Tuesday, February 08, 2005

Signs of the Economic Apocalypse 12/27/04

From Signs of the Times 12-27-04:

Last week brought good news (with one important exception) for those trying to maintain the illusion that all is well in the economy. The Dow was up 1.66% for the week closing at 10,827, up 284 points. The NASDAQ gained 1.19% closing at 2161. The interest rate on the 10-year US Treasury bond was essentially unchanged closing at 4.18%. The price of gold in dollars closed at $442 an ounce up slightly from $441. The one piece of bad news was perhaps the most important one: the dollar hit record lows against the euro, closing at 1.35 dollars for one euro. All this news left many people in the United States who get their news from mainstream sources in a good economic mood going into the Christmas weekend.

Of course, if you listen to the mainstream economists, they will tell you that everything is getting better economically. It is only when you listen to their reasons and realize that they are leaving out the most important factors, the essentially non-economic ones, that you can see where their delusion lies. It is the unspoken assumptions that are key: as long as all the non-economic factors stay the same, then everything will be fine. What are the chances that political or climatological factors will remain the same in the near future? Take this wire-service article that appeared on Dec. 22nd:

WASHINGTON (AFP) - The US economy grew at a brisker-than-expected 4.0 percent annual pace in the third quarter, the government said, raising hopes for a solid 2005.

The expansion in gross domestic product, powered by robust consumer
and business expenditure, was faster than an earlier estimate of 3.9 percent
growth, the Commerce Department said. It followed a moderate 3.3-percent
growth pace in the second quarter. "The economy is improving. There might be
some worries about the pace of job creation, but strictly looking at GDP, the
economy is in full recovery," said Chris Rupkey, economist at Bank of Tokyo

The big dynamos in the economy were:

-- Consumer spending,
which surged at a 5.1-percent pace after growth of 1.6 percent in the second
-- Business investment, which roared 13.0 percent higher, after a gain of 12.5 percent in the previous quarter.
-- Final sales, which leapt 5.0 percent, twice as fast as in the previous quarter.

The government revised the economic pace higher, saying imports, which eat into growth, were a little slower than had been thought, gaining 4.6 percent, not 6.0 percent. Government spending, however, was also revised down a bit down to show a gain of 0.7 percent instead of 1.2 percent. "It underscores a story of
robust growth in the US economy with pretty good momentum," said BMO Financial Group analyst Sal Guatieri. The report showed "plenty of momentum" in
business investment, partly reflecting low interest rates and renewed confidence
in the economic expansion, Guatieri said. "I think business investment will
remain strong in the year ahead."

Consumer spending, which accounts for two-thirds of US economic activity, also showed the impact of low interest rates and strong income growth, helped in part by net jobs growth. "This report just re-affirms to us that the US economy has pretty solid foundation for continued growth ahead," Guatieri said. He forecast 4.0-percent growth in the final quarter of 2004. In 2005, the economy would likely slow to a still
solid 3.7 growth pace as the impact of low interest rates and heavy tax cuts
waned, he said. Drags on growth would include the lack of tax cuts, higher rates
and higher energy costs.

Despite rising interest rates, housing was likely to remain healthy, he said. "Unless they rise a another couple of percentage points, we don't see a marked slowdown in the housing in the housing industry. We are not too worried about a marked slowdown in the housing industry next year, possibly in 2006 we will get a pull back to normal levels of activity."

In an encouraging sign for consumer spending, major US retail chains reported Monday a pre-Christmas spending rush. Sales jumped 1.6 percent in
the week ending December 18, adding to a rise of 1.2 percent the previous week,
according to a survey by the International Council of Shopping Centers (ICSC)
and UBS Warburg. Compared to a year ago, sales were up 3.5 percent.

On Friday, the White House predicted economic growth at a 3.5 percent pace in the
last quarter 2005 after an expected 3.9 percent this year. The unemployment
rate was projected to gradually decline from 5.4 percent of the labor force now
to 5.3 percent next year, 5.2 percent in 2006 and to 5.1 percent in 2007 and
later years.

The US economy has churned a net 185,000 new jobs per month on
average during the first 11 months of 2004, the White House said, quoting Labor
Department data. Job growth during the four quarters of 2005 was
expected to be about 175,000 per month.

Sounds pretty good, doesn’t it? Notice that factually everything they said was pretty much true. What’s the problem then? Let’s look at the underlying assumptions.

The first assumption of mainstream economists is that the economy runs by natural laws, that the economic cycle is a natural cycle. While they would concede that political actions could affect how these natural laws play out, they never would concede that economic outcomes are essentially the result of conscious decisions by the people in a position to control the economy and the business cycle. Of course, some of these analysts are smart enough to know that their assumptions are faulty. The point of these assumptions is always that that is what they want us to think. It is “pump and dump” on a large scale. They want to be the smart ones who get out in time, but they need a lot of suckers to buy in when they want to get out. Again reading by what they are leaving out, it is clear that they are assuming that the war in Iraq won’t take a turn for the worse, that the US won’t start something with Iran or Syria, that the dollar won’t collapse, and that there won’t be some catastrophic event, either natural or “terrorist” –related.

Note also in the second paragraph that the main engine for the growth was said to be strong consumer spending. Now these “consumers” are the same ones who are having their health insurance scaled back or eliminated, are having their jobs or the jobs that they aspire to shipped to low-cost countries, and who are having the interest rates on their credit cards and mortgages increased to keep the dollar from collapsing.

The analyst cheerfully states that housing prices should hold up “unless [interest rates] rise by another couple of points.” Which is like saying that things will go well unless they don’t.

Business investment is also rising strongly. This is not surprising and probably results from pent-up demand from postponed investment over the last three years. But again, businesses only invest to prepare for future demand, and if future demand should drop, what then? What about government demand? According to this article, government spending is slowing, even factoring in the highly wasteful, yet stimulating in the short term, military spending.
And let's not forget the economic consequences of fear.

The Bush administration can only stay in power by keeping the American people in a state of fear, and their plans will entail creating a very justified feeling of fear in the rest of the world. Fear makes it harder to transport goods, people and ideas. The free flow of these things is essential to healthy economic growth. Slowing down border crossings, customs inspections at ports, air travel, the granting of student visas, increasing wasteful spending for fascist surveillance technologies, all these things slow the economy.

The appearance of a good economic future is especially important to maintain during the Christmas shopping season. The mainstream press will, however, show some of the storm clouds. This is so that they can’t be accused of not warning us after the crash happens. The following is from another wire-service report from the same day as the one we just quoted:

LONDON (AFP) - The dollar struggled against the euro in thin pre-holiday trade
despite an upward revision to US economic growth in the third quarter, while
analysts forecast possible further strains for the US currency before the end of
The single European currency rose to 1.3382 dollars in late European
trading from 1.3369 late on Tuesday in New York.
The dollar was trading at
104.06 yen from 104.32 on Tuesday.
An upward revision to US gross domestic
product growth in the third quarter was not enough to turn the tide against the
US dollar
Official figures showed GDP up 4.0 percent on an annual rate
compared with the 3.9 percent previously recorded.
"Though the market is now
well into the last trading sessions for the year, there is still sufficient
trading time left for some activity yet -- activity that we believe will be in
the form of further dollar losses," Commerzbank Securities currency strategist
Karen Jones said.
The dollar fell to an all-time record low of 1.3469
reached on December 7, on worries over the swelling current account and budget
deficits in the United States.

Therefore, what we will be keeping our eye on economically are gold prices, interest rates and the US housing market.

The rest of Signs of the Times will report on the non-economic factors of wars, political clampdowns and natural disasters.

We will look more carefully at these economic factors in future reports. Again, though, if these trends are deliberate we need to know why these steps are being taken. Could it be that the corporate oligopoly are trying to install a kind of corporate, high-tech feudalism? Another thing for us to ask ourselves is, if the economy collapses, with asset prices falling sharply, massive unemployment and bankruptcies, how much money would it take to buy up EVERYTHING in the world? Some have estimated that it would only be about $10 trillion. A would-be permanent ruling class, having squeezed everything they could out of the rest of us, having lent the better-off among the rest of us so much money we can never pay back, having parked their money in real assets (gold, guns, & oil), could push the world economy over the edge then step in and buy everything back up.

The other thing to consider may be more important: What if things have been controlled but can only be controlled up to a certain point? What if we are at the borderline of chaos, at a point far from equilibrium, at that point in non-linear dynamics where things can swing wildly in different directions?

If one allows an intense flow of energy in and out of a system (that is,
if one pushed it far from equilibrium), the number and type of possible
historical outcomes greatly increases. Instead of a unique and simple form of
stability, we now have multiple coexisting forms of varying complexity (static,
periodic, and chaotic attractors). Moreover, when a system switches from one
stable state to another (at a critical point called a bifurcation), minor
fluctuations may play a crucial role in deciding the outcome. (Manuel De Landa,
Thousand Years of Nonlinear History, New York: Zone Press, 1997, p. 14)
Remember the Achilles heel of the STS hierarchy: wishful thinking. It may be as if someone were trying to engineer global warming by increasing carbon dioxide emissions into the atmosphere and by increasing cosmic energy inputs into the earth’s system but ended up by creating an ice age instead, which is, in fact, one of the attractors that lie on the other side of climate disequilibrium.

As Robert Gelfand wrote in The American Reporter (“Economic Apocalypse is ‘Talk of the Town’” on www.american-reporter.com):

For those who are not economists, questions abound. Will there be serious
inflation as there was in the 1970s, leading to increases in the prices of
everything from milk to housing? Will there instead be a collapse in real estate
values provoked by widespread bankruptcies, themselves the product of higher
interest rates? How can we know? Probably nobody can know what our economic
future is going to bring. The one important point from the media standpoint is
that the situation is probably becoming more volatile. Whichever way things
swing, it will be more violent.
The fractal geometrist, Benoit Mandelbrot, published a book this year analyzing the stock market from a non-linear point of view and also concluded that violent swings are probable (The (Mis)behavior of Markets, Basic Books: 2004). Mandelbrot argues that wild swings are way more frequent than they would be under standard linear dynamics. According to Mandelbrot, "Index swings of more than 7% should come once every 300,000 years; in fact the 20th century saw 48 such days." Instead of a dynamic where yesterday’s price change does not influence today’s, a wild swing on one day makes one much more likely to occur on the next day.

Perhaps we are approaching a point economically where many things can happen. It is therefore important, when we try to see around the corner economically, not to focus too much on the past. The present, when viewed in the most open and objective way, may hold better clues to possible futures. While it may be that an illuminati-type group has been manipulating money and wealth for millennia with a view to establishing complete control, at the very moment of the completion of the plan, the outcomes may potentially go in many directions, directions that can be influenced by any one of us acting in favor of our own destiny.


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