Wednesday, February 01, 2006

Deflating Working Wages Plus Currency Turmoil Leads To Great Depressions


By Elaine Meinel Supkis

Economists seem to be puzzled by the obvious. If workers lose wage values due to even "slight" inflation, after several years of this, business collapses and a depression sets in.

From Angry Bear:
In its last meeting with Alan Greenspan at the helm, the FOMC decided today to raise interest rates (i.e. the Federal Funds rate) yet again. See Mark Thoma for analysis of the accompanying statement.

Despite David Altig's response to my worry that the Fed might overshoot (I think David and I differ more in our assessment of inflation risk than in our analysis of what happened in 1995 - inflation probably seems to be a less pressing problem right now for me than for him) I remain concerned that monetary policy may be becoming too tight for a slowing economy with stable inflation.
I suppose the writer at Angry Bear, Kash, might not be troubled by raging inflation in the cellar but I certainly am since, thanks to my husband's disability, we live on a "fixed" income which is supposed to keep up with the rate of inflation but ever since the Feds redesigned how they gage inflation, we fall further and further behind and only due to my ability to do things like logging and chainsawing trees, can I beat inflation by not using any fossil fuels at all at this point.

Inflation is roaring in the lower levels. Workers aren't merely falling behind, the real inflation rate is over 10% a year since food and fuel eat up a much greater share of the dollar for people at the sub $40,000 level. This has happened before! During the Roaring Twenties, worker compensation began a slow collapse. Workers tapped into cheap financing to buy things, buy stocks, buy properties. This meant money still flowed about, sloshing through one bubble after another. When the real estate bubble began to collapse, money fled to the stock market for one last, final bubble.

Recovering from this required murdering about one third of the inhabitants in Europe and Asia as well as destroying nearly every major city and sinking most of the ships at sea. Only because untouched America could grind out endless planes and ships, were the various empires able to limp along. Despite this, it still took us all 25 long years before reaching the DOW Jones levels of 1929! And then we shot past it because worker compensation was shooting up faster than the rate of inflation.

The oil crisis when we hit the Hubbert Oil Peak began a long period of inflation which workers fell behind more and more. This was solved by creating cheap credit via the Japanese who wanted to dominate our markets. So, we surrendered to Japan and made them our bankers. As worker's wages fell more and more behind, they were told that tax cuts will fix things. Each tax cut bouyed up the hopes of the workers because the government also increased red ink spending greatly each time.

This will lead to a currency disaster greater than the inability of England to generate funds when Germany collapsed, pulling down all the world's banks into the Great Depression.

Every company today is reducing working compensation. Mostly by outsourcing but also by ruthlessly eliminating previous wage gains sometimes by over 50%! This is accelerating as the currency collapses.

Greenspan raised interest rates not because he wanted to but because his policies have caused such mayhem, savings have already collapsed to levels not seen since the great banking crisis of 1933! This alone should make one's hair stand on end!

The housing bubble is busting. From No More Miser:
The number of foreclosure notices filed against Massachusetts homeowners last year reached their highest level since the housing bust of the early 1990s, as homeowners fell behind on their mortgages and lenders began the process of taking back the properties.

It's happening, in part, because our national housing pyramid scheme, whereby we all agree that prices will go up forever and thus we can all buy whatever house we want, even if we can't afford it, knowing it will inevitably be worth more in the future, is starting to break down:

... Homeowners who stretched their finances to the limit to buy a home found it more difficult to make their payments on variable-rate mortgages as interest rates rose, but they were less able to refinance their loans at more attractive rates -- or sell and pay off their debts -- because the value of their homes fell or remained flat.
All across the country, desperate people are trying to juggle rising fuel costs, dropping wages, rising property taxes, and are failing since they can no longer go to the Home ATM machine and have it spit out more loot. Once this process sets in, it feeds itself.

After utterly destroying America, Greenspan moves on to England, he will happily increase their problems, too. From BBC:
Former US central bank chief Alan Greenspan has agreed to become an honorary adviser to the UK Treasury.
The announcement by Chancellor Gordon Brown comes less than seven hours after Mr Greenspan's near 19-year tenure as Federal Reserve chairman ended.

Mr Brown said his new adviser would help the Treasury in the UK develop its thinking in areas relating to global economic change.
England is already way down the road of ruin. They are so feeble now, they can't even pay 5% of the costs of occupying Afghanistan nor even 1% of the cost of occupying Iraq. The North Sea oil rigs are in classic Hubbert Oil Peak decline. This is why they invaded, unlike us, they and all of Europe consume Iraqi oil, along with Japan, our present owners. The Japanese don't mind us running up a huge bill, I think they can absorb another trillion or so before collapsing, too.

But they can't do it at $500 billion a year. This is too much which is why we are suddenly talking about balancing the budget. But not too seriously since Bush is pushing for more tax cuts. The Democrats are muzzled on all this because they want to keep on spending on social welfare which is good but not good since an Argentina-style collapse will mean no social services, anyway.

No one, absolutely no one dares talk about tax hikes. The rich who own the media, won't allow a peep about it without a lion's roar attack from the army of whores working there. And the working class can't handle even slight tax increases since they are being hammered by inflation.

So everyone is waiting passively for the dominoes to fall and they are falling increasingly fast.
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