Friday, June 17, 2005


Our Treasury Secretary is off to Europe to chat about how splendidly things are going. At the same time, the European Union's negotiations for a budget have collapsed. The heady days of frantically asorbing all of the former Soviet satellite states is now a poofed souffle. Someone forgot to warn the Europeans about hasty growth. If a tree or a tomato plant or a child grows too fast they have health problems.

Forming an integrated economic/political unit is tedious and slow, if you want success. Now the overheated, over expanded EU has to either break up entirely or retrench, shedding all those post-Soviet states. The ideal would have been for the Warsaw pact states to form their own union and then cleave into the EU over time but each one wanted to go their own way, a bad sign.

Bretton Woods has collapsed. The dire side effects are dawning. Anyone with a brain who can remember the previous collapse can see all the warning signs. Evidently, within our government, there aren't much in the way of memory or brains.

No wonder the finance corporations want Big Bird and Bert to talk about finances, they are more mature and well spoken. The childish level of chat our top ministers indulge in would be funny if they weren't so deluded.
All the key industrial economies need to concentrate on reforms and on creating an investment climate that spurs capital flows and economic growth, U.S. Treasury Secretary John Snow said on Thursday. "I think you want to encourage capital flows. You want to encourage capital formation and then flows," Snow said during a news conference in Frankfurt as he wrapped up a week-long tour of five European nations. Snow said he was convinced that key European trade partners of the United States understood the need to act urgently to spur economic growth through structural reforms.
"You want to encourage capital formation and then flows"---sigh. Much of the world's "capital" is "flowing" here in a very odd and quite suspicious way. The investement money being attracted by China is classic capital-formation whereby an investment triggers industry that then does value-added processes by mixing the money with labor and physical materials. Then there is a net gain in wealth.

The other system for increasing wealth, buying land and then charging rent (mortgages) on it, is not capital producing in the classic capitalist way. It is medieval wealth formation. This wealth grows very slowly except in peculiar cases such as we see today, a long history of bubbles when people speculated wildly on land has always a grim ending.
"The world economy depends on Europe, on the U.S. doing our keep the economy growing, expanding," Snow said, sounding a theme that he has repeated throughout his trip.
Is our economy expanding? Friedman, this last week, said he wanted Toyota to take over our entire auto industry. Because it is collapsing. I suppose next week, he will call for China to take over everything else...oops, they are. If we are "expanding," I see no sign of this. For the last thirty years, hiring in the manufacturing sector has collapsed. At first, they pretended this was due to automation. But we don't see lots of robot run factories being built, are we?
He declined a direct answer when asked about a comment by a member of Germany's ruling Social Democrats (SPD) that giant hedge funds, many of them U.S.-owned, were behaving like "locusts" when they swoop in on struggling corporations.

"I don't think of capital in those terms," Snow said. "We in the U.S. pride ourselves...on showing respect for investors."
Hedge funds are scary. They are a tool of the ruling class so they can make a buck playing money moving games within various systems and exploit time/space glitches and it is a game played successfully only by insiders. This started rather harmlessly right after Bretton Woods I collapsed. Now it is a money monster, swollen in size to gigantic proportions. Readers of what went wrong in the 1920's get a familiar wiff of rot when contemplating hedging. It is suspiciously similar to the trusts and fake Wall Street conglamorations of money movers that accelerated the collapse.

Sec. Snow's la-de-dah attitude is particularily troubling. The locusts are swooping in on one of our greatest manufacturers, General Motors. I understand the GOP hates union workers. I believe they are overjoyed at the idea that another union, like the airlines unions, is going to die and workers will be driven to earn much less leaving more money for "U.S. pride in investors."
He did not specify that any particular country, especially China, needed to focus on currency flexibility, although the United States has been pressing Beijing to move swiftly to free its yuan currency from its decade-old peg to the dollar.
The obligatory kick aimed at Chinese shins here. It is interesting watching Europe suffer the effects of the Bretton Woods collapse. The euro became a sub-primere currency without the powers of being that and this is causing Europe to loose financial power. Bush deliberately drove down the dollar to shake off the Chinese. He failed but he did succeed in wrecking the economies of our allies. An interesting development no country should engage in if they want world power.

Meanwhiile, back home, things aren't looking so hot, are they?
"(About the deficit) At this rate the 2005 deficit will be $780 billion and overwhelm the $668 billion record established in 2004," said Peter Morici, a business professor at the University of Maryland.
The American attempt at shaking off all the Asian currencies has failed. The Europeans are being forced to deflate the euro and cut trade and reduce economic activity because all world currencies have deflated to keep up with the American maniacal currency manipulations. The fact that interest rates no longer function as a prod for savings is a danger sign. Everyone is spending all they have and many think this is because of clever investments.

It is not.

The value added of a billion Chinese suddenly entering the capitalist system meant there was a huge pool of human labor to be tapped and this rich wealth has made everyone else wealthy in return but the exploitation of labor is now entering a new phase in China---workers now will struggle to wrest back some of this wealth.

Meanwhile, back on the home range, the American property bubble grows apace
"How could you have a housing crash?" asks Ted Aronson, managing partner at Aronson Johnson Ortiz, a Philadelphia money manager. "We all just sell our houses and move into a trailer park?"

Houses are also much more expensive to sell. Mr. Greenspan says commission and other transaction costs approach 10% of the price of a home. By contrast, Mr. Aronson says big institutions typically incur transaction costs of 1% to 2% on their stock purchases.

The cost of moving is why homes change hands much less than stocks. Sales of new and existing homes in the U.S. in 2003 were equal to about 6% of total housing units in the U.S. By contrast, annual turnover on the New York Stock Exchange is about 100% of all shares outstanding. A home normally sits on the market for several weeks before selling; a stock usually sells in seconds.
What happens when you have a massive housing crash? And stocks crash too, as they always do when currencies collapse. What happens when the banking system goes belly up along with all the other systems? When the pound wobbled and fell apart due to the inability of England to recover from WWI, all other currencies were sucked in, the US dollar last of all. The resulting depression lasted a long time. You could buy a house only with cash, for the most part. What did people do?

Well, masses of people tried to emigrate or move elsewhere. This was the "Grapes of Wrath" people. No one wanted these refugees. All nations tried to close their borders and internally, the fight for survival became very vicious. Some countries launched attacks on neighbors. Germany stripped on quarter of the citizens their citizenship, their homes and businesses and then exterminated the ones who couldn't flee. Then it became a fireball of destruction. Bombs rained down, extermination camps dotted the landscape as "excess" humans were ruthlessly murdered and when it all ended, 30+ million humans were dead and whole cities wiped off the face of the earth!

I would say, economic collapses have very dire effects. When this happens, people don't sit in their homes. Just to be obvious, think! Your home cost you $200,000. You have paid off a tiny part of that and now it is worth suddenly only $75,000. If you lose your job and there are no more jobs that pay remotely the same, you have to move, you can't sell. You have to declare bankruptcy. The bank can take up to 10% bankruptcies and then they go belly up. They have sidestepped this by shovelling all mortgages into Freddy Mac and Fannie Mae and other instruments working as quasi-hedge funds but if these go belly up, the money machine stops working and industry and trade collapses which causes people to lose jobs and so on, a very vicious circle in hell.

People have and can become homeless. They have and can lose everything. And the cure usually is war. Is this what we want?

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