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Page added on April 17, 2017

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Kunstler: Buy the Dip?

Public Policy

The military frolics of spring have distracted the nation’s attention from the economic and financial dynamics that pose the ultimate mortal threat to business as usual. Note the distinction between economic and financial. The first represents real activity in this Land of the Deal: people doing and making. The second, finance, used to be a minor branch — only about five percent — of all the doing in the days of America’s putative bigliest greatitude. The task of finance then was limited and straightforward: to manage the allocation of capital for more doing and making. The profit in that enabled bankers to drive Cadillacs instead of Chevrolets, but not much more.

These days, finance is closer to 40 percent of all the doing in America, and it is not about making anything, but getting more than its share of “money” — whatever that is now — and what “money” mostly is is whatever the people engaged in finance say it is, for instance, Fannie Mae bonds representing millions of sketchy loans for houses of vinyl and strand-board built in places with no future… or stock issued by the Tesla corporation… or the sovereign IOUs of the US Treasury.

The list of things that pretend to be “money” these days would be long and shocking and the sheer churn of these instruments among the banks and markets “produces” the fabled “revenue streams” beloved of The Wall Street Journal. What happens when the world discovers that these instruments (securities and their derivatives) represent falsely? Why, bigly trouble.

And this is the season we’re moving into as the dogwoods blaze: the season of the re-discovery of actual value. For those of you gloating over last week’s demonstrations of US Big Stick-ism, be warned that our military shenanigans have given China and Russia every reason to discipline this country by undermining the international standing of the dollar. They’ve been preparing for this very deliberately for years: constructing an alternative to the US-sponsored SWIFT international payment system, stockpiling thousands of tons of gold, building trade partnerships to circumvent US dominated syndicates. Before the month of April is out, they’ll “pull the trigger” on new voting arrangements in the International Monetary Fund that will reduce the financial power of the US and the Eurozone, especially in the oil trade.

Around the same moment, America will wake up to the awful reality of the debt ceiling. This petard has been ticking the whole time that the political bureaucracy of Washington has wasted its mojo on the quixotic crusade to blame Russia for the 2016 election outcome. Congress will return from the Easter recess to discover that they have a few mere days to debate and resolve the debt ceiling problem — that is, to raise it so the country can borrow more “money” — or else they’ll be faced with a shut-down of government operations, including their own generous emoluments. It’s a good thing (for them) that they have plenty of walking-around money from the mysterious perqs of government service, but the rest of America doesn’t have $500 to pay for a new set of tires or the extraction of an abscessed molar.

Some readers may have long wondered what might happen in this country if the SNAP card refills and social security checks stopped coming. Perhaps we’re about to find out. Congress might find itself in a painfully tight spot. The Democrats would like nothing better than to let this drag on for a while in order to humiliate, and perhaps finish off, their arch-nemesis, the Golden Golem of Greatness. Many Republicans have a religious-strength ideological aversion to increasing the already appalling US debt load. The prospects are not bright for a quick-and-easy resolution to this quandary.

The IMF voting re-set and the debt ceiling quagmire have the power to disrupt many of the arrangements that allow the banks and markets to continue pretending that their stuff has value. When that consensus trance snaps, President Trump may find himself in the unhappy position of having to declare a bank holiday. Unlike the usual holidays in America, there will no Easter Bunny, no Jack-o-lanterns, no Santa Claus. Just empty supermarket shelves and pissed-off people marshaling in the WalMart parking lots with flaming brands and espontoons.

Kunstler



16 Comments on "Kunstler: Buy the Dip?"

  1. onlooker on Mon, 17th Apr 2017 1:09 pm 

    So right what Kunstler states. Money used to be a representation of wealth now it is not even that. Now it is simply a mirage or fantasy which the rich and elite are using to maintain their privileged position over us by virtue of the contrast between those few who have so much money and those many who have so little.

  2. Sissyfuss on Mon, 17th Apr 2017 1:37 pm 

    The matrix that we inhabit is a virtual reality so of course our fiat currency consists of the same digital substance as all else. Trump might even be a hologram. They say the camera adds 20 lbs so must be the hologram adds 50.

  3. Plantagenet on Mon, 17th Apr 2017 2:34 pm 

    Kunstler may be right—the Ds might shut down the government as a way to “get” Trump. Unfortunately, they’ll “get” all the rest of us as well if they go down this road.

    Cheers!

  4. Ghung on Mon, 17th Apr 2017 2:55 pm 

    Default, by any other name. If we had elected Hillary, she could have taken the blame. Of course, it won’t really matter. They’ll extend and pretend again somehow because the alternative is unthinkable.
    Meanwhile, US stocks are back on a bubble-roll and Tom Selleck is still on the TV selling “reverse mortgages”. No point in burdening kids with an inheritance that won’t be worth anything anyway.

  5. JuanP on Mon, 17th Apr 2017 10:13 pm 

    If Washington politicians don’t raise the debt ceiling the USA as we know it will cease to exist. I wonder if Washington politicians will kill the hen that lays their golden eggs. They may play games for a while, but are they really stupid enough to willingly destroy the system they depend on for their own survival? Only time will tell; they definitely do appear to be stupid enough. I am ready! Are you ready? Sooner or later this sucker is going down!

  6. AFDF on Mon, 17th Apr 2017 10:54 pm 

    money is a complex topic so people choose to bypass thinking and blame the bankers. People have the choice of using gold and bitcoin but do they do it and what do they use bitcoin for? drugs and a few other things.

    This is not going to maintain and grow an economy. What bitcoin is free as free air, it doesn’t have any value.

    It derives its value from the dollar.

    The dollar is what keeps the economy going.

  7. Cloggie on Tue, 18th Apr 2017 1:27 am 

    The dollar is what keeps the economy going.

    That’s correct, as long as you add that non-Americans accepting the dollar is essential for that to be true.

    Why won’t Washington raise the debt limit? US public debt of 104% is historically not extreme. Japan has more than double and is still standing.

    http://www.tradingeconomics.com/united-states/government-debt-to-gdp

    Points to look for that could destabilize the global situation are Korea, Syria and Reps-Dems (left/right) stand-off.

  8. GregT on Tue, 18th Apr 2017 2:16 am 

    “The dollar is what keeps the economy going.”

    What kept the economy going (since ~1968), was Nixon slamming shut the gold window in 1971, the petrodollar, and militarism.

    The US became the world’s leading economy after WW2, because it was left unscathed by war, the dollar was pegged to gold (Bretton Woods), and the US had huge remaining reserves of cheap energy (oil).

    Two of those three criteria have long since disappeared, and the final nail in the coffin of US hegemony, will in all likelihood be war, on US soil.

  9. Cloggie on Tue, 18th Apr 2017 2:40 am 

    The US became the world’s leading economy after WW

    The US was the largest economy long before 1945. Here a graph from a study by an American scholar, residing at a Dutch university, so it is true.lol

    http://tinyurl.com/mazzzk5

    By 1870 (the date of German unification) the US began to supersede the British empire, at the time the largest global agitating power (China may have been bigger but was totally introvert, like the US).

    By 1890, unified Germany began to overtake Britain economically, so the latter began to plan for the destruction of Germany by beginning to build an anti-German alliance with France and Russia.

    After 1890, a certain internationalist elite began to gradually dominate the US, a process completed in 1933, when they owned the US government and from then on began to team up with their brethren in the USSR, who had taken over Russia after 1917. Both the USA and USSR watched grinning from the sidelines how the Europeans were destroying each other, spearheaded by inbred fanatical fools aka the British (may the devil get them). WW1 was entirely their work. When Germany after 1933 tried to escape from the Versailles straight-jacket, both the USA and USSR, using the services of war monger Churchill, plotted together to heat up this WW1-conflict again to their own advantage, sick the British and Germans against each other again, using Poland as the useful idiot… and take the European joint over, all by 1933-design.

    It never seizes to amaze me how economic power (GDP) is ignored as a determining factor in geopolitics. The modern world is completely moralized and seeks to understand everything from morals and “good and evil”. But if you really want to understand geopolitics, study the graph linked to above.

  10. Hubert on Tue, 18th Apr 2017 4:12 am 

    America is little more than a failing third world garbage.

  11. joe on Tue, 18th Apr 2017 8:30 am 

    The reason Japan is still standing is because even though they have so much debt, the Yen is pretty much the only currency the dollar bought into because of the carry trade. In times past the strong dollar bought lots of yen and you could sell those yen as demand went up then buy back the dollars and deposit the profit you made as long as the dollar didnt fall.
    Since 2008 times changed, Japans aging population is taking its toll. Japan is imo unique in the worlds wealthy countries in that it has more or less not mixed its races with outsiders. This creates a stable society able to weather the problems of the coming crisis.
    This topic of Japanese racial purity while the rest of us are forced to mix bothers me sometimes, nobody ever calls them out for it, I wonder why. Anyway Japan my have lots of debt and aging people but the dont have millions of brown and muslim spongers wasting billions of Yen either. Swings and roundabouts I guess.

  12. Cloggie on Tue, 18th Apr 2017 8:46 am 

    British PM May seeks snap election June 8. Motivation: Brexit.

    http://www.bbc.com/news/uk-politics-39629603

    Official reason: Britain needs certainty, stability and strong leadership following the EU referendum.

    Suspiciously, former PM Cameron, the man who organized the Brexit referendum in the hope & expectation that the British population would vote “Remain”, has applauded May’s initiative.

    PM May before the referendum had very mixed feelings about Brexit.

    What’s going on here? Does May perhaps attempt to sabotage Brexit via the ballot box?

    Could it be that the GE election will be a second Brexit referendum?

  13. Cloggie on Tue, 18th Apr 2017 9:03 am 

    Corbyn will NOT lead Labour into the next general election.

    http://www.dailymail.co.uk/news/article-4420822/Corbyn-admits-mistakes.html

    He announced this a few minutes after May’s announcement of her intention to have general elections on June 8.

    Labour now needs to find a new leader for elections in 7 weeks time.

  14. J-Gav on Tue, 18th Apr 2017 1:25 pm 

    Espontoons?

  15. joe on Thu, 20th Apr 2017 12:47 am 

    Labour are finished. They were the cause of the Iraq war, and they have no serious leadership candidates. They have filled their ranks with anti-semitic muslims and feminazi women and so they are disunited except that they proclaim hatred for those who are richer than them.
    The tories on the other hand face a different kind of struggle. Im sure Brexit is central to their agenda, they need a bigger majority in parliament for that very hard Brexit they hope to push through. With Erdogan poised to unleash 3,000,000 suicide bombers on Eurasia the UK wants to make sure its totally free from the fallout when it comes.

  16. Cloggie on Thu, 20th Apr 2017 1:59 am 

    they need a bigger majority in parliament for that very hard Brexit they hope to push through.

    You can bet your bottom pound that you are going to get an extremely hard Brexit. We in continental Europe are going to make sure of that. And Britain and Turkey are going to be swapped for Russia.

    With Erdogan poised to unleash 3,000,000 suicide bombers on Eurasia the UK wants to make sure its totally free from the fallout when it comes.

    London is the only capital in Europe that is majority Muslim. And now you want to play the white nationalist and protect Britain against your hallucinatory “3 million Turkish suicide bombers”. You don’t seriously think that even Turkey is so stupid in going to deliver the pretext to Europe to expel the whole lot of them, now do you?

    And you are under an illusion if you think that non-white immigration to Britain is going to be stopped, it won’t. What is going to stop is white migration to Britain and most continental Europeans will leave Britain eventually, making London even more non-white than it is today.

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