For a while in the 1990s, the idea was a "service economy," kind of like the old fable of the town whose inhabitants made a living by taking in each other's laundry -- only in our case it was selling hamburgers to tourists on vacation from their jobs making hamburgers elsewhere, or something like that.
Then came the idea of the "information economy" in which making things of value would no longer matter, only the processing and deployment of information (sometimes misidentified as "knowledge"). This model seemed to suggest a yin-yang of software engineers who made up games like "Grand Theft Auto" serving the opposite cohort of people who bought and played the game. If nothing else, it certainly explained how lifetimes could be frittered away on stupid activities.
That illusion yielded to the housing bubble economy, which actually did produce a lot of things, but not necessarily of value -- for instance, houses made of particle board and vinyl 38 miles outside of Sacramento. It was a tragic and manifold waste of resources, as well as an insult to the landscape. But the darker side of the housing bubble lay in the world of finance, where a vast empire of swindles was constructed to support the Potemkin facade of production homebuilding.
Now we are in a strange period when those swindles are unwinding. The people who run the finance sector -- the Wall Street investment banks, hedge funds and ratings agencies, the Federal Reserve, and the US Dept of the Treasury -- in desperately trying to prevent the unwind, have rapidly ramped up another new economy based entirely on the buying and selling of risk. Risk, as a pure abstraction unconnected to any real capital activity, is all that's left to buy and sell after all other plausibly practical vehicles for finance have failed.
While a lack of transparency in the individual risk vehicles has been an object of complaint over the past year, the system as whole is transparently absurd. The system is also abstruse enough to prevent most mortals (including many employed in the system) from understanding its operations. But the general public and the news media are virtually helpless to intervene in this last gasp racket, so the probability increases that it will do tremendous damage to whatever remains of the US economy.
One feature of the risk economy is the Federal Reserve's new willingness to absorb any sort of crap collateral in exchange for massive cheap loans to insolvent companies and institutions. The Fed has, in effect, made itself the world's largest financial shit-magnet. It has already taken in a few hundred billion in securities based on non-performing real estate loans, and has now opened the window to securities based on non-performing credit card debt, car loans, and other miscellaneous IOUs still drifting un-hedged in the banking ether.
It's a mark of our collective desperation to avoid the consequences of so much reckless behavior that no credible authorities have stepped up to denounce this racket -- no Fed governor, no politician of standing (including the candidates for president), no newspaper-of-record. The Attorney-general of New York, Andrew Cuomo, may be quietly cooking up some cases in the deep background, but the SEC and the federal banking regulators hung up their "out-to-lunch" signs on this long ago.
Meanwhile, the basic situation is this: the world is awash with bad investment paper. The standard of living in the US can't be supported on debt anymore. The people of the US don't produce enough real value to service their debts. Institutions can no longer be supported on debt gone bad. Something's got to give -- meaning something has to bring the US standard of living down to a level consistent with our declining actual wealth.
Everything else going on right now is a dodge. The Fed maneuvers, the "coordinated actions" of the western central banks, the postponements of default, the non-disclosure of contents in bank portfolios, the pretense that risk alone is a kind of fungible resource that can be endlessly traded to generate fees -- all this fucking nonsense will only make the eventual unwinding much worse.
Personally, I doubt that it can go on more than a few more months. The velocity of everything is going up past the "red line" where things really fly apart. The increased velocity of non-performing mortgages and deadbeat credit card accounts is one thing that can't be hidden or escaped. America will feel and see very vividly when the repossession teams rush families from their homes, when the pickup truck is taken away, and when the pink slip appears in the pay envelope. Meanwhile all the higher-end banking shenanigans will only debase the dollar and make it more difficult for people already in distress to buy gasoline and food.
If the bankers and treasury officials collude to prop up one more failing big bank a la Bear Stearns, the political fallout for Wall Street could be lethal. In any case, I think we will have a way different sense of ourselves as a society by the time the election comes.
NVDL: This Business Day article is interesting:
Standard Bank said the recent trends in South African house price growth, when compared to trends in the US, could at first glance seem ominous for the outlook for South African residential property.
"Increasingly, there are comparisons being made between the subprime-induced housing recession in the US housing market and the current challenging conditions facing the South African housing market.
"Given the dismal house price growth currently being experienced in SA, the question of whether or not the South African housing market will experience a deep recession similar to that being experienced in the US housing market is being asked with increasing frequency.
"However, our analysis of the sources of the recession in the US housing market and its subsequent transmission mechanism to the rest of the US economy suggests that South African residential property will experience a relatively mild cyclical downturn rather than a full blown recession," Standard Bank said.
No, this ain't no mild cyclical downturn, but expect to hear a lot of 'experts' kidding themselves and us that this is the case. Peak Oil means that the conditions we experience now will gradually and intractably worsen, meaning we are by and far heading for a full blown recession along with all that entails: unemployment, crime, shortages, and general austerity. What makes this scenario bleak is we will see it from Johannesburg to Georgia, from Peru to Paris, and everywhere in between. We will see petrol prices going up by another 50 cents in two days, and our petrol pumps are not even geared to deal with so many digits. Neither, apparently, are our hearts and minds.
I predict that for the next few seasons communities are increasingly going to play catch-up to the actual state of affairs, turning to experts and pundits, presidents and hopefuls, in the skewed hope that good news has anything to do with what will actually happen. The people to turn to now are those with a new lease on life, those who are doing something different - it might be farming, or acquiring or building alternative energy systems or otherwise investing in new forms of technology, those who have started to radically change their lifestyles (what they eat), even their jobs.
In the end, reality speaks better than any man.
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