Tuesday, July 8, 2014
Let's Have a Great Depression
Let's Have a Great Depression Lex Loeb Contributor Network . Watching our leaders in Washington, DC panic in a financial crisis that is panic driven one might start wondering if Americans are secretly hoping to live though the next great depression. The panic is psychological in nature which helps explain how a financial panic can cause sustained economic collapse. It is a psychological phenomenon. Legitimately then, one can bring the works of Sigmund Freud into the discussion. Freud also came up with the concept of death wish as a motif in the unconscious thought process of humans and even described the base human race as the primal hoard. Watching a self fulfilling prophesy get acted out on the world stage of political and financial markets the basic motivation is usually pigeonholed as fear. That is Fear verses Greed as it is written up in many books on understanding the psychological characteristics of financial markets. Fear and Greed are not exact antonyms, nor equal and opposite each other. The antonym for fear is not greed, It is the feeling of well being. The opposite of Greed is a word like Sharing. So the opposite of fear and greed is a deep feeling of well being and sharing. This is perhaps why society seems to have little sympathy for people who loose money as investors in the stock market but when it comes to foreclosures of home mortgages the issue is one of home being under attack by big greedy nasty banks. A large part of the American population pretends that they believe in general well being and sharing on the outward surface only in their personal affairs to be fearful and greedy as anyone else. The baby boomer's who embraced fads like anti war, free love and flower power surfaced as the biggest greediest me generation in us history. As it turns out in a financial crisis they are also the most fearful. This is the Me generation's stock market crash we are experiencing now in 2008. Many of their parents did suffer thought the original great depression, The question is are they unconsciously wishing for a new great depression because that seems to be outcome of their group psychology. Group psychology is no accident---Freud got that right. The me generation is against greed and against fear they have only wanted general harmony of well being and sharing. The great boom and bubble preceding the crash was an orgy of greed not of sharing. Condo Flippers loaded up on as many as they could get to flip in rapid succession and there certainly were no warm fuzzy feeling of community coziness involved in how they priced their flips to maximize profits and the greater fool theory. Greater fool theory is there is always some one more of a sucker than you are to resell an asset to at an even higher price than you paid for it. This is how the great real estate bubble got over inflated. The greed was even more wild than that, banks were leveraging their funds form 30 to 60 times their deposited assets. Others were using low interest rate mortgages to borrow against the homes to buy virtually anything and in some cases using funds to buy stocks on margin. If the solid trustworthy banks were not over extending margin on their own accounts their clients were with bank loans. Could wild behavior like this be on account of general well being and sharing? Is a bad outcome in the form of an economic crash really an accident? Is there a hint of unconscious self serving guilt in play in the psychology of this mob? This is the most academically educated mob in the history of the united states. A larger percentage of the American people have some knowledge about the great depression era and yet they appear to be blind to the potential of re-creating the same conditions. The populist reaction of government officials to the apparent crisis is to panic along with the crowd. All the experts are seen sucking their thumbs in their power player positions repeating many of the same disastrous decisions that turned the financial crisis of 1929 and after into the big bad great depression.. As soon as the fear takes over, America is described as a country with a fake economy by self serving experts. It is suddenly not a country that makes things but just an economy that consumes. More regulations are needed, higher taxes are necessary, More government over sight, and protectionism become the mob's cry for financial justice. Bankruptcy and reorganization according to existing law is considered by many to be an inappropriate solution to deal with truly insolvent businesses. The government is going to save homeowners who never should have had access to borrow money to buy houses they could not afford and they need protection. . The country moves beyond greed to wholesale fear as if powered by extreme guilt. The effect is stock certificates being thrown out side of windows like confetti as people seem to be willing to sell at virtually any price. The markets go wild with selling and that turns to selling pressure where investment pools have to be liquidated for cash redemptions. The whole phenomenon becomes a psychology of world wide wealth destruction. Or is it really just sharing the wealth ? Giving away perfectly good equities at any price that someone is wiling to pay? The 2008 market crisis may loose as much as 10 trillion dollars of paper wealth in the US market before the end of the year and the world markets might loose perhaps 100 trillion dollars . Paper profits and paper losses are irrelevant until they are turned to cash in a sale. Buyers are as greedy as ever. Almost every share of stock sold in the frenzy is going into more expert hands than from where it came from. We know this from the history of markets that usually recover after a stock market crash. I really mean to say they always recover except for markets that are scams like the south sea bubble where the stock certificates never represented anything of any real value from beginning to end of the process. The phony south sea corporation shares never recovered but eventually the closely related Bank of England shares did. Greed is supposed to make people go blind at least temporarily. still educated people should have known better than to reproduce an unsustainable financial bubble. I was originally one of the people who saw the bubble forming and bet against it but that became futile. Years and years went by with homes and real estate only becoming progressively more expensive. I stayed clear of that because it seemed absurd and tried to reconcile how it was that people could afford to have $3000 a month mortgages and other expenses to make sense of the sales price of lower to average homes that were selling at forbidding prices. It seemed to be justified . I assumed that a lot of the households over paying had good paying jobs that the banks checked out and that more than one family member was working full time. I was rationalizing what I saw as if it were rational behavior. And maybe it was or is as the real estate prices in Portland Oregon continue to surge in some areas as demand still exceeds supply. The reason for this imbalance in parts of Oregon are rigid central land use planning and a giant influx of new people moving into the state with land artificially limited for the types of homes people really want to buy. The bigger growth area was Vancouver, Washington Across the river where relatively freer land use allowed more development of new lots for the suburban homes. Vancouver may have experienced the bigger crash in real estate prices as a result but at least the housing may be more affordable there. Some home and condo flipping is still actually going on in Portland with the wealth of new suckers moving into the state looking to take advantage of the offer of greater fool theory real estate. I don't live in a place where the housing bubble really collapsed yet so my perception of the pain and grief is limited. I am still outside of the zone. The commercial real estate market in Portland still does not pencil out as buy as it still seems oversold and flipping . The big local real estate players seem to show few signs out outward distress but that may change at some point. The psychology is not really universal which is how you know it is irrational. America is a country that lives for the next big fad. I think the first television generation which pretty much corresponds to the baby boom is the fad generation. They become part of a group process with an as seen on TV label stuck to their foreheads. Watching the news coverage of the bust after the boom on the 24 hour news and financial news stations on cable television I am just as detached from the bust as I was from the group psychology of the boom. That is not to say it has not affected me. I see people giving away their wealth in a frenzy to sell to beat the next leg of the market down and wonder just how many will end up any richer as a result of joining in on the fun of the panic. It is clearly as much a group process as the boom was. The more it seems irrational and the more editorial pundits on television that come out and say this is the cost of sin the more curious i become if the whole phenomenon is not really just a big stupid collective guilt complex. When I saw the way the election results went in 2008 with an analysis of the winning rhetoric of the election the more I thought that it is an unconscious intentional act where people are punishing themselves for the sin of greed. I read the financial press separately and as usual they best operators are as greedy and stingy as ever and more so now that the prices are falling though from false bottom to false bottom still not hitting anything like solid bedrock. In 3, 6 or 9 years they are almost sure to come out ahead in accumulating wealth by buying what the irrational are selling. I could be wrong about that and the irrational maybe rational in the sort run or may long run but the history of financial markets really does support the Rothschild adage to buy when there is blood in the streets. It might not have worked in the Bolshevik revolution unless you were prepared to wait 80 years to buy really cheap. I have the long term charts to prove that most stock market crashes usually eventually recover . It just takes some amount of time. Irrational behavior with the group may pay off in the short term but eventually those people may realize they have to reinvest the money they saved to get some kind of return for capital preservation if not capital appreciation. Inflation which is almost the certain eventual outcome of the financial crash will destroy the value of cash faster than any other asset . One might expect to see a surge in real estate investment when the stock market crashes. in the worst hit areas that is not what is seen happening and in areas where the bubble is still in phase It is possible to decide what is rational and what is irrational behavior when you see people fleeing all investments of any longer term value. By virtue of tying up cash and sticking it in banks and mattresses the same fearful sharing people are being greedy as hell in their moment of fear denying the economy the capital it needs to rebound. They want to hold the cash they saved form the markets so as to buy lower than they sold out for. The greed never really went away nor the fear. The fear becomes one of loosing out on a lower price and the greed fears missing out eventually, Meanwhile the economy sputters and general well being and sharing antidote to fear and greed become pervasive in the guilt stricken people with money stuffed in banks and mattresses. Banks are terrified of lending and loosing again so and congress is arguing that free trade is too free suggesting protectionism will save us all which looks to leave the economy no where to go but over the cliff into a grand canyon of an American depression. The more of this psychology that I observe the more it seems that many Americans are secretly wishing for the next great depression. I even sense that politicians in both major parties have their hearts set on a major depression because even if they don't have any historical background knowledge of the cause and effects of the great depression it also seems that they are uninterested in doing any research on the subject. When I hear politicians say that its bad to import oil even when it can be purchased for less overseas than produced domestically I really have to wonder about what their intentions are. When I hear about the American economy being fake because we have a large service economy and know how the laws of the land lead to factories being built in places like china for many more reasons than low cost labor alone , it just does not seem like those people have a rational view of what the purpose of economic growth is or why it is good for it to continue. The idea that general well being and kindness in sharing is going to make the economy ethical just does not strike me as the way we really get economic growth. Productivity gain in the US over many year exceeding most low labor cost economies on the face of the earth, are due to ruthless competition in a relatively free and open market place where all levels of consumers are relatively free to choose the economic objectives they wish to pursue. The recent phenomenon of developing countries becoming competitive like china and even some industries in Mexico with cross border appeal in the US is instructive as to what really moves the economy and what leaves it in dislocation where supply and demand cease to be primary objectives. Top down control and central planning are supposed to promote love and sharing but history does not support that thesis either., The ethics of environmental caring that are taking control of the country really make me wonder how the US intends to compete with China when it seems the US will stop coal mining and never consider exporting coal to china where it might still be in demand at some point in the future. I think the ecotopia of the environmentalists is an economy that looks like rural central America with a 60 to 80 percent unemployment rate because that seems to have less of what they call an impact on the environment. Going from efficient farms to small subsistence farms that actually eat more of the landscape seems absurd but that would seem to be the objective after you see their policy formulations. OK. So , Let's Have a Great Depression. The problem is the same guilty people that unconsciously want a great depression probably also want the next world war to go with it? Election rhetoric hinged on a proclamation that the war essentially won in Iraq is ultimately a complete failure. It is as if a large segment of the American population wants the country to fail. This is not what we see in competitive countries like China where the government and state controlled media almost universally puts a positive spin on what ever the government does even if it results in complete failure. Americans seem to want to suffer from guilt from having too much success. Maybe part of the psychological complex has to do with how the me generation worked to put their parent's generation to shame. The whole generation gap fad perpetuated in popular culture for 60 years was about alienating one's self from one's parents in joining a group of independent young people. The financial crisis began with a few minor problems in minor corners of the mortgage market that really did not affect the whole structure of the system to the foundation until panic broke out. The sub prime mortgage mess did not spread thought the economy it was paraded triumphantly thought the popular consciousness as if entire economy was being faked the way some believe the moon landings were staged. Sub prime mortgages were made out to be an artificial means of achieving the American dream. There was not one financial institution that was necessarily insolvent that failed since the crisis began until the financial news media provoked a run while allies used in financial futures and options markets took to ganging up on the weakened companies with excessive short interest sometimes seemingly exceeding the number of shares available in market inventories to bring giant corporations crashing down. The impression that there is orchestrated ganging up on wounded corporations still has not died out yet as while I am writing this Citibank seems to be the latest target and may suffer a completely unnecessary collapse or a government seizure in a mater of days or hours because of excessive pressure on deposits and on the stock price. I turn on Bloomberg television and CNBC and they are actively promoting the dying elephant syndrome as it if is some kind of sport. I watch that sort of thing and think that maybe these broadcasters are violating public trust in whipping up an unnecessary international hysteria that requires their own involvement in the process to cause wide spread panic and harm. Citibank is solvent until the media seems to work up the hysteria and panic. On the same day the financial news media is busy at work making a fuss about the fact that private corporation executives from ailing automotive industrial companies flew in to Washington, DC on private jet aircraft as if that were some sort of sin. They flew in on a moment's notice for all practical purposes as it happens and yet the symbolism of the private jet being wasteful extravagance was what the news media picked up on. That was in the gun sights of the financial news reporters, the failing US automobile corporations, The issue, however, is not a new one. The industry has long had trouble competing with foreign competitors that do not share higher costs of an older labor force. Some statistics suggest that eventually the more successful Japanese and Korean car companies will suffer the same fate as their work forces age and the union power grows in their own organizations. I turn on the television and the media has gone to bed with the poor auto workers about to loose their jobs permanently in a bankruptcy. But that is not the case. The US has reorganization types of bankruptcy that actually does not shut down operating businesses or plants necessarily. They know that and instead they take the do or die scenario and drum up the nonsense that there are only 3 days to decide before the stocks collapse and the companies have to die. That is nonsense. The share price for GM can go to just one half cent a share and the company is not necessarily insolvent or bankrupt as a result. There is no necessary relationship between company value and the share price just as there is no relationship between power seating in the US Senate and the expertise of the people sitting in the assigned chairs. I see a coordinated attack on several fronts by short sellers and media air heads on major institutions just because they happen to be corporations. That part of the phenomenon is intentional it is not unconscious wishful thinking. The popular desire to see failure happen by the people under the influence of the public spectacle theater of the market panic and crash are the ones who are unconscious their enjoyment in fostering the economic destruction and collateral economic destruction down the line from that. The message is on the FM radio dial if you listen to those songs that never go away on popular stations that call destruction of the old institutions and brining in the new idealism. I think this is being acted out in such a way that it as if the fad is calling out to people saying , "Lets have a great depression." Living in an American city that lives the liberal dream come true where we have politicians who win political offices who are taken seriously when they say that the automobile is dead and will go away and artificially limit access to the city by automobile to make their point, are also big time into charging for parking they intentionally make artificially scarce. A film called who killed the Los Angeles trolley system and rail way was a big hit and later I find out that the story in the film was twisted because the old Huntington commuter train lines of the Los Angeles basin area traveled faster than most cars did and was not purchased by the General Motors company until after it had become a failing enterprise due to obsolescence. GM would have been happy to run the commuter lines had they remained profitable. Maybe the there is an ongoing attack on major corporations that believe they should have the right to recreate reality. I guess that leaves me saying well, Lets have a great depression. Some want it intentionally and others vicariously are enjoying witnessing the dying elephant special effects. .