Monday, April 25, 2005

Signs of the Economic Apocalypse 4-25-05

From Signs of the Times, 4-25-05:

The U.S. stock market recovered a bit last week with the Dow closing at 10,157.71 up 0.7% from the previous week's 10,087.51 but the direction was down at the end of the week. The NASDSAQ closed at 1932.19 up 1.3% from 1908.15 on the previous Friday. The ten-year U.S. Treasury Bond closed at 4.25% up a bit in yield compared to the previous week's 4.23%. The euro closed at 1.3066 dollars, up 1.1% from last week's 1.2924 dollars. The dollar closed at .7653 euros, down from .7738 the previous week. Gold closed at $436.50 up 2.8% from the previous Friday's close of $424.60. Gold in euros would be 334.07 euros an ounce, up 1.7% from the previous week's 328.43. Oil was up sharply again, closing at $55.39, up 9.7% from last week's $50.49. Oil in euros increased as well, climbing 8.5% to 42.39 euros from 39.07 the previous week. The number of barrels of oil an ounce of gold can buy went down 6.7% last week, closing at 7.88 compared to 8.41 last week.

This past week the big story was oil. The violence in Iraq during the past week put upward pressure on oil prices, in spite of good supply at the present. Iraq isn't the only oil-rich country to be hit by violence recently. This sentence was buried deep in a Reuters wire service article on oil prices:

Two suspected militants and two Saudi security personnel were killed in a fierce gunfight on Thursday in the Muslim holy city of Mecca, the Interior Ministry said.
A gunfight between government forces and militants in Mecca? That can't be a good thing. Of course, the resultant higher oil prices benefits the Saudi royal family and the U.S. oil industry, so who knows? The Xymphora blogger has this:

From an article by Efraim Halevy, the former chief of the Mossad and the National Security advisor to Ariel Sharon:

"Not long ago a senior official in one of the world's largest oil companies told me that he wakes up every morning fearful that he will turn on his bedside television set and see reports of a coup in Saudi Arabia."

and (my emphasis of his careful wording):

"Few observers of the Middle East scene are actually taking a good hard look at the situation in Saudi Arabia and examining coolly the terrifying scenarios, one of which might ensue. Some believe that there is a real danger that extremist religious figures will seize power in Saudi Arabia and establish an 'Al-Qaida state' in Riyadh. Others note that the national identification of large numbers of the country's population with the Saudi entity is feeble and that their main attachment is tribal or local-regional. Thus, a revolutionary situation might cause the disintegration of the state and the creation of parallel regimes in various regions of the kingdom.

"In a visit to the United States two weeks ago, I was told by several well-informed observers that should one of the more severe scenarios come to pass, the United States will have no choice but to deepen its presence in the Middle East. To that end, it will have to renew the draft, to ensure that there are enough forces to deal with developing situations in countries like Saudi Arabia."

An attack on Iran just causes problems for the Americans without really addressing the issue of total control of the world's oil that appears to be mad Cheney's ultimate goal. The Iran attack would cost a fortune, go on for years, result in the deaths of thousands of Americans, and might even fail. After the debacle of the lies about Iraq and the disastrous American occupation, it would be very hard for the Bush Administration to make a case for it. On the other hand, if Israel and/or the United States were to stage a fake 'coup' in Saudi Arabia - a bit of made-for-TV bafflegab blown up into a full armed insurrection by the disgusting American media, together with claims that 'al Qaeda' now controls the American oil supply - American troops could have full control of the country in a matter of days, without having to interrupt the flow of oil. Americans run the security apparatus of Saudi Arabia, and can almost certainly remotely render useless any defense mechanisms which have been supplied by American arms contractors. The Saudi rulers are essentially helpless.

Due to the 'instability' in the Middle East ("in countries like Saudi Arabia"), the Bush Administration would then have full authority to call a draft, and the same instability would serve just as well as another terrorist attack in removing the malaise that has now settled over Bush's presidency (the last time we heard of problems in Bush's Presidency was in early September 2001). The new political capital could be used by Bush to propel his planned take-over of the American social security system by Wall Street. The price of oil would go up, benefiting Bush's oil friends, but not too much as to be a political problem (Americans will accept just about anything if it is framed as being part of fighting the 'war on terror' by keeping al Qaeda from taking over Saudi Arabia). Saudi rulers and clerics would be bundled off to the new statelet around Mecca and Medina - a new country completely unthreatening to Israel, having neither arms nor money - and the rest of the country, including all the oil fields, would be run from Washington and Tel Aviv.

Speaking of malaise, there does seem to be a rising amount of economic pessimism in the normally-optimistic United States. The Washington Post ran a chart on Wednesday summarizing data from their "Consumer Comfort Index" showing that the percentage of people thinking the U.S. economy is getting worse increased from 33% in mid-November 2004 to 48% today. Funny how the percentage of those thinking the economy is getting worse began to rise just after the November U.S. presidential elections. George W. Bush's approval ratings have been sinking since then as well. It seems that once he got himself reelected, the Bush-controlled media slowed down on pushing their rosy economic scenarios. According to the accompanying article, there is a growing disconnect between the economic fears of the people and the lack of reaction to it by the political elite:

"People feel vulnerable and besieged," said Lawrence Mishel, president of the labor-oriented Economic Policy Institute, "and they don't hear anybody talking about it."

Yet the only economic bills signed into law this year have tilted against the little guy: Legislation that restricts class-action lawsuits, and a major rewrite of the nation's bankruptcy laws, signed yesterday, that will make it harder for debt-ridden Americans to wipe out their obligations.

The Washington area has been insulated from some of the current economic problems. Gasoline prices here have risen as rapidly as elsewhere, but the area has a booming real estate market and strong job growth.

Beyond the Beltway, the real curiosity is why the economy has not become a more significant political issue this spring. One reason may be the media's preoccupation with other news: the deaths of Pope John Paul II and Terri Schiavo, and debates about the future of Social Security and the federal judiciary.

Another may be the degree to which partisanship rather than the actual state of the economy shapes attitudes toward Bush's performance. Republican pollster Bill McInturff said that attitudes about Bush are generally fixed -- with Republicans overwhelmingly supportive and Democrats overwhelmingly opposed -- and affected primarily by terrorism and security. Therefore economic changes have less impact on this administration than past administrations.

Still, there is evidence that the public may be paying closer attention to economic issues, particularly rising gasoline prices, than politicians in Washington realize. The most recent NBC News-Wall Street Journal poll found that gasoline prices ranked second behind Schiavo as the most closely followed story during late March.

Ehlers said he has been getting an earful from constituents, angered by gas prices, frightened by the latest layoff announcement, this one from the Grand Rapids-based office furniture giant Steelcase Inc., and frustrated by Congress's inattention. The negative reaction to Congress's intervention in the Schiavo case was particularly jarring, Ehlers said.

"Many are rather upset at the Terri Schiavo issue," he said, even "moderately pro-life" voters. "I'm getting a lot of the, 'Why are you spending time on that when we don't have jobs?' type of thing."

In Michigan, jobs and the economy have vaulted to the No. 1 concern of 34 percent of voters, with the closest other issues, health care and education, at a distant 15 percent, said Ed Sarpolus, an independent Michigan pollster. " I haven't seen anything like that since the early '90s and crime," he said.

Michigan is not isolated. A Des Moines Register poll released Sunday found Bush's approval rating in Iowa down to 42 percent, the lowest of his presidency. Only 24 percent of Iowans approved of his handling of the federal budget, 26 percent approved of his efforts to change Social Security and 36 percent approved of his handling of the economy.

"There are serious pocketbook issues lurking in America," said Rep. Jim Leach (R-

Democratic pollster Peter Hart, who conducted the NBC poll with McInturff, said gas prices and other economic indicators have directly contributed to pessimistic views about the state of the country, which have been generally negative in their survey for almost two years.

If gas prices stay high and the market remains sluggish, the economy could mushroom into a dominant issue in next year's midterm elections. "In terms of what they're looking for out of Washington and the president and Congress, [people] are expecting some policy that will address this issue [gas prices]," said GOP pollster David Winston. "It doesn't have to happen tomorrow, but they expect to see some progress being made."

It's almost as if the political elite think that the economy and political approval rates as they stand now are no longer important, that something big is coming. It is as if you are working in an office, and have been promised a new computer or something, but the managers know that the office will be shut down and everyone laid off but can't say anything. You keep asking about the computer, and the manager just has to shake his head and think to him or herself that getting the new computer is the least of your worries.

The financiers, however, have to make public bets. For a sure sign of a coming economic depression (at least) we see that Warren Buffet's Berkshire Hathaway acquired a large amount of shares in Anheuser-Busch. Few industries do better in a depression than the beer industry! For a frightening look into how at least some of those people at the level of Warren Buffet or George Soros think about the economy, see this on Maurice Strong, the Canadian billionaire financier, from Jeff Wells's Rigorous Intuition blog:

The broad strokes: The Canadian Strong is an oxymoronic billionaire socialist who serves as Special Advisor to the Secretary-General of the United Nations and as Senior Advisor to the President of the World Bank. He is also, among many other things, Chairman of Strovest Holdings, Chairman and Director of Technology Development Corp, Director of the Foundation Board of the World Economic Forum ["Davos"] and Chairman of the Earth Council. Strong's former appointments include Secretary General of the World Bank and Director of the Rockefeller Foundation. He is a leading Bilderberger, and member of the Trilateral Commission, the Council on Foreign Relations and Club of Rome.

Strong wasn't born to privilege, but was cultivated by David Rockefeller whom he met at 18, when he took a job as assistant pass officer in the Security Section of the United Nations. A year later Strong was an investment analyst, and at 25 he became vice-president of Dome Petroleum.

What else is Maurice Strong? An environmentalist and patron of New Age beliefs and religious syncretism. He and his wife have been developing tens of thousands of acres in Colorado as a model "international spiritual community," called the Baca, of which the Manitou Institute forms a part.

In other words, Strong is the stuff of nightmares for revanchist conspiracy theorists who hear the whirr of the UN's black helicopters: a gilded Rockefeller socialist linked to the Lucis Trust; a proponent of one world religion and government.

… Strong has said that "we may get to the point where the only way of saving the world will be for industrial civilization to collapse." Again, largely, I agree. One teeny distinction between us: Strong is one of those in a position to effect its collapse.

Here's Strong, thinking dangerous thoughts aloud at the conclusion of an
with WEST magazine in May, 1990 entitled "The Wizard of the Baca

Each year the World Economic Forum convenes in Davos, Switzerland. Over a thousand CEOs, prime ministers, finance ministers, and leading academics gather in February to attend meetings and set the economic agendas for the year ahead. What if a small group of these word leaders were to conclude that the principle risk to the earth comes from the actions of the rich countries? And if the world is to survive, those rich countries would have to sign an agreement reducing their impact on the environment. Will they do it? Will the rich countries agree to reduce their impact on the environment? Will they agree to save the earth?

The group's conclusion is "no." The rich countries won't do it. They won't change. So, in order to save the planet, the group decides: isn't the only hope for the planet that the industrialized civilizations collapse? Isn't it our responsibility to bring that about?

This group of world leaders form a secret society to bring about a world collapse. It's February. They're all at Davos. These aren't terrorists -they're world leaders. They have positioned themselves in the world's commodity and stock markets. They've engineered, using their access to stock exchanges, and computers, and gold supplies, a panic. Then they prevent the markets from closing. They jam the gears. They have mercenaries who hold the rest of the world leaders at Davos as hostage. The markets can't close. The rich countries...?

The journalist adds, "and Strong makes a slight motion with his fingers as if he were flicking a cigarette butt out of the window. I sat there spellbound.... He is, in fact, co-chairman of the Council of the World Economic Forum. He sits at the fulcrum of power. He is in a position to do it."

Could it be that what the super-elite are trying to do is to conduct a controlled demolition of the world economy? If we are to believe Maurice Strong, he thinks the world economy and the biological ecosystem are like a teetering skyscraper. Do you let it fall naturally or do you set explosives in strategic locations and bring it down at a time of your choosing, in such a way that you are in control of the situation during and, more importantly, AFTER the crash?

Tuesday, April 19, 2005

Signs of the Economic Apolcaypse 4-18-05

From Signs of the times 4-18-05:

The U.S. stock market began a steep decline last week, with the Dow closing at 10,087.51, down 3.77% from the previous week's close of 10,468.44. The NASDAQ closed at 1908.15 down 4.85% from the previous week's 2000.63. The yield on the ten-year U.S. Treasury bond fell sharply to 4.23% from 4.47% as investors fleeing stocks bid up the prices on bonds. The euro closed at 1.2924 dollars virtually unchanged from the previous week's 1.2928, that puts the dollar at .7738 euros compared to .7736.

Gold closed at $424.60 an ounce down from $429.00 Oil closed at $50.49 down 3.6% from $52.32 the previous Friday. Looking at oil in euros we see oil closing at 39.07 euros a barrel, down 5.6% from last week's 41.24 euros a barrel. Comparing gold to oil, an ounce of gold on Friday would buy 8.41 barrels of oil, up 4.5% from the previous week's close of 8.05.

Clearly, the big news this week is the sharp drop in the U.S. stock market. We are now seeing signs of a direct challenge to one of the main rosy lies of the Bush II era, that the United States economy has been in a "robust" recovery since 2001. A look at the wording of the main news services show this:

U.S. Stocks Sink to 2005 Lows
Fri Apr 15, 5:36 PM ET

By Megan Davies
NEW YORK (Reuters) - U.S. stocks finished at 5 1/2-month lows on Friday -- in the third straight day of steep declines -- as disappointing results from IBM increased investor concerns about an economic slowdown and made Wall Street skittish about the coming flood of earnings.

The blue-chip Dow average had its biggest one-day drop since May 2003, falling 191 points. Friday marked the third consecutive day of triple-digit declines for the Dow, which has fallen more than 400 points in three sessions.

Stocks have now erased the gains built up in a rally that started around November's presidential election. For the year to date, the Dow and the S&P 500 are both down around 6 percent, while the Nasdaq has fallen 12 percent. "What we're looking at is a giving up of hope on the part of investors," said Joseph Keating, chief
investment officer of the asset management group at AmSouth Bank.

International Business Machines Corp., the world's largest computer company, tumbled 8 percent, or $6.94 to $76.70, a day after reporting lower-than-expected earnings.

That sparked another sell-off on Wall Street and sent shudders through stock markets worldwide. The Dow Jones industrial average was down 191.24 points, or 1.86 percent, to end at 10,087.51. The Standard & Poor's 500 Index was down 19.43 points, or 1.67 percent, to close at 1,142.62. The Nasdaq Composite Index was down 38.56 points, or 1.98 percent, to finish at 1,908.15. The Dow and the S&P 500 closed at their lowest since early November 2004, while the Nasdaq ended at its lowest since October 2004. For the week, the Dow was down 3.57 percent, the S&P 500 was off 3.27 percent and the Nasdaq was down 4.56 percent. The Dow suffered its worst weekly decline since March 2003, while the S&P and Nasdaq had their biggest drops since August 2004.

The next level investors were focusing on for the Dow to reach is 10,000, said Warren West, principal at Greentree Brokerage Services. "We've broken through anything technicians might have said were support points and now we're looking at sentiment levels such as round numbers," West added. "We're looking at the Dow at 10,000 as the next real test of investor psychology." Economic reports contributed to the negative mood, when industrial production and University of Michigan consumer sentiment reports came in on the weak side on Friday. "Clearly the economy is downshifting because of the persistently high level of oil prices over the last year and the raising of short-term interest rates," Keating said. "That's really the issue. There needs to be recognition on the part of the Federal Reserve that they will pause before the year end (in raising rates) and not force the economy into a recession."

The benchmark 10-year U.S. Treasury note's yield slid to a seven-week low of 4.23 percent as more bad news on the economy bolstered hopes the Fed might take a break from raising interest rates. The IBM news outweighed a rise from conglomerate General Electric Co., which reported higher first-quarter profit . GE shares rose 25 cents to $35.75.

Technology stocks suffered sharp declines. "IBM is leading technology and the Dow down," said David Memmott, head of listed block trading at Morgan Stanley. "IBM touches just about every piece of tech there is." Among tech shares falling, network computer maker Sun Microsystems Inc. fell 7.6 percent, or 30 cents to $3.66 after it missed expectations. Hewlett-Packard fell 4 percent, or 91 cents to $20.84 and PC maker Gateway fell 3 percent, or 13 cents to $3.81. Energy companies' shares also traded sharply lower. Exxon Mobil Corp. slid 4 percent, or $2.56 to $56.19, while ConocoPhillips fell more than 4 percent, or $4.80 to $100.07. That came as oil prices slid further from their recent peak of $58.28. NYMEX May crude dropped 64 cents to settle at $50.49 a barrel. The market has typically rallied on declines in oil prices, but has failed to respond in recent days.

"Crude has come down significantly in the last week and it's done nothing for stocks," said John Hughes, managing director at Epiphany Equity Research. "It's almost as if lower crude is indicating softening or slowing economic growth -- it's seen as a bad thing now."

The mainstream press is forced to act surprised, because they have had to conceal the true facts of the situation from the public in the United States long enough to get Bush reelected and to get their money safely out of the country. Here are the facts, courtesy of Al Martin that, while not completely concealed, were never presented to the news-consuming public in the United States in any kind of historical context:

[O]n the day this Bush Cheney regime came to power, the total U.S. debt-to-GDP ratio was 78%. Now it is 308%. To put that into some context, the IMF considers a nation-state whose total debt-to-GDP ratio is 200% or more to be a "de-constructed Third World nation-state."

"De-constructed" in IMF terms simply means "collapse." But the IMF, for political reasons, doesn't want to use the word "collapse." Therefore they use the word "de-constructed." What "de-constructed" actually means is that a political regime in that country, or series of political regimes, have, through a long period of fraud, abuse, graft, corruption and mismanagement, effectively collapsed the economy of that country. This is precisely the definition of Bushonomics I and II.

It should also be pointed out that on the day that the regime came to power, the income dispersion index of the United States, which is nothing more than the ratio between the total income of the top and bottom 10% of the population, was a factor of 129x, meaning that the total income of the top 10% of the nation was 129 times that of the bottom 10% of the nation. To date, that statistic stands at 319 times.

Further, it should be noted that, on the day the regime came to power, the top 1% of this nation owned 61.9% of all the private wealth of the nation. That number will have grown to 70% by the end of fiscal `05 in September; also, this regime will have been the first regime in the history of the nation to run trade deficits of an average 5% or more of GDP for 3 consecutive years.

All of theses statistics are the classic numbers used by Thomas Malthus in the Malthusian economic theorem, first published in 1822, wherein Malthus pointed out that in all nation-states in the last 2,000 years, when the above-referenced statistics and numbers were reached, those nation-states first underwent a political revolution, then underwent an economic collapse. Indeed, all of the numbers now have reached that magic Malthusian level, economic numbers that have never been seen before in the history of the American republic.

This regime, by the end of fiscal `05, would have generated, on a real basis, aggregate budget deficits of $1.5 trillion, aggregate trade deficits of another $1.5 trillion dollars, and an increase in aggregate national debt of more than $2 trillion. ('Real', in this case, denoting the translation of economic statistics from BFLAP, or Bushonian fantasy-land accounting principles, to GAAP, or generally accepted accounting principles.)

This fiscal deterioration has gone on not only at the federal level, but also in all levels of government. So, whereas the aggregate unsecured public debt of the nation, states, counties and municipalities on the day this regime took power was $3.8 trillion, today that number is $5.8 trillion.

This level of fiscal deterioration in the nation's public finances, occurring at the governmental level, has also been seen throughout business and industry. For example, on the day this regime came to power, aggregate U.S. corporate pension account deficits were $263 billion; today those deficits are $1.5 trillion.

…Furthermore, when it comes to how this fiscal degradation of the nation has affected the people, it is very obvious. We have seen, because of business and industry, certain industry segments, which the Republican Party relies on to stay in business, effectively increase costs of good and services to levels never before reached.

We have seen no effort by this regime to control health-care cost. Indeed, the Kaiser Family Foundation pointed out, in its September 2004 study, that under the Bush-Cheney regime aggregate health-care costs had risen 45%. Furthermore, under this regime, some 42 million citizens
have lost their medical insurance. Also, as another tangential effect of
Bushonomics, U.S. individual personal bankruptcy filings have more than doubled under this regime and will, indeed, reach a record 2.5 million in 2005, bringing the total number of personal bankruptcy filings having occurred under the Bush Cheney regime at that time to 10 million.

Small business bankruptcy filings, which had been averaging 350,000 a year when this regime first came to power, will exceed 800,000 in 2005.

And this is what I think is the most startling statistic of all. If one asked me, What is the most startling economic statistic which points to the magnitude of the deterioration of the public finances of this nation that have occurred under the scourge of Bushonomics redux, I would point out that: On the day that the current regime came to power, the United States was contributing 16% to the planet's total net savings rate; today we are consuming 83% of the planet's total net savings rate, in order to continue to service Bushonian triple deficits–current account, budget and trade–and to otherwise service aggregate U.S. national debt.

That is simply an astounding number: to go from representing a positive 16% of the planet's net savings rate to now representing a minus 83% of it.

How is that possible? What skews the number a little bit is that this regime came in inheriting 4 years of fiscal surpluses, and then promptly, within the first year it was in office, proceeded to deplete the $158-billion fiscal surplus it had inherited from its
predecessor. That's what skews those numbers.

We have gone from a position, in the year 1999, of a $263-billion fiscal budget surplus to now, 6 years later, the year 2005, what will be, on a real basis, a federal budget deficit of $500 billion plus, on a real basis. This is a 3/4-of-a-trillion-dollar budgetary turnaround. It is almost inconceivable.

The consumption in the nation is now falling, as can be seen in the personal income and spending numbers. Another astounding statistic that bespeaks of the economic deterioration that Bushonomics has visited upon the nation is the fact that on the day this regime came to power, the national personal savings rate was 6.9%.

Now it is a negative number -.3% (minus .3%) the first time in the history of the republic that the nation has had a negative net savings rate. This has been primarily due to the enormous buildup in what is called 'consumer non-mortgage installment debt,' which, when this regime first took office, was $863 billion, and, as of now, is
$2.25 trillion.

Consumption, now falling, is likely to continue to fall; in that the nation's real wages, i.e., wages ex of inflation, have fallen in the last 13 months and will most likely continue to fall. Record consumer debt levels combined with falling real wages does not auger well for the maintenance of consumption.

The dangerous loose-money policy of Bushonomics has also created numerous speculative bubbles. Loose-money policy means "accommodative." The Fed's accommodative monetary stance under this regime has helped create numerous speculative bubbles in asset classes, most notably real estate.

We would note that one of the most dangerous statistics we find in real estate is one that is oftentimes overlooked because pro-Bush-net financial media doesn't like to remind the citizens of what they themselves have done; namely, under this regime, there has been a $500-billion draw-down in equity of residential property via home lines of credit or the placement of additional mortgages. Indeed, it has been this bleed-out in equity, although median national real estate prices, residential real estate prices, have increased 53% under this regime.

Although there is a 53% increase in property prices under this regime, the national median homeowner debt-to-equity ratio has actually fallen by 4%.

That gives you an idea of just how much money has been bled out of real estate in order to support consumption, and how dangerous a bubble this actually is, this speculative bubble in real estate. It is much more dangerous than was the speculative bubble in real estate of 1989, wherein, from the 4th quarter of 1989 to the second quarter of 1991, median real estate values in the nation fell 17%.

When this speculative bubble in real estate breaks, the decline will be greater than it was in 1991. And, indeed, no reliable estimates of a potential decline can be made; in that we are now faced with a situation of falling consumption, rising interest rates, rising inflation, a diminished home-equity-to-mortgage value, compounded by record foreclosure rates, wherein now one out of every 16 pieces of privately owned residential property in the nation is either in foreclosure or in the process thereof.

We keep seeing the phrase, "unprecedented in history" again and again. What this means is that our perceptions and our tookits of responses to what is happening will not be adequate since they were formed in historical times that can offer no model for what we are about to experience. Here is Max Fraad Wolf, who links the credit-driven housing bubble in the U.S. to the role of the United States in the world economy today:

US housing prices and consumer spending- marching in lock step- have delinked from household earnings, long term trends and sustainability. In 2003, half of the nation's $7 trillion in mortgage debt was either originated or refinanced. Credit availability, 40-year low interest rates and rising debt tolerance seized the reins from prudence and off we went. Total mortgage debt has gone up at
a pace and achieved levels for which history and international comparison offer no precedent.
Perhaps, it is just that the rest of the world and the past were populated by idiots who needlessly stifled credit expansion due to pathetic lack of innovative vision and creativity. Price inflation enabled refinancing and home equity line of credit bonanza. The cash out and borrow more feeding frenzy is being used to keep consumer spending and the economy outperforming reasonable expectation. The story of our housing bubble is inextricably the story of the US and global economic imbalances. Housing is a microcosm of the US role in the global economy. In this opera the homebuyers are America and the lenders are our
foreign creditors.

It would be impossible to over state the significance of what is at stake. The home is the only major asset most Americans posses, and the largest portfolio element for millions more. The home is fortress, symbol of American prosperity and the cornerstone of middle class society. For millions home ownership is a badge of pride, proof of middle class-dom and lender of first and last resort. The loose money policy and over extension of credit that has allowed us to ride out the explosion of past bubbles now imperils. If a worst case scenario unfolds a significant portion of the American middle class will fall.

… The parallel between this situation and the dramatically declining US net international investment position, NIIP, should be evident. The endless sale of housing equity represents the desperate attempt to trade purchasing power now for a pledge of future income. This nicely approximates the
continuing sale of future tax revenues, earnings and profits to foreign
nationals by the US economy. For consumers, this takes the form of mortgage borrowing, refinancing and home equity credit line withdrawals. For the US economy this is done by selling Treasuries, GSE bonds and corporate bonds to whomever will buy them, mainly foreign central banks and investors. It is no accident, and entirely correlated, that the domestic housing and global imbalance bubbles have been inflating together, particularly since 2000.

...Housing's parallel to the American debt position is irresistible. We are making unspectacular gains based heavily on massive capital inflows that must be repaid. Now we face prospects of much lower inflows and rising interest rates. This is creating a household and national debt fragility of epic proportion.

Monday, April 11, 2005

Signs of the Economic Apocalypse 4-11-05

From Signs of the Times 4-11-05:

The euro closed at 1.2928 dollars on Friday, up 0.18% from the previous week's close of 1.2904. The dollar then fell to .7735 euros from the previous week's .7750. The ten-year U.S. Treasury bond closed at 4.47% compared to 4.45% the previous Friday. Gold closed at $429.00 an ounce, virtually unchanged from last week's $428.80. Gold in euros, then, would be 331.84 euros an ounce, down 0.14% compared to the previous week's 332.30. Oil closed at 53.32 dollars a barrel down 7.4% from the previous week's close of $57.27. Oil in euros would be 41.24 euros a barrel. An ounce of gold on Friday would buy 8.05 barrels of oil, up 7.4% from the previous Friday's price of 7.49 barrels an ounce. The Dow closed at 10,468.44 up 0.61% from the previous week's 10,404.30. The NASDAQ closed at 2000.63, up 0.8% from the previous week's 1984.81.
There are increasing signs that the housing bubble in the United States is about to burst. One sign is stagnating rents with still-rising housing prices. See this article from CNN:

Why rent matters
Rental prices hint at whether a housing market is riding on fundamentals or speculation.
By Sarah Max, CNN/Money senior writer

April 7, 2005: 1:17 PM EDT
SALEM, Ore. – If home prices in your area are riding high and you're wondering whether it's because of dangerous speculation or a reasonable increase in demand, turn to the rental market.

In most markets, rentals prices have not risen anywhere near as fast as home prices, and in many, markets rents have fallen or remained flat.

Nationally, owning costs 7 percent more each month than renting, according to Torto Wheaton Research. The gap isn't huge but it is the widest it's been in more than a

In a balanced market, say economists, the cost of renting should closely track the cost of owning. When the cost of owning is dramatically higher than the cost of renting similar property, you can guess that buyers are speculating on higher home prices.

This relationship is similar to the price-to-earnings ratio used to evaluate company stocks, said Gleb Nechayev, a senior economist with Torto Wheaton Research. In real estate, this ratio is determined by dividing the price of a house by the annual rent it could bring in given the current market.

"In some places ratios are clearly out of their historical bounds signaling slower growth in home price as interest rates rise," said Nechayev. Renting is generally more affordable than owning, he said, but the degree to which renting is more affordable in some markets "does make one wonder what's driving home prices and whether there is some speculation."

In Las Vegas and San Francisco, monthly mortgage costs on the median-priced home is nearly twice the monthly cost of renting the typical two-bedroom apartment -- and that's assuming buyers have a 20-percent down payment and finance with an interest-only loan.

In Southern California, the gap between owning and renting is also substantial, though rents there have been rising at a healthy pace.

In Atlanta and Dallas, on the other hand, it may actually cost less to own than to rent.

Add to this a slowing economy, even under the best-case projections of mainstream economists in the mainstream media, and it's hard to imagine that there won't be a crash in real estate. As for the slowing economy, see this article from Bloomberg:

Economists Lower Second-Half U.S. Growth Forecasts, Survey Says
April 8 (Bloomberg) -- Rising energy prices and higher interest rates will take a larger bite out of consumer spending and cause the U.S. economy to slow later this year, a Bloomberg News survey of economists found.

The economy is projected to expand at an average 3.5 percent annual pace from July through December after growing an estimated 3.9 percent in the first six months, according to the median of 62 economists surveyed by Bloomberg News from April 1 to April 7. Economists last month forecast growth for the second half of 2005 at almost 3.7 percent.

"It's more a return to moderation than an outright collapse," said Gina Martin, an economist at Wachovia Corp. in Charlotte, North Carolina. Economists at Wachovia project the economy will grow 3.4 percent in the last six months of the year after expanding 4.1 percent from January through June.

Record gasoline prices will siphon cash from consumers' pockets that could otherwise be spent on other goods and services, economists said. Higher fuel costs are stoking inflation and will prompt Federal Reserve policy makers to raise their interest-rate target more than previously thought, the survey also showed.

Central bankers will raise the target for the benchmark overnight bank lending rate, currently at 2.75 percent, to 3.75 percent by the end of the third quarter and it will finish the year at 4 percent, according to the survey median. Both estimates are a quarter percentage point higher than last month. The forecast for the end of this quarter held at 3.25 percent.

Federal Reserve

The Fed's rate increases are expected to lead to higher rates on mortgages and other consumer loans. The increased costs will further restrain refinancing and keep homeowners from tapping into home equity to boost spending. Refinancing helped sustain consumer purchases as the economy was recovering from the last recession.

"Housing, which is the most interest-sensitive part of the economy and has been incredibly strong, should eventually start cooling," said James O'Sullivan, a senior economist at UBS Securities LLC in New York. "The single biggest change in the economy later this year will be the turnaround in housing."

Consumer prices will rise 2.5 percent this year, compared to last month's 2.3 percent estimate, the survey showed.

"The risks to inflation seem all aligned on the upside," said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York.

"This upcreep in inflation makes the Fed increasingly intolerant of above-trend economic growth."

Gasoline Prices

The average price for a gallon of gasoline at the pump rose to a record $2.26 in the week ended April 4, according to figures from the Energy Department. Gasoline has tracked a rally in crude oil, which accounts for about half the retail fuel price. Crude oil prices in New York surged to $58.28 on April 4, the highest since the contract was introduced in 1983.

Retail gasoline prices, based on a monthly average, may peak at $2.35 a gallon in May, the Energy Department said yesterday in an annual forecast. It's up from $2.10 estimated last month for the peak driving season, which runs from April through September.

Inflation is apparent "in many, many commodities," James Tisch, chief executive of New York-based Loews Corp., an owner of insurance, tobacco and energy businesses, said in an interview April 6.

"At some point in time that's going to push its way through from producer prices to
consumer prices," Tisch said. "My guess is that will happen starting in the second half of the year, and then that will give the bond markets and the Fed some real cause for concern."

Spending Forecast

The high cost of gasoline is already dampening consumers' spirits. A weekly index of consumer confidence in the state of the economy fell last week to the lowest since June, according to a survey by ABC News/Washington Post issued two days ago.

After growing at a projected 3.4 percent annual pace in the first three months of 2005, consumer spending is expected to slow to 3.1 percent this quarter and average 3.2 percent in the last six months of the year, the survey showed. In the March survey, economists expected spending to rise 3.3 percent in the last half.

It's hard to see why the facts cited in the article don't point more to a collapse than just the "moderation" mentioned by the Wachovia economist quoted in the article. Notice how they characterize the weakest point now in the U.S. economy: the fact that much of the consumer spending that is keeping the economy afloat comes from borrowing on the paper gains in housing prices. The economists talk about a "cooling" of housing prices. Economists, however, are laboring at a disadvantage when trying to read the signs due to their inability to incorporate non-linear analysis. For a good exposition of this problem by an economist, I recommend Steve Keen's Debunking Economics: The Naked Emperor of the Social Sciences (Zed Books, 2001). See also his web site with supplementary materials. According to Keen:
Virtually every aspect of conventional economic theory is intellectually unsound; virtually every economic policy recommendation is just as likely to do general harm as it is to lead to the general good. Far from holding the intellectual high ground, economics rests on foundations of quicksand. If economics was truly a science, then the dominant school of thought in economics would long ago have disappeared from view. (Keen, p. 4)
According to Keen, the real damage is done when policy makers adopt the recommendations of economists, who recommend policies that tend to make the world fit their impoverished models and that tend to do harm to real economies.
Economists would contend that these changes have made the world a better place, not because economists have actually verified that the changes have been beneficial, but because the changes have made the real world look more like the hypothetical world of the economic textbook. Since, in economic models, the hypothetical pure market performs better than the mixed economy in which we live, economists are confident that economic reform makes the world a better place. Where problems have occurred, economists normally assert that this was because their advice was not followed properly. (Keen, p. 8)
Keen claims that if the standard, neo-classical economic model is self-contradictory, and he argues the contradictions are "extreme and pervasive," then their prescriptions will make things worse:
Thus, the economic conditions imposed to achieve monetary union in Europe could enforce a permanent recession upon Europe, and compromise the ability of its governments to counteract any severe downturn in world economic activity. Trade liberalization could reduce global economic welfare because the rapid opening up of markets could destroy productive capacity. The abolition of price subsidies could retard economic growth by amplifying class conflict in the highly unequal societies of the Third World. Rapid economic change could lead to social breakdown, rather than the development of vibrant market economies. And America's middle class could find its retirement nest-eggs eliminated by the collapse of a wildly speculative stock market.
What if, however, these results are not the accidental results of the misguided applications of faulty theories, but rather are intended? Maybe neo-classical economics is a way of selling these policies to the public and rallying a class of technocrats behind policies whose results they wouldn't otherwise support. The Signs of the Times for April 9th reprinted an article by Mike Whitney laying out exactly why all these so-called "unintended consequences" are actually intended. Here's an excerpt:

The country has been intentionally plundered and will eventually wind up in the hands of its creditors as Bush and his lieutenants planned from the very beginning. Those who don't believe this should note the methodical way that the deficits have been produced at (around) $450 billion per year; a systematic and orderly siphoning off of the nation's future. The value of the dollar and the increasing national debt follow exactly the same (deliberate) downward trajectory.

This same Ponzi scheme has been carried out repeatedly by the IMF and World Bank throughout the world; Argentina being the last dramatic illustration.(Argentina's economic collapse occurred when its trade deficit was running at 4%; right now ours is at an unprecedented 6%.) Bankruptcy is a fairly straight forward way of delivering valuable public assets and resources to collaborative industries, and of annihilating national sovereignty. After a nation is successfully driven to destitution, public policy decisions are made by creditors and not by representatives of the people. (Enter, Paul Wolfowitz)

...The Bush administration is mainly comprised of internationalists. That doesn't mean that they "hate America"; simply that they are committed to bringing America into line with the "new world order" and an economic regime that has been approved by corporate and financial elites alike. Their patriotism extends no further than the garish tri-colored flag on their lapel. The catastrophe that middle class Americans face is what these elites breezily refer to as "shock therapy"; a sudden jolt, followed by fundamental changes to the system. In the near future we can expect tax reform, fiscal discipline, deregulation, free capital flows, lowered tariffs, reduced public services, and privatization. In other words, a society entirely designed to service the needs of corporations.

The idea is not to have a "vibrant market economy" or to serve the general good. The goal is to consolidate ALL wealth in a very few, loyal hands. The corporations are just a means to that end. This is one of the things the Bush family has been doing for a long time. Al Martin shows how it is done:

How Government Debt Consolidates Wealth and Power... Particularly if you're a rich

(Apr 4) - On January 20, 1981, the day that the Reagan-Bush regime came to power, the aggregate national debt stood at $1.54 trillion–approximately on that date, $3,786 per capita.

When the subsequent Bush-Quayle regime left office, on January 20, 1993, aggregate debt stood at approximately $14.3 trillion, or approximately $43,570 per capita.

What is interesting to note, however, is that on the day the Reagan-Bush regime came to power, the top 1% of the nation being approximately 3/4 Republican, owned 37% of all of the private wealth in the nation. On that day that the subsequent Bush-Quayle regime left office, said top 1%, still being approximately 75%Republican, as the fraction has been for a hundred years, owned no longer 37% but, indeed, now owned 57% of all of the private wealth in the nation.

There is a direct effect between the issuance of massive amounts of government debt and how it relates to and, indeed, is a key component of the Bushonian agenda, to use the words of George Bush Senior, of the continuous consolidation of power and money into ever higher, tighter and 'righter' hands; namely, that when government debt is used as it was, particularly from 1984 to 1992, to pay for an endless series of disproportionate tax cuts wherein the bulk of the value of those tax cuts inured to citizens earning more than $200,000 a year, that that debt is essentially paying for the transfer of wealth, a phenomenon that we are once again seeing under the Bush-Cheney regime

....Where are we in the present in this cycle? We start with this Bush Cheney regime. When this regime came into office, January 20, 2001, at that time, in that month, actually, the top 1% of the people owned 61.9% of all of the private assets in the United States.

As of January 2005, said top 1% of the people of the United States now own 70% of all of the private wealth of the nation. This is a record concentration of wealth in the United States, never seen before in the history of the Republic. For those who are followers of the Malthusian theorem, we know that the 70% wealth-concentration number is also historically significant and has been so for thousands of years.

Where are we in this cycle? We are in a place wherein the Bush-Cheney regime, which has also proffered a series of multi-trillion-dollar disproportionate tax cuts wherein more than 2/3 of the value of those tax cuts has inured to those citizens earning $200,000 a year or more. Indeed less than 1/4 of the value of those tax cuts has inured to those citizens earning less than $100,000 a year. That's why these tax cuts, which are sold to the public under the concept that tax cuts are supposed to be economically stimulative, have not been stimulative because they haven't stimulated consumption.

Real wages are falling and consumer installment debt at $2.25 trillion has doubled under this regime to already a record. Furthermore, the national savings rate, which was 6.9% when the regime came into office, is now a negative number.

The only reason consumption has been maintained is through ever-increasing use of credit. But we now see that there is no more credit to use, in other words. And with falling real wages, you can't expand consumption. Furthermore, the regime cannot now proffer any further tax cuts, simply because of enormous budget deficits, which are actually going to exceed $600 billion on a so-called 'real' basis in 2005

....Now, that is a great Republican mantra -- you start out in life and you work hard, you build up a little stake and you see an opportunity, you know it's the right thing to do, you seize on it, and you ride the winner. As you know, that's a great Republican mantra.

But the practicality of it is different, if you look at wealth in Washington, the great Republican wealth, including the Bushes. Yes, there was a generation, three generations back, that didn't start out with much. But how is that wealth continually perpetuated? Is it perpetuated through hard work or knowledge of the markets? No. It's perpetuated through an endless series of insider transactions that are essentially guaranteed deals -- and the legislative impact of benefits, those with ever larger amounts of wealth.Most of the fortune that the Bushes have today wasn't built on oil that came out of the ground. It was built on insider transactions within oil companies. It had nothing to do with producing any oil. The money isn't taking oil out of the ground. It's all financial manipulation and legerdemain.

The biggest money that was ever made by Harken Energy wasn't the oil they took out of the ground. As a matter of fact, most of their leases, most of their production was losing money. As an operating company, they lost money for year after year after year. That isn't the reason why anyone, so saying, with Harken made money.

The reason why Harken became a wealth-builder is through pump-and-dump deals. The greatest wealth-builder of all isn't the great Republican mantra, which is what you hear Larry Kudlow saying: "Well, if you bought this stock 20, 30, 100 years ago… Wise and sound and prudent management."

Nonsense! It wasn't wise and sound and prudent management that made the officers, principals and directors their money. It wasn't what made those who traded the stock the money. It was the pump-and-dump deals that made the money.

People asked me, "How did the Harken stock perform?" And I said, "Oh, it lost money continuously since it's been in business. But it was a great wealth-builder." But you had to be on the inside or have information to know when it was going to be pumped and to know when it was going to be dumped. That's how the wealth is built. It's not what the company does. It's not the dividends they pay

....The way to look at it is that the Enrons and WorldComs were huge wealth-builders. Look at who was short at the top. Look at who was short Enron in $90. The Bush-Family-controlled Pilgrim Investment Trust, the Cheney-Family-controlled, and equally shadowy DLC Trust. Ken Lay himself was short the stock as it was falling. Henry Kissinger. George Schultz. James Baker....What somebody ought to do is to write a series of books of the Bushonian fraud. But how it would have to be– Volume One, Bushonian Banking Fraud. Volume Two, Bushonian Securities Fraud. Volume Three, Bushonian Insurance Fraud. And so on.

The reason why it won't be investigated is that Democrats won't do it. Just like they didn't do it with the Iran-Contra hearings or the Iraqgate hearings or anything like that, because they know that gets around the edges (as my Attorney Marc Sarnoff used to say) of 'The Great Republican Abyss'. And anyone who has ever gotten around the edges, like I did, and looked over into that Abyss and has seen 'The Way Everything Works And What It's Really All About," hasn't faired so well. You never want to look into that Abyss because in that Abyss is the Ultimate Truth that the United States was purposely designed in the post-war years to continuously concentrate wealth and power.

Unfortunately, I fear the Abyss is deeper than just consolidating all wealth; That may be only the first step.

Tuesday, April 05, 2005

Signs of the Economic Apocalypse 4-1-05

From Signs of the Times 4-5-05:

The euro closed at 1.2904 dollars last week which means the dollar is worth .7750 euros, a rise of 0.4% for the dollar compared to the previous week's close of .7716 euros to the dollar or 1.2960 dollars to the euro. Gold closed at 428.80 dollars an ounce, up 0.9% from the previous week's close of $425.00. Gold in euros closed at 332.30 per ounce, up 1.3% compared to the previous week's 327.93. Oil closed at $57.27 a barrel, up a full 4.4% for the week compared to March 25th's price of 54.84. Looking at the price of oil in euros (Bush's nightmare), oil closed at 44.38 euros a barrel, up 4.9% compared to the previous week's close of 42.31. As for the gold/oil comparison, last week saw oil gain ground, closing at 7.49 barrels for an ounce of gold, down 3.5% from the previous week's 7.75. In the United States' stock market, the Dow Jones Industrial Average closed at 10,404.30, down 0.37% from the previous week's close of 10,442.87, while the NASDAQ closed at 1984.81, down 0.31% from the previous week's 1991.06.
Now that we are one quarter of the way through 2005, let's look at the quarterly statistics. The big story was oil, which rose from $43.45 to $57.27 or 31.8% in the first quarter of 2005. That's after rising 33.6% in 2004. The euro lost ground against the dollar in Q1 2005, falling from 1.3540 to 1.2904 dollars (4.9%) after rising 8% in 2004. Gold went from $437.10 to $428.80 falling 1.9% in dollar terms. In euros, gold went from 332.32 euros an ounce to 332.30, virtually unchanged. The Dow fell in the first three months of 2005, going from 10,783 to 10,404, down 3.6%, wiping out all of its gains from 2004. Similarly, the NASDAQ went from 2175 to 1985, falling 9.6% after rising 8.6% in 2004.

The dollar has gained in 2005, due most likely to interest rate rises, which threaten to puncture the debt-driven bubble in the United States. For that reason, there is not much to celebrate in the recent rise of the dollar. And, if you look at the last five years, the dollar has still fallen sharply against the euro and other currencies. If, for example, we look at the price of gold in dollars for the past five years, we might think that the price of gold has been rising sharply, but gold has gone up only 13.8% in euros over the last five years while rising 53.3% in dollars. In fact, the average price of gold in 1999 dollars for the two hundred year period 1801-1999 was $435! That is very close to recent prices. Of course, for those two centuries, the dollar was a strong currency, which means that if the price of gold increases sharply, the dollar will be weakening - not that gold is increasing in value.

The big news last week was the release of March's job creation numbers for the United States. 110,000 new jobs were created, half of what most analysts expected.

Weak jobs report suggests cooler economy
- The US economy generated 110,000 jobs in March, the government said in a report sharply weaker than economists' forecasts and suggesting cooling economic momentum.

The Labor Department figure was half as strong as the 220,000 new jobs expected, on average, by Wall Street economists, and the weakest pace since July.

The unemployment rate fell to 5.2 percent in March from 5.4 percent in February, the agency said based on a separate survey that sometimes gives contradictory signals. The figure was better than the 5.3 percent expected on Wall Street.

New job creation is seen as one of the best indicators of economic momentum and the latest report was likely to shift views about the pace of growth of the world's largest economy.

John Lonski at Moody's Investors Service said the report "comes as a surprise and brings attention to above average risk aversion among businesses."

To make matters worse, the Labor Department revised downward its estimates for job growth in February to 243,000 (from 262,000) and in January to 124,000 (from 132,000). Service sector jobs were up 86,000 but manufacturing lost 8,000 jobs. Retail employment fell by 10,000 in March. Several industries added jobs in March, notably construction, health care and mining.

Economists say about 150,000 jobs are needed each
month to absorb new labor market entrants.

The analysts quoted in that article then go on say that if you average the job creation numbers for the past six months you get about 175,000 new jobs a month, more than needed to accommodate new entries. The U.S. economy, then, is on a steady growth pace of about 3.5 to 4.0% annually, which is a stable, sustainable number. Why is it so hard to feel confident, then? Part of it is the rapid rise in oil prices. Of course, there's also the dire fiscal situation of the United States, which is running half-trillion budget deficits. The real wild card, though, is the question of whether or not the United States is going to invade two or three more countries, after having botched the last two invasions. Things don't look good for Iran, Syria and Venezuela, but they also don't look good for the United States either, if that country tries to push its military advantage from such a weak economic position.

What all these things have in common, though, is the increasing potential for catastrophic changes in direction, changes that conventional economics is incapable of foreseeing. Martin Hutchinson makes the point that the inability of conventional neo-classical economists to incorporate non-linear dynamics prevents them from predicting the economic future with any accuracy:

The Bear's Lair: Beware of singularities
By Martin Hutchinson
Washington, DC, Mar. 28 (UPI) -- As the Fed raises interest rates quarter point by quarter point, the financial environment may seem to be changing little, but in reality it is becoming increasingly at risk of singularities, financial tornadoes that appear from a clear sky and produce economic devastation.

Conventional economics deals primarily with equations that are linear or exponential. Relationships between the different components of the economy are held to be linear, economic growth is held to be exponential, with the economy increasing in size each year by a constant or even an increasing rate, depending on productivity growth, which is supposed to be constant in the short run albeit possibly increasing in the long run. Linear and exponential equations have the great virtue of being relatively easy for economists to solve; they also tend to behave in smooth ways, so that if an economy behaves in one way in one year it will behave in a similar way in the following year; change is always gradual, and there are no point "singularities" at which sudden changes occur.

It's an attractive if somewhat sterile picture, no doubt useful when teaching economics to the less academically gifted students. It allows simple folk such as the George W. Bush economic team to make confident predictions of continued economic progress, halving of the Federal budget deficit within five years etc., without more than the usual barrage of politically motivated criticism. However, it doesn't bear a great deal of resemblance to reality, and nor should we expect it to.

The reality is more complex, and the complexities are not simply errors of detail in the standard economic model, but fundamental flaws in its underlying mathematics. You only have to read a standard economic textbook to realize that many of the relationships described in it, such as the demand curve, the interaction by which comparative advantage takes effect, and the interaction between marginal tax rates and economic output are neither linear nor exponential, but some quite different relationship -- the standard demand curve, for example, is fairly close to a hyperbola.

Equations were simplified to linear and exponential forms by the early econometricians, who were not particularly good mathematicians and wished to construct computer models of the economy using equations they thought they understood. Even then they got it wrong: the notorious MIT/Club of Rome model of the world economy constructed in 1971, which purported to prove that whatever policies were pursued, the world was due for an exploding ecological crisis within no more than a few decades, wasn't wrong because of its details, it was wrong through technical error. The model extrapolated exponential equations for 30 or 40 years into the future without taking account of the fact that if you extrapolate exponentials on a finite digital computer, the errors caused by rounding to a finite number of digits also increase exponentially, and after a few dozen iterations explode the graph off the screen in some random direction no matter what the underlying reality.

In reality, a significant number of economic equations appear to be determined not by linear or exponential equations, but by power series equations, mostly of the quadratic, cubic or quartic order. This fits economics in well with physics, chemistry and other "hard" sciences where such relationships are relatively common. Although simple quadratic equations are easily solvable, complex systems with such equations intermingled are not. The principal difference between such systems and linear/exponential systems is the existence of singularities, where a small change in conditions or a small interval of time produces a large and discontinuous change in the output, a discontinuity in the "phase space."

Modern mathematics, in particular "catastrophe theory" and "chaos theory" have examined these types of systems in much more detail than was possible 30 years ago. Discontinuities in the system do not occur randomly; over large areas of the system there are no discontinuities, while in other areas where the equation set is "critical" there are many discontinuities or even an infinite number of them.

Turning with relief back to the real world, we can see that economic crises follow this
pattern quite closely. During some lengthy periods, there are no crises, and obvious areas of unsoundness in the system have very little effect, continuing or even intensifying themselves for years, without causing the damage that is predicted for them. During other periods, crises occur with bewildering rapidity, while institutions that have appeared entirely stable and well managed suddenly spiral into bankruptcy with very little warning. Areas of unsoundness that have persisted for years or even decades, without apparently leading to any ill effects, suddenly cause a major financial collapse with large adverse economic consequences, and often further collapses in areas only distantly related to the first.

... The "landscape" of the economy thus correlates pretty closely with the cost and availability of capital. When capital is cheap, with a bubbly stock market and low interest rates, frauds almost certainly proliferate but they do little damage; individual bankruptcies and exposed frauds do not lead to adverse economic consequences and the economic ship continues to sail ahead without difficulty. When real interest rates are high, on the other hand, the stock market is low, and capital is expensive, frauds are much less likely, but unexpected bankruptcies caused by the high cost of capital happen quite often, and the adverse effect on investor confidence and the economy in general from such events is severe.

This is why investors today should beware of singularities. Short term interest rates are increasing steadily, and may have to increase faster because even at 2.75 percent the Federal Funds rate remains significantly below the steadily rising rate of inflation. Banks, which have covered up an almost infinite quantity of insane consumer and corporate lending by the profits from the "carry trade" of borrowing short term and lending long, are looking at a bleak future. Either short term rates will overtake long term rates, in which case the "carry trade" will go into reverse, wiping out a huge source of profits, or long term rates will increase enough to prevent this, in which case banks are looking at huge losses on their mostly unhedged bond portfolios, particularly corporate bonds (whose yields can be expected to rise more that Treasuries) second quality consumer debt (whose default rates will soar in a period of tighter money) and mortgage backed securities, whose refinancing rate will drop to zero, defaults rise and maturity extend to infinity, as homeowners can no longer refinance and get into financial difficulty.

These non-linear singularities in our world are much more likely to be catastrophically bad than to lead to a greater and more prosperous order. Why is that? Why does there seem to be nowhere to go but down? To answer questions like these it may be more useful to turn away from mainstream economists and analysts and to consider the analysis of someone normal society would consider crazy, a poor man in Tennessee suffering from severe pesticide poisoning who corresponds with the writer Joe Bageant. Bageant published some emails from the guy in Counterpunch including this that seems to speak to the deep karmic fear that most of us try not to acknowledge:
Meanwhile, the sheer carnage of our terrible national enterprise is staggering! Yet no one mentions the back rooms of research facilities filled with mutilated tortured beings kept alive for study or force-fed Drano to see how long it takes fifty-percent of them to die. I am always astonished at how very few people know what goes on in medical and corporate research labs, not to mention the meat industry. "For every action... " It's the nature of reality. It's physics. There will be a reckoning for the culture that creates a holocaust of that magnitude. The fact that there is something terribly wrong with anyone who does such a thing, and that this same "lack" will therefore affect EVERYTHING he/she does, eventually creating magnificently awful problems. Elevating carnage to cultural protocol is very dangerous. And official rationalization of it is disastrous. Why isn't someone talking about these things? We have no examples. We have no ideals. We have only corruption and self-justifying silliness in service of capitalism as it runs further and more terribly amok.