The Angry Future Expat

It’s The End Of The World As We Know It, And I Feel Fine

Posted in Assholes, banksters, debt, Deflation, Lost Decades, Walk Away by angryfutureexpat on June 30, 2010

Well, maybe not fine, since the global economy is completely, totally, and irredeemably fucked (only a household debt jubilee can save us!).  As we’ve been saying for a while around here, the future holds two decades, or more!, of deflation, defaults, bankruptcy, sovereign restructuring their social program obligations (Note that in the lingo of dominant creditor class, this is called “austerity” instead of “default” because the people they’re fucking are poor and middle class).  But let’s start with a comment from the Economist magazine:

The idea that using borrowed money to buy assets is the smart road to riches might lose currency, changing attitudes to home ownership as well as to parts of the finance sector such as private equity.

This special report will argue that, for the developed world, the debt-financed model has reached its limit. Most of the options for dealing with the debt overhang are unpalatable. As has already been seen in Greece and Ireland, each government will have to find its own way of reducing the burden. The battle between borrowers and creditors may be the defining struggle of the next generation.

Everyone get that? Let me just repeat that, “the defining struggle of the next generation.”  This is absolutely true.  The creditors don’t want to accept less that full repayment, and the debtors know that there is no fucking way in hell that they will ever be able to repay it.  So, what happens?  Well, the banksters trundle the world down the Road to Neoserfdom (read the whole thing):

On June 3, the World Bank reiterated the New Austerity doctrine, as if it were a new discovery: The way to prosperity is via austerity. “Rich counties can help developing economies grow faster by rapidly cutting government spending or raising taxes.” The New Fiscal Conservatism aims to corral all countries to scale back social spending in order to “stabilize” economies by a balanced budget. This is to be achieved by impoverishing labor, slashing wages, reducing social spending and rolling back the clock to the good old class war as it flourished before the Progressive Era.

****

Somebody must take a loss on the economy’s bad loans – and bankers want the economy to take the loss, to “save the financial system.” From the financial sector’s vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy. Government social spending (on everything apart from bank bailouts and financial subsidies) and disposable personal income are to be cut back to keep the debt overhead from being written down. Corporate cash flow is to be used to pay creditors, not employ more labor and make long-term capital investment.

The economy is to be sacrificed to subsidize the fantasy that debts can be paid, if only banks can be “made whole” to begin lending again – that is, to resume loading the economy down with even more debt, causing yet more intrusive debt deflation.

Pretty much right.  And the result?  First, John Hussman:

In short, my concerns about the economy and financial markets are escalating quickly. Given the already vulnerable condition of the U.S. economy, a second phase of weakness would most likely contribute to already troubling levels of mortgage delinquency and foreclosure, and could be expected to push the unemployment rate toward 12%. It is not useful to rule out unfavorable outcomes simply because they seem unpleasant or unthinkable. It is also not useful to place superstitious hope in the Fed and the Treasury to fix the consequences of irresponsible lending without any ill effect. In the coming quarters, remember that every time you hear an incomprehensibly large bailout commitment from government, it will equate to an unconscionably large extraction of public resources, possibly through overt taxation, but more likely through the long-term destruction of purchasing power.

I sincerely doubt, that we are going to a “long-term destruction of purchasing power,” unless he means that people won’t have any fucking money, and therefore can’t buy anything, but he’s right that we’re about to head into the biggest leg down yet.  Not to be outdone, however, is Paul Krugman:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

****

[B}oth the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

Now look, this is all playing out very much as we thought it would over here at AFEP, but that doesn’t make it good.  Let’s put what’s happening in bullet point form as it is my preferred presentation method.

  • We (the “citizens”) can’t pay off our mortgage, credit card, car, student loan, and other debt;
  • The Government takes our tax dollars to make the banks and other creditors whole on the loans we can’t afford to pay off;
  • The Government then raises our taxes (not yet, but probably will) and cuts our social safety net to make up for the cost of making the banks whole;
  • We (the “citizens”) suffer a massive recession and severe increases in unemployment;
  • We (the “citizens”) – now because we don’t have jobs or income – can’t pay off even more mortgage, credit card, car, student loan, and other debt;
  • Rinse, repeat, all the way down.

Of course, the way to cut off the cycle is to have the Government intervene at step one, and eliminate, or force a major write down of household debt, but, hey banks are in control of the government, and that might mean they would lose a few percentage points (or optimally, a lot of percentage points) to inflation.  And we can’t have that.

So, crack open that bottle of tequila you’ve been saving for a special occasion because the great unwind is here.

Maybe the debt will go away in a few decades, or if we all stop paying, a little sooner, and the economy can begin to recover.  But I wouldn’t get my hopes up.

8 Responses

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  1. Bukko Canukko said, on June 30, 2010 at 1:39 pm

    Of course, all that you, and Hudson, and Hussman (not so sure about Krugman) say is true. Problem is, it’s complicated — more than a one-step concept in terms of the logic behind it — so the sheople won’t understand. They DO understand “I owe, so I have to pay.” They might not LIKE it, but it’s a simple concept, so they glom it. And they’re less likely to resist IMF-style plans to pay off the banksters.

    At one level, I don’t like what you, and some of your other readers who have blogs I’ve read, are doing. Getting a loan, and not paying it back. is wrong. I never did that. But you know what? I think it’s ever wrong-er for speculators to have rigged the entire world economy so badly that it’s impossible for people to get good-paying jobs that could pay back their debts. They wrote the rules of the game so that you and so many others would get screwed, but they still want you to play by their rules. So fuck those fucking fucks. In times like these, welshing on your debts is rebellion, not immorality.

    • angryfutureexpat said, on June 30, 2010 at 2:28 pm

      As Krugman likes to say with respect to being up against the zero bound, “vice is virtue.” He’s right, but he gets the vice wrong, and the reason it’s a virtue wrong. Under normal economic conditions and debt levels, it is conducive to the economy and society as a whole for people to pay back what they owe – even with interest! But that’s not where we are. These debts can never be paid back out of income, and they have to go away or the economy will never recover.

      In times like these, the right thing to do is to speed the process by walking away and defaulting.

      • Bukko Canukko said, on June 30, 2010 at 5:19 pm

        Some classic lines in that link like: “If you are trying to quit crack, how would feel about your pusher reducing your crack score? Does that make sense? If you plan to fight the war on drugs, you fight to win, right? Stay off crack (I mean credit) for a few years, and they will take you back with open arms.”

        Right on!

  2. JL said, on July 1, 2010 at 8:05 pm

    There is nothing wrong with not paying back a loan to a corrupt entity propped by a corrupt system. If you run an auction for something and pay off the media and government to drill the idea into everyone’s head that this is a great product that is necessary to humanity and they are doing something positive by being it, and it does X, then have about 50 people fake bidding on it to drive up the price, and the product does not do X, does the “winner” of the auction have to pay for the product?

    In a just world, no. Because you used fraud to induce, then used unethical tactics to drive up the price again in a way that if not outright illegal, is definitely unethical.

    That’s in a nutshell what the government and the banks have done to the American public, especially the Student Loan Cartel, Higher Education and the Mortgage Industries. There is no reason higher education or homes should have cost as much as they did, and why people should have been pushed into schooling and buying over renting. Even now the government continues pushing these messages.

    I have no qualms of never paying back my loans. I actually have yet to pay anything yet as I’ve deferred the entire time. I will continue deferring until they no longer let me. Then I will IBR. Hell I probably should IBR right away.

    The problem is that it is legally difficult to immigrate. The US is actually pretty much the only country that has fairly open borders. I guess I can try to figure out how to illegally immigrate, but that is kind of difficult to do. I wouldn’t mind heading down to Mexico myself.

    • angryfutureexpat said, on July 2, 2010 at 3:32 pm

      Well, look there’s immigration and then there’s “immigration.” You can stay in some countries more or less indefinitely, as long as you’re willing to leave from time to time to renew your visa. At some point I’m going to write a post about such things and ways to make money abroad (not including working as a drug mule and/or assassin). There really are options out there, and as long as you live cheap, you really don’t need to make that much.

  3. W.C. Varones said, on July 1, 2010 at 9:40 pm

    Jubilee won’t work. It has to be a helicopter drop instead.

    If you did a jubilee, you’d wipe out all the banks, and then that would wipe out all of the bank’s debtholders, including pensions and widows and orphans. If you bankrupt CalPERS and all the other pension funds out there, it’s the end of the world.

    Your helicopter drop proposal seems much more effective and less dangerous.

    • angryfutureexpat said, on July 2, 2010 at 3:26 pm

      True. I think of both printing money and giving it to people to pay off their household debt, and forgiveness as a “jubilee,” but the print and give is the better and more workable mass solution. Forgiveness is the proper approach in the bankruptcy context, but isn’t really workable to resolve the societal problem – as you point out it would be massively disruptive and wouldn’t target the right debt.

  4. set me up said, on July 2, 2010 at 6:59 am

    @JL – there are alot of places that have free immigration. The terms are different, but not insurmountable.


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