How and why the next Great Depression will engulf us
Why the US economy far more fragile and vulnerable than it was in 1929
1. Our federal government, since the "Reagan Revolution" of 1981 (e.g. don't tax and spend, just borrow and spend), has borrowed during so-called good times, on a scale once reserved for a rare Keynesian stimulus to combat serious recession. Thus we find ourselves at unprecedented levels of debt (comparable, in terms of GDP, to the entire cost of World War II), and so our current Depression has begun.
2. A corrupt-to-the-core corporate structure riddled with bogus accounting, reliance on financial trickery for profits and misdirected/worthless regulatory oversight.
3. A banking sector of such debauchery and fraud that the excesses of the 1920s are by comparison more like the pranks of slighty-naughty choirboys and girls.
4. A Federal system of entitlements (Medicare, Medicaid and Social Security) which has grown far faster than the underlying economy for decades and now threatens the very solvency of the government itself, so stupendous are the future obligations.
5. A global military hegemony which costs more than all the other military's and intelligence operations of the entire world put together -- the US military consumes more oil than the nation of Sweden (9 million residents).
6. An industrial, transportation and energy infrastructure that, rather than being rebuilt during the past 26 years of debt-based "prosperity," has crumbled in a long decline. Rather than invest in electrical power grids and energy-efficient transport systems, the US squandered the trillions of borrowed dollars on toys, gewgaws, electronics made elsewhere, malls and commercial towers with only transient value and millions of bloated, inefficient poorly constructed homes no one needed or could afford, i.e. "assets" which were not productive at all, "assets" which are now capital traps on a scale heretofore unimaginable.
7. A paucity of US savings (and thus of domestic capital) with only one historical comparison: during the depths of the Great Depression when unemployment was 25%.
8. A huge reliance on financial leverage, debt, borrowing and trickery for corporate profits -- the US exports soybeans, increasingly worthless dollars and "financial innovations" that are now exploding in economies from Ireland to India with the destructive force of superweapons. In exchange for this dubious paper, we have accepted actual tangible goods from the rest of the world. And the rest of the world is now slowly waking up to the fact they've been conned on a scale few can yet grasp.
9. Globalization has reworked the global supply chain in an astonishingly brief period of time. As a result, the arbitrage of currencies, wages, governance (less is more profitable) and environmental regulations (zero is the most profitable) have all placed advanced post-industrial economies like the US at great structural disadvantage.
10. The US claims to be competitive but much of this competitiveness is highly selective and thus illusory. Everything in the U.S. -- labor, goods, buildings and taxes -- is high-cost, overregulated (except for finance, banking and governance) and vulnerable to unpredictable lawsuits and officially sanctioned looting. Other than recent immigrants, non-US employers find the workforce is often surly, unappreciative, narcissistic, entitlement-obsessed, unhealthy, poorly educated, unmotivated, and more inclined to get-rich-quick schemes than actual enterprise or productivity.
The middle management labors under impossible demands to enrich stockholders next quarter and heavy turnover insures few stay in any job long enough to learn it effectively. Team cooperation is a doublespeak fraud imposed by "facilitators," creating a phony work environment where employees and managers alike pretend to care. This bogus environment breeds a looting, game-the-system mentality in which everyone is grabbing for all they can before retirement, restructuring, reassignment, resignation or getting fired.
A "quarterly-profits-are-God" mentality reduces the workforce (even the good workers) to units of input which are pared back or hired without regard to morale or loyalty. This managerial and cultural pathology makes a mockery of worker loyalty and breeds the very qualities of distrust and "I got mine" attitude which undermines both productivity and workplace happiness.
11. Last but certainly not least, the US economy is highly dependent on cheap, abundant fossil fuels -- the very fuels that are in the global depletion phase, happy stories about unlimited natural gas and tar sands notwithstanding.
For all these reasons, we can anticipate that the Depression currently beginning to unfold will be deeper, longer and more destructive than the Great Depression of the 1930s.
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Next, let's recount the chain of events that partly parallel those of the first Great Depression but are about to synergistically take their toll in even more destructive ways:
1. The postwar income convergence (i.e the rise of the great middle class, the reduction of poverty and the relative reduction of the Plutocracy's share of national income) reverses in the early 1970s as the "true prosperity" of the postwar era ends and is replaced by income flowing increasingly to the top, as stagflation, globalization and the decline of dollar gut the purchasing power of the middle class.
2. The rising productivity of the 50s and 60s slips into flatline throughout the 70s and early 80s, only picking up again as computer software and hardware revolutionize the back office, sales, manufacturing, just-in-time shipping/production, etc.
3. Concurrent with this gradual return to productivity in the mid-80s is the gradual rise of finance as the key profit-center of corporate America. As income skews ever more heavily to the top 1-5%, capital/productive assets become ever more heavily concentrated in the hands of the financial Plutocracy. The top 1% now owns some 2/3 of the nation's entire productive wealth.
4. As profits rise (from rising productivity), profits flow not to wages (which remain flat-to-down from 1975 to 2009 for all but the top-10% professional class), but rather they flow to that 1% who own the lion's share of the capital / productive assets.
5. As the middle class experiences a decline in their income and purchasing power (for reasons cited above, i.e. declining dollar, rising income disparity, and wages falling due to global wage arbitrage), they (the middle class) turn more and more to borrowing and ever greater debt, to `pay' for what they have been brainwashed to believe is "the American dream" of imported luxury goods, bloated homes, vacuous cruises, etc.
The only other mechanism available to the middle class to increase household income, besides longer hours of work, is for Mom/Aunt/Grandmom to enter the workforce, which she does in the tens of millions, with sociological consequences that are still unfolding (i.e. ever higher rates of juvenile delinquency, drug abuse, homicide and suicide).
6. This advert/media-driven desire to borrow to fund the "good life" is hugely profitable to the money-center banks, which expand rapidly into mortgage securization, derivatives and consumer credit, to the point that they come to dominate corporate profits.
7. The financial Plutocracy, observing that actually producing goods is no longer very profitable unless you can fix prices, as per ADM (Archer Daniels Midlands), or gain government subsidies and tax giveaways (oil lease depreciation, etc.), sinks its capital into the FIRE economy (finance, insurance and real estate), eschewing real-world investments as comparatively unprofitable.
(Though rarely noted, this is a longstanding trait of capitalism stretching back to 1400-era Venice: When trade became less profitable than mainland farming, the Venetian Elite stopped funding trading and bought farms on the mainland. As a side effect, Venice ceased to be a military and trading power. But the Elite remained immensely wealthy.)
8. As the tech bubble expands, middle-class investors see the Plutocracy (those with enough capital to qualify as angel investors of vulture . . oops, I mean venture, capital) reaping huge gains, and they enter the dot-com stock bubble buildup with a vengeance.
9. In a happy accident, the Soviet Empire collapses just as productivity begins its computer-fueled rise in the US. In a so-called Unipolar World, in which US military, political and financial influence is unrivaled, non-US investors seek the relative safety and high returns (based on appreciation of the dollar) of US financial instruments.
10. The dot-com bubble implodes in a speculative meltdown (dot-bomb), and retail investors (a.k.a. middle class 401K investors) are devastated. The ephemeral wealth they once possessed, however briefly, fuels their speculative desire to get into the next get-rich-quick game, which just so happens to be "something everyone understands:" real estate and housing.
11. Having exhausted the dot-com play, Elite capital seeks a new high-profit home. The miracles of derivatives (CDOs, credit default swaps, etc.) and securitized debt (mortgage tranches, etc.) open up vast new opportunities for leverage (investing using lots of other peoples money), off-balance sheet shenanigans, and outright fraud/debauchery of credit. As chip wafer plants disappear from Silicon Valley (too dirty, too costly, etc.), they're replaced with paper, i.e. mortgage-backed securities that eventually prove to be near worthless.
12.
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