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Dispatches from the Front Lines of the Economic Crisis
Monday, 23 February 2009
Today's crisis should bury the myth about "free-market" fundamentalism as the best of all possible worlds. History proves otherwise by clearly showing that it fails the many to advantage the few because it's arranged that way.The more they do, the worse it gets, and world headlines confirm it. Recent ones include:
Since construction peaked in 2005, starts are down around 77% and for single-family homes nearly 80%. Obama's mortgage relief plan (the Homeowner Affordability and Stability Plan) provides little help at best, nothing for second mortgage holders, or for millions of underwater homeowners and many more at risk as property valuations keep plunging. It's also limited to borrowers whose mortgages are owned or securitized by Fannie Mae or Freddie Mac.
The plan may cost up to $275 billion. According to the Wall Street Journal (WSJ), $200 billion is for Fannie and Freddie and $75 billion "to encourage (but not require) lenders to modify loan terms for people at risk of foreclosure or already in foreclosure proceedings" who qualify. Many millions don't.
The idea is to lower monthly payments to 31% of household income, add the residual owed to principle, create a greater burden as property valuations fall, and postpone a likely default for later. The plan takes effect March 4 when its provisions and rules are published.
The WSJ says it will "prolong the housing downturn and make financing a home purchase more difficult for future borrowers." It also won't slow the decline in home valuations. Observer comments included:
It will have no effect on home prices. They'll "continue to fall this year and into 2010, given the very large (property) overhang and rising unemployment." As the saying goes, Obama's plan is mostly "show," little "dough," and more betrayal for the money trust he represents.
Increasing Talk about Nationalizations
Deepening gloom has even Republicans thinking the unthinkable - nationalizing insolvent banks with Senator Lindsey Graham (R, SC), on February 15, telling ABC's This Week:
In the Chicago Tribune on the same day, writer Frank James headlined: "Nationalizing banks gains GOP steam? What's....astonishing is for a (conservative) Republican....like Lindsey Graham (to suggest it). And he wasn't alone. Rep. Peter King (R, NY) also allowed for this possibility."
Then on February 18, the FT headlined: "Greenspan backs bank nationalisation....on a temporary basis to fix the financial system....facilitate an orderly restructuring (and) restore the flow of credit....I understand that once in a hundred years this is what you do." At the same time, he wants bailouts for senior debt holders to "anchor" the financial system.
This from the maestro of misery:
In his latest February 17 column, the FT's Martin Wolf highlights the fallout by comparing Japan's "lost decade" and early 1980s America to today. He calls similarities with the latter misguided:
As rates in the 1980s dropped, borrowing and economic activity rose. Chances of a surge in borrowing now are nil.
As for Japan, it had a "lost decade" but no depression. America may not be as lucky given the importance of its financial system, how it affects the overall economy, the fact that huge debt accumulations were by households and the FIRE sector, not non-financial corporations. Today's crisis is global and growing, and proposals out of Washington "look hopeless."
"Last year marked the end of a hopeful era." More likely it was early 2000. "Today, it is impossible to rule out a lost decade for the world economy." Some economists are even gloomier given the depth and breath of world crisis, the dearth of credible policies to combat it, and ones being implemented doing more harm than good.
Martin Weiss on the "Truth and Consequences (of) Stimulus"
Financial expert and investor safety advocate Martin Weiss believes that post-2007 policies "have failed." Over $9 trillion and counting "were designed to stimulate the economy, avoid a housing bust, restore public confidence, contain the credit crunch, reduce the danger of a global debt collapse, and shore up sinking banks."
So far, "every single (measure) is an outright, unambiguous, proven failure." Here's the score:
As a result, "a global debt collapse is even more likely today than (before Washington) began its massive interventions." Instead of shoring up the nation's banks, they've gotten worse because offenders get bailout rewards, and they're counterproductive and don't help.
Bottom line: "As the housing bust progressed and the foreclosure epidemic spread," bank asset valuations plunged further. Their losses "multiplied," and their balance sheets "have sunk into an even deeper hole." They're insolvent and operating only with federal bailout help.
Many economists agree, with a February 12 New York Times article calling them "dead men walking." Yet new policy failures follow old ones. Trillions are being ill used as a result. The Japanese spent $6.3 trillion and failed to fix their economy. Matching them would take over $29 trillion, given the US economy's size, with much the same result in the end plus a debt burden that will crush us.
Further, today's crisis is global, and America's problems far exceed Japan's in the 1990s. They're getting worse, not better "with deeper deflation, bigger debt collapses, and far larger financial losses." Japan is a creditor nation with 1980s and early 1990s personal savings at around 14% - at the time, the highest of any major industrial nation in the world.
In contrast, America is the world largest debtor with personal savings at minus 0.5% until it rose to 2.9% just recently. Japan pursued bad policy and failed. Its economy today is in shambles. America's on the same path. Throwing good money after bad with failed policies, not sound ones, assures painful fallout coming, higher costs in the long run, an economy heading for ruin, and dragging most others down with it.
False Signal from the Baltic Dry Index (BDI)
Issued daily by London's Baltic Exchange, it provides "an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the index covers Handymax (terminology for bulk carriers), Panamax (maximum ship size for the Panama Canal), and Capesize (ships using the Cape of Good Hope or Cape Horn) dry bulk carriers carrying a range of commodities including coal, iron or and grain."
In December, the BDI hit a low of about 660 off its 11,000 May 2008 high. On February 10, it reported a rise to about 1800 and a glimmer of hope for the global economy. Not for long.
On February 17, Lloyd's List, "The Leading Maritime & Transport News Portal," headlined: "Asian box ports see alarming drop in throughput," and are bracing for a grim 2009 after "alarming drops in (January) volumes." Here's the tally:
Analysts expressed shock over these and other regional results with IMA Asia's Richard Martin saying: "It's a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac's Richard Franulovich called it "on a par with the collapse in the US during the 1930s Depression." Bank of Japan chief economist Kazuo Momma said his economy faced an "unimaginable" contraction with huge output drops and large numbers of layoffs. Deutsche Bank's Tokyo branch was even blunter in predicting a "severe depression" at least through late 2010, and it's evident in the numbers.
The world's largest automaker, Toyota, saw January sales fall 30% and predicts its first ever loss in its 70 year history. The 10 largest electronics firms collectively expect to lose $20 billion, and the Reuters Tankan corporate sentiment survey hit its lowest ever reading of - 74.
India is also bleak with the ENS Economic Bureau reporting (February 4) that January exports fell 20%, sparking fears of further declines. According to commerce secretary GK Pillai, the "sharp drop came as a surprise and was not expected."
In America, December exports fell 6% while imports dropped 5.5% as recession deepens globally and economists see steeper declines ahead.
Great Depression II?
So it seems because of what Martin Weiss calls "The Great Credit Crunch and Real Estate Crash of 2009." Its fallout hits everywhere and in some places disastrously. On The Global Research News Hour (February 16) and in his latest Global Research.ca February 18 article, F. William Engdahl headlined an example:
The risk amounts are "staggering" for banks in Italy, Austria, Switzerland, Sweden, Greece," and likely Germany. Other troubled countries include Ireland, Spain and Portugal as pain heads everywhere across the continent and beyond. "Perhaps most alarming is that the EU institutions don't have any framework for dealing with this. The day they decide not to save (one country, it will) trigger....a massive crisis with contagion spreading into the EU."
According to UK-based Market Oracle editor Nadeem Walayat, add Britain to the troubled country list from his article headlined: "UK Recession Watch - Britain's Great Depression?" In a lengthy analysis, he cites why:
It's why economist Michael Hudson calls the "financial 'wealth creation' game....over....The economy has hit a debt wall and is falling into Negative Equity....A quarter to a third of US real estate (is) in Negative Equity." It will stay there "for as far as the eye can see until there is a debt write-down....debt deflation threatens to keep the economy in depression until a radical shift in policy occurs - a shift to save the 'real' economy, not just the financial sector and the wealthiest 10% of American families." Obama's "recovery" plan is ruinous by adding mountains of new debt and ignoring "the need for a write-down."
World markets may agree as a February 20 Wall Street Journal online headlines: "Wave of Selling Spans Globe....prolonging a market swoon that has dragged major averages down to levels not seen in years."
Bellweather General Electric is around 85% off its valuation high and year to date down around 43% in less than two months. At the same time, gold touched $1000 an ounce before pulling back intra-day. Spot gold reached $1030.80 last March with analysts predicting much higher prices going forward given strong physical demand and investors seeking the traditional safe haven in troubled times.
It's why financial expert and consumer advocate Catherine Austin Fitts recommends:
"Bail out of Wall Street" and "nationalize" the Fed. In other words, drop the fiction that it's a government agency. Expose its status as a private for-profit cartel, abolish it, and obey the Constitution's Article I, Section 8 that gives Congress alone the right to coin (create) money and regulate its value.
A Final Comment
Today's crisis should bury the myth about "free-market" fundamentalism as the best of all possible worlds. History proves otherwise by clearly showing that it fails the many to advantage the few because it's arranged that way:
In 19th century America:
In 20th century America:
Enough is enough. Bury the monster, its crimes, its inhumanity. End its poison and bandit ideology for egalitarian freedom and equal justice. Marshal collective defiance for real change. It's high time we got some.
Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM to 1PM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.
Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.
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Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.This story was published on February 23, 2009.
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