bernanke is
unquestioned. Just because he missed a three standard deviation bubble in
housing and didn’t even foresee a recession during 2008, doesn’t mean his zero
interest rate/screw grandma policy won’t work this time. It’s done wonders for
Wall Street bonus payouts.
The growth of this debt bubble is unsustainable, as it is on track to
breach $20 trillion in 2015. The only thing keeping interest rates low is
coordinated manipulation by Ben and his fellow sociopathic central bankers, the
insolvent too big to fail banks using derivative weapons of mass destruction, and
politicians desperately attempting to keep the worldwide debt Ponzi scheme from
imploding on their watch. Their “solution” is to kick the can down the road.
But there is a slight problem. The road eventually ends.
At some point a grain of sand will descend upon a finger of instability in
the sand pile and cause a collapse. No one knows which grain of sand will
trigger the crisis of confidence and loss of trust. But with a system run by
thieves, miscreants, and scoundrels, one of these villains will do something
dastardly and the collapse will ensue. Ponzi schemes can only be sustained as
long as there are enough new victims to keep it going. As soon as uncertainty,
suspicion, fear and rational thinking enter the equation, the gig is up.
Kindleberger lays out the standard scenario, as it has happened numerous times
throughout history.
“Causa remota of the crisis is speculation and extended credit; causa proxima is some incident that snaps the confidence of the system, makes people think of the dangers of failure, and leads them to move from commodities, stocks, real estate, bills of exchange, promissory notes, foreign exchange – whatever it may be – back into cash. In itself, causa proxima may be trivial: a bankruptcy, suicide, a flight, a revelation, a refusal of credit to some borrower, some change of view that leads a significant actor to unload. Prices fall. Expectations are reversed. The movement picks up speed. To the extent that speculators are leveraged with borrowed money, the decline in prices leads to further calls on them for margin or cash and to further liquidation. As prices fall further, bank loans turn sour, and one or more mercantile houses, banks, discount houses, or brokerages fail. The credit system itself appears shaky, and the race for liquidity is on.” –Charles P. Kindleberger – Manias, Panics, and Crashes
Despite centuries of proof that human nature will never change, there are
always people (usually highly educated) who think they are smart enough to fix
the markets when they breakdown and create institutions, regulations and
mechanisms that will prevent manias, panics and crashes. These people
inevitably end up in government, central banks and regulatory agencies. Their
huge egos and desire to be seen as saviors lead to ideas that exacerbate the
booms, create the panic and prolong the crashes. They refuse to believe the world
is too complex, interconnected and unpredictable for their imagined ideas of
controlling the levers of economic markets to have a chance of success. The
reality is that an accident may precipitate a crisis, but so may action
designed to prevent a crisis or action by these masters of the universe taken
in pursuit of other objectives. Examining the historical record of booms and
busts yields some basic truths. The boom and bust business cycle is the
inevitable consequence of excessive growth in bank credit, exacerbated by
inherently damaging and ineffective central bank policies, which
cause interest rates to remain too low for too long, resulting in
excessive credit creation, speculative economic bubbles and
lowered savings.
Low interest rates tend to stimulate borrowing from the banking system.
This expansion of credit causes an expansion of the supply of money through the
money creation process in our fractional reserve banking system. This leads to
an unsustainable credit-sourced boom during which the artificially stimulated
borrowing seeks out diminishing investment opportunities. The easy credit
issued to non-credit worthy borrowers results in widespread mal-investments and
fraud. A credit crunch leading to a bust occurs when exponential credit
creation cannot be sustained. Then the money supply suddenly and sharply
contracts as fear and loathing of debt replace greed and worship of debt. In
theory, markets should clear through liquidation of bad debts, bankruptcy of
over-indebted companies and the failure of banks that made bad loans. Sanity is
restored to the marketplace through failure, allowing resources to be
reallocated back towards more efficient uses. The housing boom and bust from
2000 through today perfectly illustrates this process. Of course, Bernanke
declared housing to be on solid footing in 2007.
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The housing market has not been allowed to clear, as Bernanke has
artificially kept interest rates low, government programs have created false
demand, and bankers have shifted their bad loans onto the backs of the American
taxpayer while using fraudulent accounting to pretend they are solvent. Our
owners are frantically attempting to re-inflate the bubble, just as they did in
2003. Our deepest thinkers, like Greenspan, Krugman, Bush, Dodd, and Frank knew
we needed a new bubble after the Internet bubble blew up in their faces and did
everything in their considerable power to create the first housing bubble. If at first
you don’t succeed, try, try again.
Human nature hasn’t changed in centuries. We have faith that humanity has
progressed, but the facts prove otherwise. We are a species susceptible to the
passions of power, greed, delusion, and an inflated sense of our own
intellectual superiority. And we still like to kill each other in the name of country
and honor. There is nothing progressive about crashing the worldwide economic
system and invading countries for “our” oil.
History has taught that there will forever be manias, bubbles and the
subsequent busts, but how those in power deal with these episodes has been and
will be the determining factor in the future of our economic system and
country.
Humanity is deeply flawed; the average human life is around 80 years; men
of stature, wealth, over-confidence in their superior intellect, and egotistical
desire to leave their mark on history, always rise to power in government and
the business world; this is why history follows a cyclical path and the myth of
human progress is just a fallacy.
“That men do not learn very much from the lessons of history is the most important of all the lessons that History has to teach” – Aldous Huxley
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