Boom and Bust Cycles: Predictions on American Life — PART I — MONEY

Boom and Bust Cycles: Predictions on American Life — PART I MONEY

The best predictor of future behavior is past behavior. It’s all we have really. Of course the problem with using past behavior is that we relying on defective memories or reports from people who had their own agenda in relating “facts” that tend to enhance their own future. Thus it is with something of a grain of salt that we take what is reported and convert it in our minds as something we know. 

Accordingly, our predictions are sometimes right and sometimes wrong depending upon the quality of the information we used, our ability to process that information and of course the ever-present probability of intervention of unforeseen acts, events, or plain bad intent. 

This is why when news was news, reporters would seek corroboration from multiple reliable sources before reporting it as fact. Now they report things that are unsubstantiated, partial and misleading, or mere statements of opinion in a hash that is known within their industry as fact based entertainment. It follows that anyone forming opinions on “mainstream” reporting is more likely to arrive at miscalculations and wrong conclusions than before.

Nevertheless, there are some things we know from American HIstory and World History that appear to be true, except for those instances where “revisionists” undertake to change public opinion by denying the painfully obvious with such fervor and passion and persistence that at least some portion of the population comes to doubt their own senses. It is clear that central policies of the United States are increasing resulting in failure to affect outcomes in economics, politics, war, or world society. we can argue over why, but the facts are inescapable as are the conclusions regarding our presents status.

Boom and Bust seems to be a fact if not an inherent part of human nature. We bunch up a group of ideas and theories, right or wrong, and act as if they were not only true but absolute. After a while, with the passage of time, the idea or theory becomes obviously true because “that’s the way it works.” The concept of a theory “proving” true because of people validating it with their behavior (despite obvious flaws in the idea or theory) usually does not occur to anyone — except for old texts, rarely read, by people who started with more basic questions and arrived at reality is which is far more ambiguous and ambivalent than prevailing political and economic theory, slogans or sound bites. 

In the context of this ambivalence and ambiguity we attach our perceptions of American Boom and Bust here for your entertainment or edification. Here are some thoughts on past, present and future which we believe have a high degree of integrity and reliability, based upon our reading, measurements, and interviews with those “in the know” (i.e., people who espouse a theory or slogan that gains currency and  thus, for a while, becomes a self-fulfilling prophecy which is “true” — at least long enough for book royalties and trading of securities to fill their own pocketbook).

MONEY: BOTTOM LINE: After years of enjoying the benefits of being the currency of choice, the U.S. dollar is declining in value and status and will continue to diminish tot he point where our wealth and fortunes depend upon the decisions of foreign sovereign nations and private companies rather than the U.S. treasury or the Federal Reserve. 


The United States will be called on to pay is debts and a series of deep recessions and possibly depression will ensue as a result of our obligation and attempts to pay off the debts created by our borrowing and the free ride that ends when those holding U.S. currency convert to other currencies or other forms of “money.”. This will cause tension in our foreign relations and could lead to war rather than payment.  


Within the last 250 years of American history, 


  • the Colony of Massachusetts declared wampum, the currency of native Americans to be the official currency of the colony. 
  • Virginia used tobacco as currency, 
  • there was no Federal Reserve or central bank at all, on and off, in our history, and 
  • at times the Fed was only as strong or directed as its leader (like Strong who died 18 months before the 1929 crash), 
  • our coin currency came from Spain (the origination of the “dollar”), 
  • paper currency came alternatively from 
    • individual banks where a central exchange was used to publish their relative values, or 
    • paper currency came from the King of England, or 
    • paper currency came from the Federal government or 
    • paper currency came from states or groups of states, and 
    • even now the money supply comes from multiple sources and issuers 
    • only one of which is the Federal government through the Federal Reserve and the United States Bureau of Engraving and Printing. 
  • The rest of our money supply basically comes from private systems of payments varying in media from paper, conversation, or digital representations on some accounting or reporting host located out in cyberspace. 

In ALL cases, the issuance of money led to boom and eventually bust of that currency, which means according to the paradigm we have adopted here, that our current money supply is in for some major changes. Wampum for example, went to zero in value because colonists figured out a way to mass produce it ( a scenario not unlike the current mortgage meltdown which derives from a Ponzi scheme using derivative securities to vastly increase the money supply and circumvent monetary policy). “Not worth a continental” was an expression of disgust with the issuance of currency from our new government during the war of independence. Greenbacks alternately received the same reception, only to come back in other forms. State Bank notes went out of favor only to come back as bank sponsored prepaid branded or co-branded plastic cards. The list is endless. The conclusion is inescapable: currencies come and go. Money changes because it is based upon confidence and trust in the issuer. 


Our prediction is that 


  • private proprietary “money” which has already supplanted government efforts to control the money supply will continue to expand exponentially through issuance of private paper including derivative securities like collateralized debt obligations (which despite the current situation are not likely to go away anytime soon), 
  • together with adoption and acceptance of some foreign currency in lieu of the U.S. dollar by private individuals and companies will lead to an “obvious” conversion (i.e.,  recognition long after the fact) to our money supply, and a deep erosion of the ability of both the Federal Reserve or the U.S. Treasury to have any significant impact on monetary supply. 
  • Thus monetary policy of the United States will increasingly become irrelevant and be regarded as such. It is already happened. This is past and is not a prediction. 
    • Merchants in Manhattan and other places are asking for Euros instead of dollars. 
    • Electronic payment systems go through the Federal Reserve not in its position of authority but rather as a logistical clearing operation between member banks. 
    • “Prepaid” debit and ATM cards, some with “overdraft” (i.e., loan privileges) including payroll, loyalty, wire transfer emulation and other electronic accounts that the Federal Reserve never sees, except indirectly through total balances at member banks, are rapidly taking the place of paper currency or even traditional electronic payments. 

In succeeding installments we will cover the rise and fall of mass transportation, healthcare, war, oil, pharmaceutical companies, education, technology and innovation. In brief we believe the relevant historical cycles point to a severe continued downdraft for current dominant players in oil, healthcare, prisons, pharmaceutical companies (because of innovation in stem cell applications and innovation in protocols that currently result in each aging consumer to ingest hundreds if not thousands of expensive pills per year), insurance, and financial services, while an updraft of great significance is in the works for new companies, transportation, energy, education, medical protocols and procedures and personnel. The big new industry might be the protection of your identity and personal information from everyone including the agencies, companies and people who now pretend to do it for you. 

Mortgage/Credit Bust: Vapor without Value

The American Economy: Vapor without Value

My effort here has been to point out that we are creating a fraudulent environment, much like an embezzler, that requires more fraud and more lies each time to cover up the last fraud and the prior lies. Our economy is now one which runs on boom and bust and cannot run any other way unless fundamental changes are made in the paradigm of American politics, econometrics and economics.

This morning, Paul Farrel wrote an article that is precisely on point, in explaining the bust we had in the 1990’s, explaining the bust we are having now, and explaining the next bust which is already in the making. 

The only thing I would add is that I think the policy makers are going to try the same thing again right now to “bail out” the current economic collapse.

If you want to protect your wealth, your retirement, your nest egg your rainy day fund, read this carefully and start thinking about it. 

The American economy is now a house of cards trading in vapor that is “rated” with value. There isn’t enough  real “money” in existence that will bail us out of the funny “money” that has been created. A major shift in our perspective must occur, and it starts with telling the truth. Here, reprinted from this morning, is the best summary of the unvarnished truth that I have found. 


A mind-blowing machine

In America, land of the bubbles, the next pop will be the biggest

By Paul B. Farrell, MarketWatch

Last update: 7:32 p.m. EST Jan. 28, 2008

ARROYO GRANDE, Calif. (MarketWatch) — Three cheers! Wall Street’s got a new rally song: “I’m dreaming dreams, I’m scheming schemes, I’m building castles high.”

Actually it’s the 1919 tune that launched the roaring run-up to the ’29 crash and the Great Depression. Remember the lyrics: “I’m forever blowing bubbles. Pretty bubbles in the air. They fly so high, nearly reach the sky. Then like my dreams they fade and die.”


And it still fits today! Listen to venture capitalist Eric Janszen’s scary new paradigm in “The Next Bubble,” a Harper’s Magazine report: “That the Internet and the housing hyperinflations transpired within a period of 10 years, each creating trillions of fake wealth, is, I believe, only the beginning.”


Translation: The next bubble is already expanding. Now listen very closely as Janszen makes the single most dangerous prediction of 2008: “There will and must be many more such booms, for without them the United States can no longer function. The bubble cycle has replaced the business cycle.”


After the collapse of the 1990s dot-com bubble we laughed at all the hype they had spewed: “This time it’s different.” “New paradigm.” “New economy that only went up.”


Well, stop laughing: The new, new came true, says Janszen. Seriously, the economy and the stock market can no longer function without an ever increasing series of bubbles, one after another, rapidly expanding then bursting, with all the manic trading, risk, uncertainty, hypervolatility and distortions that come with it.

Janszen traces bubbles through history: From the 1720’s South Sea Bubble to the housing-subprime bubble. Bubbles are accelerating, becoming more frequent, a frenzy feeding on itself: “Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble fully deflated, a new mania began to take place.”


What’s so scary is not that the subprime bubble was happening so fast on the heels of the dot-com bubble, not that the pundits, the public and the policy makers all appeared to be ignoring it. What’s really scary is that our best and brightest leaders in Washington, Wall Street and Corporate America wanted to create a bubble! They even threw jet fuel on this raging fire with cheap money, favorable taxes and minimal oversight.


Of course the Treasury and the Fed will never admit it, but they saw the housing bubble as a healthy economic necessity in their warped ideology! In their myopic minds, the housing bubble was the messiah “saving” America from a big, bad bear/recession.


Publicly they denied the bubble’s toxicity, dismissing it as “regional froth.” Privately, they conspired to create a massive new bubble driving America deep into debt.


‘New economy’ morphs into out-of-control robot


This new ideology is extremely dangerous: It assumes the American economy can no longer be managed by politicians or Wall Street quants. The “new economy” has a life of its own, a “Terminator” from a dark future, an “I, Robot” from Asimov’s sci-fi world.


Yes, our economy has become a self-sustaining “bubble-blowing machine” inventing new bubbles at warp-speed even before the last is buried, in endless reincarnations of Schumpeter’s “creative destruction” cycles.


What’s next? More asset-backed bubbles. The dot-com ’90s created $7 trillion in market value. The housing boom created $12 trillion in “fake wealth.” Janszen predicts the next great bubble will be a $20 trillion “alternative energy” bubble. In fact, Wall Street’s already hustling biofuels, solar, wind, nuclear, geothermal and hydroelectric as the new alternative energies destined to replace oil, gas and coal in this next new economy.


Timing? The new “alternative energies” bubble will last about 8 years, from a 2005 launch till a peak around 2013, when it will “creatively destruct,” when all possible “fake wealth” is squeezed out, when investors wise up to the scam, when that new bubble pops.


In his finale, Janszen admits that when the “alternative energy” bubble finally self-destructs around 2013, “we will be left to mop up after yet another devastated industry,” while Wall Street “will already be engineering its next opportunity.”


But be warned: Even before we near the end of the “alternative energy” bubble, the law of unintended consequences could trigger a meltdown, not of the bubble but of the “bubble-making machine” itself! The machine will implode, taking down Wall Street, Washington, Corporate America … and with it, the “new economy,” the “new paradigm” and the “bubble-making machine!” (e.s.)


‘Black Swan’ self-destructs ‘shadow banking’ derivatives


The trigger? A “black swan” off the radar and invisible to the quants managing the world’s derivatives.


The brilliant supertrader and risk manager Nassim Nicholas Taleb says a “black swan” is an extremely rare, improbable event (like 9/11) that cannot be predicted, yet has catastrophic impact. Black swans are events outside the vision, experience and technology of the world’s derivative traders’ geniuses.

What will the black swan destroy? How about the derivatives market that spreads so far beyond subprime loan obligations.


Pimco’s Bill Gross warns that $500 trillion of derivatives are hiding in a “shadow banking system” that “craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage … with no requirements to hold reserves against a significant ‘black swan’ run that might break them.”


Derivatives have become a renegade army of “I, Robots.” “According to the Bank for International Settlements … total derivatives amount to over $500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the Frankensteinian levered body of shadow banks.”


Shadowy? Pyramid schemes? Frankenstein? Terminator? Black swan: Gross paints a much darker future than Janszen: “The last two decades alone have witnessed pyramid schemes involving savings and loans/junk bonds, the small investor/dot-coms, and now global bonds/subprimes … in each and every case the originator of a surefire ‘can’t miss’ concept collected huge premiums from a willing investment public, only to see the pyramid collapse either of its own merits or from the lack of additional gullible investors. There will be more to come, much like a regular university that welcomes a never-ending stream of new ‘students’ who pay annual ‘tuition’ to be ‘educated.'”


Higher truth


Never-ending: Gross and Janszen agree on that. But they’re both wrong. The biggest low in Janszen’s argument: “Given the current state of our economy, the only thing worse than a new bubble is its absence.”


Wrong, wrong, wrong! Remember, this new paradigm assumes that the only way the American economy can exist in the future is if Wall Street’s greedy “bubble-blowing machine” keeps feeding on itself, creating an endless, accelerating succession of ever-bigger bubbles.


Folks, that’s one of the dumbest economic theories ever, silly “new age” magical-thinking touted as a scientific basis for the new self-indulgent ideology of Wall Street, Washington and Corporate America.


There’s a higher truth: The best (not worst) strategy would be to let the “bubble-blowing machine” implode, live with the absence of a new bubble for a while, then quietly step back and reassess our unsustainable “growth-at-all-costs” economic policies that are secretly designed to benefit the self-interests of Wall Street’s insiders who profit by endlessly blowing bubble after bubble … after bubble … after ...(e.s.)

Brave words from someone who isn’t afraid to challenge the conventional wisdom folks. Listen closely to what he says.

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