Although it is impossible to be certain it appears we have painted ourselves into a logistic corner. Many solutions are technically feasible in isolation but don't seem to have a life of their own in the real world. Perhaps it has been ever thus and all the policies and convictions in the world would never have made a difference- our fate on this big a scale may have been sealed since the 1970s.

A useful analogy may be a person running headlong toward a chasm, building up speed to jump to the other side. Close to the edge they stumble and start rolling along the gravel, only to awkwardly roll over the edge. If we are lucky the down slope of the cliff will allow a brutal but non-fatal tumble to the bottom. If we had not stumbled and made the jump and failed to reach the other side it would have been a simple fatal plummet instead.

I guess what I am trying to illustrate is that this economic system failure may paradoxically save us from a far worse fate. A crippled economy is paradoxically a more modest and resource use efficient economy overall (ie save us from the worst of climate change and hard impact peak oil). Maybe the techno-utopia we imagined on the other side was never in reach anyway, or if it does exist the only way there is to slowly claw our way back up the other side of the cliff someday in the future.

Decline in energy surplus in a fiat (non-physical) world acts as a regressive tax, raising the GINI coefficient and increasing inequality. Rising inequality without institutional change, will cause our 'one tribe' that was built up among and between OECD nations and social strata during the 'easy' conditions of cheap energy / few natural limits, to gradually splinter into smaller sub-tribes with similar attributes. We have a strong evolutionary penchant towards cooperating/helping the 'in group' and retaliating/competing with the 'out group'. One good overview of these tribal underpinnings is Conflict - Altruism's Midwife. Another, with more of an academic bent, is Rethinking the Theoretical Underpinnings of Sociobiology. To me, our biggest challenge during resource depletion is going to be to increase the size of our 'in group' in the face of events that will naturally decrease it. The Cramer/Stewart conversation is the tip of the iceberg. The further we splinter the harder it will be to plan and implement a future that all can enjoy. Those in power (political and otherwise) now, should understand this. (but anecdotally talking to people, they don't).

If the perception of climate change and ecosystem destruction (threats to the planet) don't bring us into one tribe - what will?

the videos are not visible outside the USA, unless you're in Canada and can tap into thecomedynetwork.com. Otherwise, you're S.O.L.

So, I did a little digging at crooksandliars.com and I found these:

Cramer v Stewart (excerpt):
http://crooksandliars.com/media/play/qt/7552/26630

I'm sure there's more - but I have to trot right now.

best,

S2

With yesterday's $1 trillion announcement, the Federal Reserve
can do no more.

The entire 500 year experiment with fiat money is over.

They're printing it up but the central core has melted. They can't get it out to flyover country. We're on the razor's edge.

"We have seen nothing that speaks of the promise that we felt when America said "enough" and voted for a change in the fall of 2008."

http://jessescrossroadscafe.blogspot.com/

Households haven't even begun deleverage and they have no assets.

I keep thinking of Bernanke as a Soviet Tech stress testing
chernobyl.

I still maintain the basic problem is the over concentration of wealth at the top which is reinforced/promoted by a tax code that taxes those at lower levels more heavily than those at the top. In addition the wealth at the top is expanded by weak to no enforcement anti trust laws. Rarely are mergers and buyouts rejected by regulators. This policy has been effect for going on 30 years and began with Reagan. This ultimately leads to the Too Big to Fail problem we now face.

We are now reaping the rewards of tax cuts for the rich that have resulted in increased concentration of wealth/income at the top. When this happens those at the top, ever hungry to increase their income, start lending to ever less credit worthy borrowers because that is all there is in a system with concentrated wealth/income. They also have the means to buy the media, as in the case of CNBC, to promote their agenda to those below and to government.

And they have the means to hire lobbyists and donate to politicians who then make regulatory and law changes such as those that have led to this financial meltdown. As a result the system no longer functions, if it ever did, for the betterment of the whole, but for the betterment of those at the top who are running it.

Some may argue that federal tax rates at the top are higher so the wealthy are paying their fair share, but they do not take into account the total tax picture. The total taxes paid by those in the lower income levels is a much higher percentage than taxes paid at higher income levels. Warren Buffet has pointed this out many times.

Why is this true? The first big one is social security tax. It ends at about $100K or so. The second one is the state sales tax. Since only so much in goods can be consumed because of the demands of space and time, the wealthy tend to invest more and as a consequence pay smaller portions of their incomes on sales taxes.

Lower incomes have to spend in order to survive and save less. When they spend they are hit by the sales tax. The results of these and other tax issues is to over time make it easier for those with a wealth base to increase it.

Those who do not have the wealth base are caught in a merry-go-
round of trying to survive in a system that is rigged against them from which they rarely escape. They are told that they should be grateful for all the goodies they get and that those collecting the big pieces of pie are deserving because of their "talent".

I had moved the majority of my funds out of equities when that damn fool "Dow 36,000" article came out in 1999. I saw that as the modern day equivalent of 1929's "Stocks seem to have reached a permanent plateau" idiocy. Turns out that my call was the right one.

I was reluctant to get entirely out of equities, though. I believe strongly in diversification, and felt that I must leave at least part of my funds in equities.

No longer, I have completely closed out all of my equity holdings. I do not expect that I will be allocating anything to equities again, unless and until there is a profound change.

Why? Several reasons, really, which piled up until the "camel's back" was broken.

First, and probably most decisive, is the observation that US corporations are no longer being run for the benefit of their shareholders, but rather for their managements. When there is an economic downturn and the corporation must retrench, it is dividends that get cut, not executive bonuses. Being something of a contrarian, value-oriented investor, I have long placed greater importance in dividend yields than have some investors. Expectations of future growth is highly intangible - imaginary, really - while dividends are tangible. Unfortunately, in the US less and less importance has been placed upon dividends, so they are increasingly viewed as being something optional and dispensible. Everyone has become so seduced by "growth" driven capital gains instead. However, "past performance is no guarantee of future results"; what goes up can come down, and, in fact, has. The stock market, IMHO, has evolved into something that really is not all that different in essence from the type of games that one might find in Las Vegas, Atlantic City, and various Native American reservations. None of these seem to me to be suitable instruments for investing my precious savings.

Speaking about corporate management, there is a further issue of confidence in their management ability - or rather, the lack thereof. I have become increasingly convinced that many, if not most, US corporations actually are not run all that well at all. There are exceptions, of course, and this is hardly something unique to the US. Most corporate managements strike me as being hopelessly over-optimistic; they would refuse to even consider the possibility of long-term resource depletion and economic decline, let alone the contingency of any unexpected "black swan" events. An investment in shares of stock in a corporation is in effect a bet on the future performance of the corporate management; for the most part, it does not strike me as a particularly good bet.

Speaking about long-term economic decline: if one assumes that the probabilities of this is very high (as I do), then what possible reason could there be to hope that equities will perform well over the next few decades? Equity values do not always correlate with economic growth rates, but over the long haul they come pretty close. It just seems to me that, at least when it comes to a long-term "buy-and-hold" investor, equities would appear to carry a very high risk of long term loss should the economy in fact decline as I expect it to do.

Add to all of this some of the things that are now becomming clear: the gross negligence, incompetence, and maybe corruption on the part of government regulators, and the almost total lack of effective regulation of the financial markets and institutions; the distortion and manipulation of markets by unscruplous insiders, sometimes with the complicity of the media; the asymmetry between the long-term interests of the holders of financial instruments and the short-term compensation arrangements for financial intermediaries; and the widespread breach of fiduciary duty and outright fraud, which is not only going unprosecuted, but is actually being rewarded through government bailouts.

Why would anyone in their right mind want to invest even one penny in the stock market given these circumstances? Not I - not now, and never again - unless and until there is one hell of a clean sweep undertaken, something going far beyond anything that Obama & Co. can apparently even dare to consider.

Please excuse me for posting this twice, but it is far more pertinent to this topic thread than the one I originally attached it to. If I had known this topic was in the pipeline I would have waited another three minutes.

At the risk of sounding redundant (small risk, since I readily stipulate the fact) the problem with the world economy, 'free market capitalism' (Hah!), the so-called 'bail outs' (Hah!), AIG bonuses, Wall Street chicanery and a host of other financial debacles is so utterly intrinsic to our human nature that a massive extinction event is probably the only thing that will cure it.

(That light we see in the tunnel is not on oncoming train, it is Darwinian enlightenment.)

The tragically false belief is that there is anything, in this mercilessly physical universe, even remotely akin to "profit" (used in the sense of gaining more from an investment than was put into it by all involved parties in the first place.) It's a concept comparable to a 'perpetual motion machine', and if you think such a device is possible then I would would like to sell you shares in a company that says they hold the patent.

Certainly there is successful theft (which can be made to look like profit, especially if you own a few newspapers and TV studios.)

Just as certainly there can be delusion based on promises of 'profit' (just ask Mr. Ponzi.)

There can even be hope of profit, as attested by widespread faith in the magical "Unseen Hand" of the marketplace.

But, alas, there is no such thing as financial profit.

I refer all engineers [and arm chair financiers] to the physical law known as Conservation of Energy, and its firstborn son, the First Law of Thermodynamics.

To know that those principles are true in the realm of physics (and petroleum extraction) and nevertheless hold simultaneously to the belief that they do not apply to money... well, it's just sad.

Think of commerce as a cup, and all human activity as a quantity placed in the cup for later use. One can get from that cup exactly as much as was put into it, minus a some evaporation, a little spoilage and a few minor spills "Twixt cup and lip."

That's it, and that's all.

The rest is flim flam designed to separate victims from what they have labored to put into their own cups. But a piece of advice to novice Capitalists: don't call it flim flam and theft. That just alerts the marks and makes 'em cautious. Call it Economics and Profit.

Excellent analysis, Glenn. Thanks for posting this as it's a dialougue that very much needs to take place.

Once again, recent events have pulled back the curtain on the underbelly of American capitalism for all to see. I think a review of the work of Thorstein Veblen is in order:

Gulling and milking the investor were taken as a matter of course, and the stock market was regarded as a kind of private casino for the rich in which the public laid the bets and the financial titans fixed the croupier's wheel. As to what would happen to the general run of bets under such an arrangement--well, that was the public's lookout, an attitude that might have been more commendable had not these same titans done everything in their power to entice the public to enter their preserve...

Very few of the heroes of the Golden Age of American finance had much interest in the solid realities of what underlay their structure of stocks and bonds and credits. Later on, a Henry Ford might introduce an era of intensely production-minded captains of industry, but the Harrimans, Morgans, Fricks, and Rockefellers were far more interested in the manipulation of huge masses of intangible wealth than in the humdrum business of turning out goods.

--Robert L. Heilbroner, "The Savage Society of Thorstein Veblen," The Worldly Philosophers

The campaign to allure rank and file Americans onto the "preserve" of the "financial titans" began in earnest in the 1980s:

As early as 1983, Stuart Butler (of the Heritage Foundation)--the Waldo of the conservative policy movement--had co-authored a strategy memo in which he called for expanding tax-free private accounts into "a small-scale private Social Security system," while mobilizing "banks, insurance companies, and other institutions that will gain from providing such plans to the public."

--Jacob S. Hacker, The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream

By the turn of the century the seed Butler had planted had morphed into this:

Conservatives are promising to fundamentally change the American political landscape by transforming those with little stake in society into the motivated owners of Wall Street stocks, health insurance accounts and homes. As it turns the blue-collar wage earner into an investor, the Bush administration's proposal for Social Security reform...is the beginning of this revolution. It's also what Democrats fear most: new legions of Republican voters marching to the tune of individualism, choice and ownership -- not entitlement...

It's odd that the so-called party of the working classes, women and minorities -- all demographics statistically less likely to invest their money -- is seeking to deny major portions of its voting bloc the chance to become part-owners in American companies. Instead, Democrats would rather citizens be wholly dependent on the period scheme that is Social Security and the party's politics of entitlement.

http://www.yaledailynews.com/articles/view/13693?badlink=1

But what to do? As you so aply point out: "The massive investments in energy infrastructure necessary to manage the decline rates of existing oil/gas fields, drill for new oil/gas resources and build up the next generation of renewable energy sources will rely in large part on middle class investors to trust that the stock market is a safe place to save money over the long term."

How do we lure rank and file Americans back onto the preserve?

Angry investors can have long memories that can last for years or generations.

This raises an interesting phenomenon, noted here by Chris Martenson:

Bubbles used to happen once every generation or so, because it took time to forget the pain from the damage. Today we are facing the bursting of a second major asset bubble, housing, spaced less than ten years from the bursting of the dot-com bubble. This is simply astounding and thoroughly unprecedented.

http://www.chrismartenson.com/crashcourse/chapter-15-bubbles

Class warfare? Nonsense! Wall Street, the media and government have been at this for centuries... (If you doubt it, message me and I'll point you to a 100 year old book that showed the same games being played out). Pushing worthless paper, or even tulip bulbs, on the ignorant masses. "Buy and hold" is nothing more than a slick marketing campaign.

People bought stocks because they were going up and they didn't want to miss out. Smart professionals also have an exit plan.

It's not about class. It's about recognizing that everything on TV is marketing. It's about educating yourself and not letting some salesman "manage" your money. I'm sorry for anyone who lost their home or retirement. Learn these 2 things and empower yourself, or just bend over and wait for the next reaming.

There's No Pill for This Kind of Depression

Ignoring for a moment that it's Peggy Noonan saying this (so we don't get sidetracked into some left wing vs right wing garbage dialog), I found the advice she was given by an unnamed "Wall Street titan" to be interesting:

Five weeks ago, when I asked a Wall Street titan what one should do to be safe in the future, he took me aback with the concreteness of his advice, and its bottom-line nature. Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things. He also recommended gold coins, such as American Eagles.

P.S. For those of you who say gold doesn't matter, I recommend you read Ferfal's accounts of life in post-financial collapse Argentina - Lessons From Argentina's Economic Collapse (PDF). That's someone who's been there, as opposed to you armchair theorists who insist there is no role for "hard money" if society slides into the toilet. Of course much of what he says will offend certain delicate sensibilities, but homo sapiens is a wild animal, not some rational creature predisposed to carefully considered thought.

And mind you, if the US goes, the Argentine situation will probably seem positively comforting in comparison.

Many good points, but I think you don't go nearly far enough in drawing conclusions from resource depletion (and ecological devastation). The industrial era itself is in decline. This will throw us back to a total dependence on the soil, water, forest, etc., the very resources we are destroying in order to extend industrial era a few more years or decades. So what logic is there to investing in ANY expansion of the energy sector which will further destroy these ultimate resources?

Why do we not restrict ourselves to running down the currently operating sources while moving ASAP to a radically reduced footprint on the planet, (which many have advocated elsewhere)?

You're right about the fight within the investor class. The big guys are certainly trying to rescue or even further enrich themselves at the expense of the middle class investor, and they have the gov't on their side in doing that.

But the middle class investor is going to lose, and the middle class is going to get wiped out one way or another. The economy has avoided a crash this long only by a massive explosion in debt. The debt bubble has now popped. There is no conceivable way the economy can ever grow its way out of this crash (as it did in and after WW2), and therefore the debt can never ever be paid off.

Debt can be repudiated, defaulted or whatever you want to call it OR it can be inflated away. Guess which option is being chosen? (No cheating -- do not read the headlines in an newspapers.) The middle class is toast, and the middle class way of life is burnt toast.

There is only one way out. The middle class needs start worrying about and focusing on physical survival and less about and on rescuing their investments. This means creating a path to survival for everyone, and that path is a return to a radically less resource intense way of life that is connected to the soil. It's happening spontaneously in some parts of Eastern Europe and it happened here in the 30s. But most of us now don't even know what kind of trees carrots grow in. :) That's where the gov't should be spending money.

A major part of the reason this won't happen soon is that the middle class will focus its anger in the wrong direction, i.e. in recovering their investments. They will not readily identify with the people sleeping under the bridge. But until we are able to build a movement that will force the gov't to assist us in shrinking comfortably to a more sustainable way of life, we will simply affect the WAY in which we get screwed, but in no way affect WHETHER.

A final note: there is no inherent reason the gov't needs to destroy the currency as it is doing. It could make the tax schedule steeply progressive, same for estate taxes and even institute asset taxes. But this would be labeled class war, even though there wasn't a peep when the table was being tilted in favor of steepening the pyramid. But no, the very wealthy believe they will be able to protect themselves against the ravages of inflation by gobbling up hard assets, such as land. And they'll be right until people begin understanding what ultimate resources for survival are, and the need for collective action in obtaining and utilizing them.

Why would anyone invest in the stock market right now?

If you want to daytrade, maybe.

But invest for long term? You'd have to be out of your mind.

1. Corporations are loaded to the gills with debt.
2. Management only cares about their own bonuses.
3. Dividends are miniscule to non-existant.
4. Share dilution (whether through options, or offerings) is an everyday occurence.

Add to that:

5. An SEC that is completely crooked and turns a blind eye to all sorts of illegal activities, even when tipped off.
6. Overly leveraged hedge funds.
7. An average market mentality expecting 10-15% (if not 100% growth) per year.

I would say the stock market is basically a massive ponzi scheme, and you have the baby-boomers on the verge of cashing out. Without a massive continued influx of cash, the whole thing is poised to collapse.

There are a few companies out there that I like, but I fear they may be dragged down by the rest of the rubbish.

I am completely out of equities myself. My 401K is in T-bills and I am seriously considering cashing that out. It's only a matter of time before those funds are nationalized, and you will only be able to access them as an annuity when you are 62+.

I don't see a silver lining.

Garth

How much of the downturn is due to a change of belief that the market is crooked and if so, how many "heads on a pike" would have to happen to convince the 'consumer' that all is now OK-Do-kay and the crookedness is gone?

It's like we watched different editions of The Daily Show. Though Stewart attacked the dodgy financial guys, his focus was on the journalists. "You didn't seek the truth," he was saying, "which is your duty as journalists."

It's a tremendous failure of the "fourth estate". For example, Shaun Carney asks, "How did we get here?" He expresses surprise at the sudden arrival of the economic downturn. Now, perhaps the editors of that major national newspaper were surprised, but many others did see it coming. They asked the hard questions and didn't like the answers.

For example, in February 2008 some commentators wrote,

"the end of the third quarter of 2008 will be marked by a new tipping point in the unfolding of the global systemic crisis."

The same people were saying similar things in 2006.

David Andrews also saw trouble coming in early 2006, as did David Pollard. Even dumb old me in January 2008 predicted the US economy would tank in the second half of the year.

I could go on, but while the various predictions of these people did not all come true, or not as they expected, with mistakes which are obvious in hindsight (for example, I forgot that if there's a recession then fuel demand drops, and thus the price of oil drops, too) that a financial crisis was coming was obvious to all people who did not have a financial interest in saying "la la la I can't hear you we'll get richer and richer FOREVER AND EVER."

We were badly failed by a lazy and stupid media. And really that's what Stewart's piece was about. The investment bankers and the like at least had plain old "but then I'll get more cash" to excuse their lies and self-deception; the media is simply lazy and stupid.

Being sheltered up here in Calgary (Canada’s Most Republican City, far less globalised than Bradford or Leicester), I have only ONCE ever watched Cudlow and Cramer on the TV, and then by mistake.
It was just after the US-led invasion of Iraq.
One of them, and I don’t remember, and it doesn’t matter, was ranting on about the benefits of the invasion to the US economy, and about “Twelve-and-Twelve”. His “theses” included the ideas of Iraqi production rising to 12 million BOPD forcing oil prices down to US$ 12 / bbl, thus breaking the evil OPEC and also paying for the US occupation directly from Iraqi oil revenues…
This program was, I discovered, on some American business news channel called CNBC.
I did wonder what a pair of really bad borsch-belt comedians were doing on a supposedly business news TV station. Mel Brooks would have fired both of them on the spot.
Frankly, if this is what passed and has been allowed to pass for financial journalism (on a business news channel) in the US, you haven’t yet come close to what you deserve:
What you deserve and what you’ve paid for is, to paraphrase from John Cleese, a fellow Old Cliftonian and Bristol City supporter:

What to do with the investing / financial advisory / financial journalist classes:

"Well I think they should attack the investing / financial advisory / financial journalist classes, (ah) first with bombs and rockets, destroying their homes, and then when they run helpless into the streets, (ah) mowing them down with machine guns. (ah) ]
And then of course, releasing the vultures”.
(To which I would add tipping large baskets of poisonous snakes on them from low hovering helicopters and watching them die screaming in agony. Or just tactical nuculear weapons).
“I know these views aren't popular.
But I have never courted popularity."
(This sketch is on YouTube, and Cleese is wearing – gasp – an OE tie!)

And that’s just the journalists ...
Don’t get me started on NASDAQ, which is the biggest scam game around. I would never again have a partner company that is listed on NASDAQ at any level, and I’ve had one as the operator … watching his 42 MM shares get churned 100% in a month, which he thought was terrific. If I were to start a new oil company, I wouldn’t want it listed on NASDAQ (or any other US exchange) or AIM.

Those who ask us to invest do it not for any compassion for us but only for their benefit. A stock broker says buy this or that stock not because we may profit from it but because he gets a commission. The realtor says to invest in real estate. The insurance man says to buy an annuity. The banker says we should open a savings account. The gold bugs beg us to buy gold. Others beg us to buy futures in this or that commodity. A tax lawyer asks us to invest in his favorite tax shelter which of course drives up the value of his own investments. Even colleges and universities beg us to invest in our education at their school and will help us to graduate with debts earlier generations never had to deal with at such an early age. They only care about how much they can extract from the common folks.
For over 30 years those at the top of the economic pyramid have been chipping away at the bottom and are surprised when the top falls off. They didn't believe the same rules applied to them and in many ways they didn't. If lowly clerk is suspected of dipping into the till then he is immediatedly fired. No chance whatever for defending himself or even seeing the evidence against him. If the CFO is suspected of wrong doing he is suspended at full pay while a months long internal investigation is carried out. If found guilty he is given his golden parachute and moves on to his Ivy League college roommate who gives him a new job at even higher pay.
That brings us to the solution to our current predicament. The solution is to create more customers with more money in their pockets. Capital flows to where the customers are. Union busting has taken money out of customers pockets. Unfair trade policies have allowed the tax cuts given to the rich to create millions of very low wage jobs in China and India. Give American workers the same collective bargaining rights that European workers have. Establish trade policies which take the difference in labor costs into account via tariffs. Stop allowing the mythical invisible hand of the marketplace to absolve the rich from the moral and legal responsibility for the harm they do to individuals, communities and Mother Earth. And if nothing else is done stop using the existence or absence of economic growth as an excuse for not expanding economic justice.

Well, there are 78 comments as I post this..

This thread is almost like TOD in the old days - what a joy!

Todd

It took some time to read the http://www.rollingstone.com/politics/story/26793903/the_big_takeover
article and I forgot where the original link were but it fits this subject.

How much substance is there in the article?

Is it correct that government bailouts and federal bank lending is creating a disadvantage for small banks with lower credit risks and a higher portion of staff that keeps track of their customers and a very large advantage for giant banks with large credit risks and very little personal knowledge about their customers?

Is your financial system realy contracting around your least efficient entities?

I dont care much about who runs the show in USA but if someting like this is correct you ought to get a concentration of power and responsibility that no human or single company can handle. If such a trend runs to completion it would result in the extinction of one of the major feedback mechanisms that creates the complex free market that fine tunes the US economy and a large part of the global economy.

Supreme power withouth the ability to rule wisely since it is beyond the capacity of a human or a group of humans to do what a diverse market full of manny humans do. This is realy scary stuff if you are headed anyway near this direction!

I am more concerned myself with racism within Wall Street than class. Nearly every time we see or watch the media these days there is some arrogant bigotted white giving it biased lip against Obama's economic policies. I say that it is time ACORN was put into these racist Wall Street institutions so that they can be brought into line, through an ACORN re-education policy it should be possible to bring socialism to Wall Street and weed out the racist bigot troublemakers which give Wall Street a bad name.