(I began this instalog as a warning that the selling in stocks should continue during the coming week -- and wondering if this said something about who would be elected? The piece suddenly turned into a conversation on the lack of substance in this election, the pathological avoidance of a sober reasoned discussion of the Federal Reserve policies in America which are an attempt to avoid the only real issue of this election: Is the American Way of Life, with continuing higher states of debt accumulation, sustainable and/or desirable?)
Does Wall Street really want Mitt Romney to be elected President on Tuesday? They've had a pretty good deal from the Obama/Bernanke Team. It is hard to believe a better deal, in fact -- the denial of reality has been so productive as to successfully shift (of kick) Global Financial Armageddon down the road a couple of years.
In truth, this is all Ben Bernanke has been able to accomplish -- to kick the can down the road so that his stalling tactics will save him from having to deal with the mess he has helped to create, will fall into someone else's lap, after Ben retires, and after President Obama's first term (only term?).
Six months ago, Willard (remember the movie "Willard", the strange boy who became friends with an army of rats -- is this symbolism at work?) Mitt Romney (RMoney) said Bernanke was OUT if he became President. Mitt has since become strangely silent about this. Also, with four Election Debates out of the way, Bernanke's name came up ZERO times in those four debates -- proving the debates were about cosmetic issues -- which candidate would look best on the cover of America's (and the world's) magazine covers, I guess.
Bernanke should have been THE issue -- that is, the CANCER OF DEBT should have been THE issue, which Bernanke has refused to face. He was not. Everyone -- including Mitt, himself, perhaps -- has bought the line that America DID avoid the Greatest Depression by BB's magical sleight-of-hand and recovery is coming but will just take time.
Let's think about what Ben Bernanke did: 1) He sent billions to the banks in the form of a feeding trough to re-capitalize banks and pretend it WAS NOT a continuing form of Bank Bailout; 2) He arranged for the Fed to buy risky assets (bond-type assets) that no one else in the world would touch, which the Fed continues to own, but which the Fed will some day have to sell -- unwinding the Fed bailout -- but which sales may again find no buyer. If there are no buyers at the stated interest rate --remember how the Fed kept rates artificially low for such purposes, and continues to keep rates artificially low -- then rates will have to go higher in order to sell them, making them a costlier investment. So those who say the Fed saved America should withhold judgment until after the Fed positions are unwound, especially considered the fact that most of these positions are in paper no one else would touch.
The chart below of total fed assets/liabilities shows how significant this problem could be.
While the point of this article is NOT to bash Ben Bernanke -- who did what most Americans wanted him to do -- DENY, IGNORE and EXTEND the problem of debt for as long as possible -- I do think the fact that this election has ignored the Number One Issue facing the world today does tell us much about our democracy and how the one party-system we've let Big Money develop over the last several decades (The American Banking Plutocracy --does anyone doubt that the World Banking Plutocracy runs the world?) has pretty much destroyed to ability of Western democracies to face reality and deliver productive change to our system of political management.
DEBT is the only issue for the world today. Debt needs to be discussed publicly -- the consumer lifestyle binge we have been on for decades cannot go on. We heard American consumers are de-leveraging, that American corporations are de-leveraging -- but this does not seem to be true. De-leveraging is VERY painful -- as we see in Greece. That is what REAL de-leveraging looks like. And Greece is now careening toward an open civil war. We can all thank the world's banks, politicians and central banks for this crisis that will affect the world for generations and probably lead to world war. We can also than ourselves of course. We are all to blame for this crisis -- for having no discipline, and for having no real religious foundation to tell us that God does not want us to be the morst powerful, richest, and most successful nation on Earth -- if we remember our New Testament Satan (Saturn) offers Jesus unlimited power, pleasure, wealth, success on Earth if Jesus will only join Satan's army.
The American way-of-life, as we are now living it, is more Satanic than Jesuitic, in terms of religious metaphor. The American way-of-life, as we are now living it, is more Roman than Christian. In fact, America's model today is Rome. Is that America's true ambition? To identify with the Roman Empire, as the monster who tried to eat the world?
Are we de-leveraging? No.
Is American Credit Card debt going down? No.
The Federal Government has begun assuming responsibility for American corporate and consumer debt (mortgage relief after Bank Bailout). Does this mean the debt is being shifted from one pocket to another pocket, without de-leveraging? Yes.
Are Americans really de-leveraging? No. Total debt today is twice what it was just in 2003. What appeared to be a serious de-leveraging that began with the 2009 Financial Meltdown has flattened out. Why? The Fed's keeping interest rates artificially low has encouraged RE-LEVERAGING instead of de-leveraging. This is the Fed's 'denial of reality' that I argue is the basis of Bernanke policy. We remember, Fed policy is almost always Bank Policy, as the Fed
Household debt has come down since 2009, but not significantly. Business debt and government debt are not showing signs of coming down. In truth, the decline in household debt was produced by the mortgage defaults that poured in after 2009. Other charts show non-mortgage US Household Debt has not come down.
Is the Student Debt Loan sector heading for default? Without a global economic recovery, yes.
Have Republican presidents been better at controlling government debt than Democratic presidents over the last three decades? No. Obama has clearly taken on more debt, but this is part and parcel with the Financial Meltdown he inherited from Bush and from the Federal Government's attempt to save American business from the credit crisis they created, essentially using tax-payer money to try to camouflage the extent of the global financial meltdown.
Are Americans weathering the Debt Storm? No. Today nearly twice as many Americans are being hounded by debt collection agencies for twice as much outstanding debt as was true in 2003.
Our debt problems -- the world's debt problems -- are not going to be solved by more borrowing and more spending. Our lifestyle is not 'sustainable' -- I cringe at that word -- but, yes, our lifestyle is unsustainable.
Where is the political leader who talks about this? No where to be found.
Obama apparently thinks we really need to have more taxes of rich Americans -- with which I agree -- we need to tax the rich and the rich corporations a HUGE penalty tax until we destroy our debt -- which is what fueled the corporation's huge wealth gains of the last few decades. Romney thinks we need to lower taxes and cut government spending -- every Republican says that and has said the same thing for decades, as debt grew and grew -- but see above that Republican presidents in the last 30 years do a generally worse job than Democrats at controlling government debt growth BECAUSE of their love of the tax-cut cocktail as a way of spiking the economy and also adding to their own riches.
We need BOTH 1) a huge tax increase; 2) a huge cut in government spending. Does that mean America will be going through what Greece is currently going through? Yes. That is exactly what it means. Something similar. America is not Greece -- but DEFLATION (and real De-Leveraging) IS DEFLATION.
In truth, this is the fate that most countries in the world will be facing over the next generation. We cannot sustain our lifestyle of more and more debt. The only way we can sustain our current lifestyle is by a mandatory tripling of every salary in the world -- and then we will have to deal with the side-effects of runaway inflation that will cripple the finances of everyone in the world.
So, we have to choose Massive Inflation or Massive Deflation -- either way we will need to deal with the social chaos that comes with either 'solution'. If we choose Massive Inflation, it will not really solve the problem -- creditors do not want to be repaid for loans with more and more worthless paper. Debtors do not want a loaf of bread selling for $300 a loaf, even if it means they are able to pay back the loan on their minivan faster.
Are the naye-sayers making too much of this DEBT PROBLEM? No. The chart below shows this debt bubble problem was last nearly this acute in 1929 and led to Global Depression, social revolutions and World War.
The chart below shows DEBT BUBBLE Crises occur nearly every 36 years, and are ALWAYS followed by Depression and social chaos. (1893, 1929, 1965, 2001). Oddly, we did not get the same level of economic depression in 1965-1983 because we did not have the same Debt Bubble to destroy. We did, however, get the social chaos in 1965-1983, the political chaos, a near civil-war state in America, assassinations and attempted assassination of Presidents and political leaders, and economic disruption with high unemployment and high inflation (remember the STAGFLATION ERA of 1965-1983).
Note: between 1933 (debt at 299.8% of GDP) and 1950, debt was cut in half. In 2008, Total US Debt as a percentage of GDP reach 360%. It seems that 140% of GDP stands as a kind of baseline in the chart, rather than the 50-60% reduction. Of course, as debt grows, and GDP shrinks, the picture becomes even more dire.
Some argue that economic recovery will swell GDP and improve this picture -- I argue that high debt levels suffocate economic growth. That we can have no recovery until we destroy our excess debt through both re-payment, where possible, and through bankruptcy and default.
This chart shows the dangers of lower and lower interest rates as personal savings (freedom) transforms into personal debt (slavery) -- which is tolerated by our government and desired by our vampire financial institutions.
We must reverse this trend through higher interest rates immediately -- rates should have begun to be raised in 2001.
The final chart shows the percentage of debt for which each American is responsible for in a statistical sense --from essentially nothing in 1918 to over $45,000 in 2010.
In Part Two I will look at reasons stocks should continue to sell-off during the next week, and wonder aloud about what this says about the coming election.
Michael J. Clark
CGTS, Hanoi, Vietnam