[deMolay]

Seeing as none of the World Leaders are talking about this subject. And they are merely reacting by spending and printing money, I thought it would be good if we discussed this subject. To fix something you first have to know what is broken. How did we get here to this point in time and this crisis. I think the roots of this problem have been the devaluation of the currency through deficit spending for programs and entitlements that we cannot afford. All of N. America is guilty of the mismanagement of our currency. Personally I don't see a way out quickly. It may take a full generation. In my opinion prolifigate spending on entitlement programs that we cannot pay for is at the root of the problem. For example in Canada, the low dollar policies of Chretien, allowed our manufacturing industry to become uncompetative. They didn't need to stay sharp and quick on their feet to survive. Because even when they couldn't compete, the Government would bail them out with tax dollars. The fall in the value of the US dollar brought this all to a head eventually. The massive borrowings to finance US entitlements the same in Canada, huge Government Deficit spending to finance huge entitlement programs. One of the most important functions of government is to maintain the value of our currency and defense of the realm. Countries can be destroyed basically in two ways. From within by destroying the value of its currency or from without by a foreign military. Anyway hopefully some of you will offer insight here. Here is a good article on the devaluation of the US dollar and the massive Trade imbalances. I think that is the problem. And the same in Canada. Overspending. Writing cheques our bodies can't cash....... http://www.merkfund.com/merk-perspectiv ... -fall.html

[vtsnowedin]

As bad as all the deficit spending you cite is I am coming to believe that the current crisis comes directly from the rise of credit default swaps. An interesting article in Fortune magazine which states that there are now 55 TRILLION dollars of them now outstanding and that is more than the worlds GDP. I think the flaw in them is that you do not have to be the owner of the debt to buy a swap policy on it so more than one person or company can bet that a certain debt will go bad. People will tend to place bets where they have inside information so a likely performing debt will have only one swap sold on it if any at all and a likely losser will have dozens of swaps purchased against it. So if you say average 20 swaps per bad debt all you have to have is a five percent failure rate to wipe out an amount equal to all the bad debt out there. Leveraging at its worst. Why did no one see this coming?? I expect to know more about this soon.

[ReverseEngineer]

The problem started long before the deficit spending, the root of it all has ben apparent since before the Roman Empire existed. Its a Resource/Population problem.

You can trace resource depletion vs population back to civilizations before the Roman Empire, but the best records extant come from that time period.

I have analyzed this at some length already here, the short version coming to present time would be that although the shenanigans played in the financial markets over the last decade exacerbated the problem, it was inevitably going to hit us once the human population swarmed over the surface of the earth and consumed everything in its path.

The rise of Fascist states in the 30s? Quite predictable by the numbers 1000 years before it happenned. Individually human beings are complex creatures, but in aggregate they are very simple, they reproduce and consume, and are the top of the food chain. No predator can touch a human being since well before the agricultural revolution, we vaulted up past the whole lot once we got a grasp of toolmaking. Spears, Bow and Arrow, Trebuchet, Dynamite, Nuclear Bombs. The tools of survival are also the tools of war, dontchya know.

The seeds of our destruction are in the very thing that enabled us to survive and BECOME the top of the food chain. The only way there ever was or ever will be to stop this is to conquer the Evil within us all. You have to sqash DOWN the desire to live at the expense of others, be this other human beings or other species. Market Traders don't DO that, they suck the wealth out of everyone they touch, and they revel in living at the expense of others. Its EVIL. If you do not grasp this is evil, you are a lost soul, you will burn in hell for it.

I am sorry to see it come to this end, but really it has little to do with the derivatives market, the seeds were sown long ago for this end, and nothing short of a complete repudiation of inherent greed could have stopped it. It was compeltely predictable based on human nature, thus the reason it was predicted so long ago on the pages of the Bible. Its OBVIOUS. Even a dope 2000 years ago could figure this one out. Its not Rocket Science.

Reverse Engineer

[vision-master]

In my opinion prolifigate spending on entitlement programs that we cannot pay for is at the root of the problem.

78,000,000 boomers get their SS cut-off?

401k's ain't worth nothing?

OK, now what?

Spend MORE on the war machine?

[Duende]

Whether you want to look at the climate crisis, resource depletion, or financial instability, the root cause of the problem is the re-enforced belief that you can get something for nothing.

The brand of capitalism we practice, based in self-interest, requires the exploitation of the earth and its poorest people toward the ultimate goal of personal mastery of the universe at the expense of everyone else. The accumulation of all these externalities reaches a critical mass, and we face meltdown.

Until our culture acknowledges the validity of TINSTAAFL, and we collectively stop trying to rip off the earth and each other, we are doomed to reap the ill effects of our hubris. The only question is whether the end will come in the form of a climate meltdown, a resource depletion meltdown, or an economic meltdown. Pick your poison.

[evilgenius]

The picture of peak oil in the minds of the powers that be is what caused this. Wtf are you talking about, you might say? Just like they had to implement cheap oil policy decades ahead of seeing the success of fruit of it, in the fall of the Soviet Union, in this current instance they had to find a way to do something with the inflationary pressures that they knew were building with development of globalization and the supply lapses they knew they would see in energy. Something that could hold trillions of dollars in an illiquid form and yet could be utilized to transform those dollars into liquid form had to be created. Something really vast that could straddle massive inflation/deflation fluctuation had to be created. It is not by accident that they decided not to regulate the CDS market in the late 90's.

I think up to a few months ago they (Bernanke and Paulson and crew) thought they had this well in hand. They had inflated housing to get out from under the dot com crash that they could predict knowing that Y2K was a load of crap, but that the investment that went into it would be over. They thought that they could ramp down housing. I think that in the attempt to moderate housing they found out that too many of them had been taking cookies from the CDS cookie jar and that it was so out of line that it didn't work the way they needed it to. The final straw was when Lehman went down, but that didn't cause this. The hubris of taking on so much responsibility and failing to take it seriously (allowing untold corruption and malfeasance) is what caused this IMO.

[pedalling_faster]

Whether you want to look at the climate crisis, resource depletion, or financial instability, the root cause of the problem is the re-enforced belief that you can get something for nothing.

Yep.

[Buggy]

I am sorry to see it come to this end, but really it has little to do with the derivatives market, the seeds were sown long ago for this end, and nothing short of a complete repudiation of inherent greed could have stopped it. It was compeltely predictable based on human nature, thus the reason it was predicted so long ago on the pages of the Bible. Its OBVIOUS. Even a dope 2000 years ago could figure this one out. Its not Rocket Science.

Reverse Engineer

It is most certainly time to get our houses in order. I suppose now is always the time for that, but NOW is really the time for that.

[drgoodword]

The root causes of this problem are:

1. Unsustainable growth (economic and human).
2. Fractional Reserve Banking
3. Government/Corporate Opacity & Poor Regulation/Oversight
4. The Inevitable Boom/Bust Cycle Of Capital-based Credit Creation (perhaps best described by Kondratieff)
5. Greed
6. (Possibly, Usuary)

More recently and specifically, the cause is the Greenspan and Bush administration decision in 2002 to artificially lift the U.S. economy out of recession by facilitating a housing boom through an unprecedented loosening of banking lending standards and massive credit creation. During the period 2002-2006, U.S. economic growth was driven almost solely by the housing boom via housing job creation and consumer spending financed by home equity borrowing. This created an unprecedented credit/housing bubble not just in the U.S., but in the entire world (even Poland experienced a housing boom).

Now the credit/housing bubble has collapsed, and there is no new source of growth in the economy sufficient to replace the former housing market economic driver. Hundreds of billions of dollars of wealth have evaporated in the housing bust and the recent stock market super-correction. Consumers and businesses have made a 180 degree financial turn and are all in recession mode, creating a feedback loop of increasing economic contraction. Banks and investment firms are collapsing in the wake of failed investments related to the housing and stock markets. An unthinkable amount of paper wealth (reportedly over $50 Trillion) is held in hedge funds which may also collapse, causing unprecedented and unpredictable damage to the financial system.

There is no solution, at least not in the short or even medium term. It is like asking doctors for the solution to a leg that is consumed with gangrene. The only "solution" is to cut the leg off. Unfortunately, people are rarely ready to accept radical economic surgery, and will usually support the politicians promising the rosiest and least painful solutions, no matter how unworkable they are.

The only solution that I see working is to let financial institutions fail, accept that the economy will be in a severe depression for something like a decade with unemployment at 25% plus, and undertake government sponsored programs to ensure the most basic economic functions along with a universal jobs training program to alleviate unemployment (without straight "welfare" payments) and prepare for the eventual economic recovery (which, as a peak oiler of the more pessimistic variety, I suspect will never happen...but you gotta try, anyway).

[Euric]

Seeing as none of the World Leaders are talking about this subject. And they are merely reacting by spending and printing money, I thought it would be good if we discussed this subject. To fix something you first have to know what is broken. How did we get here to this point in time and this crisis. I think the roots of this problem have been the devaluation of the currency through deficit spending for programs and entitlements that we cannot afford. All of N. America is guilty of the mismanagement of our currency. Personally I don't see a way out quickly. It may take a full generation. In my opinion prolifigate spending on entitlement programs that we cannot pay for is at the root of the problem. For example in Canada, the low dollar policies of Chretien, allowed our manufacturing industry to become uncompetative. They didn't need to stay sharp and quick on their feet to survive. Because even when they couldn't compete, the Government would bail them out with tax dollars. The fall in the value of the US dollar brought this all to a head eventually. The massive borrowings to finance US entitlements the same in Canada, huge Government Deficit spending to finance huge entitlement programs. One of the most important functions of government is to maintain the value of our currency and defense of the realm. Countries can be destroyed basically in two ways. From within by destroying the value of its currency or from without by a foreign military. Anyway hopefully some of you will offer insight here. Here is a good article on the devaluation of the US dollar and the massive Trade imbalances. I think that is the problem. And the same in Canada. Overspending. Writing cheques our bodies can't cash....... http://www.merkfund.com/merk-perspectiv ... -fall.html

This is a very important thread because it points to the fact that not one person in the media nor the government has addressed the root cause of the problem and most likely never will. Without correcting the root problem, no bailout will even come close to working.

In my opinion you have to look back to the point in time when the stock market began to heavily inflate, and that was around the time Ronald Reagan came into office in the US. He was a big champion of less government and did much to deregulate.

The first result of deregulation was the closing of American factories that paid American workers the cash they needed to live comfortably within the middle class life style. With the mass exodus of companies and jobs, Americans were forced to take lower paying jobs with lower or no benefits. The cost of living to the American consumer just got more expensive as Americans didn't have the cash to buy what they needed to stay middle class.

Instead of creating good paying jobs, the American system was able to provide the hunger for funds via increased credit options. Credit Cards for everyone, refinancing, taking out second and more mortgages on your price inflating home. In other words the creation of the largest credit bubble in history. Americans were encouraged to spend, spend, spend to boost the economy but with borrowed money.

No one in these times ever thought that money would have to be paid back plus with interest. Credit cards with high limits were mailed a million times over to every home. Max out one card and then move on to the next.

Once it looked like those with the credit scores were all borrowed out the last straw was to go after those who would never be credit worthy with teaser rates that went astronomical last year. With this group unable to make payments the system began to unfurl.

So here we are in the midst of the collapse of the world's largest credit bubble. The entire world economy got suck into this scheme so the entire world economy will suffer together.

European and Asian banks awash with cash from depositor savings freely loaned that money to the US in hopes of profitable returns. Never did they realize that they just dumped their depositors money into a huge sink hole.

Unless there is away for the American consumer to live a middle class life style on cash earned, don't expect the economy to recover even if the FED lowers the interest rates to zero and comes up with a new bail out plan every week.

[Dan1195]

I suspect shortly all major governments will get to the point of insuring all deposits and backstop all interbank lending and Lines of Credit to at least get the credit markets functioning again. I suspect the (quasi-)nationalization of banks will continue. Beyond that the only way to avoid a deflationary depression is to inflate away the debts, as otherwise the consumer will be unable to make purchases as availabilty of credit contracts due to tightening lending standards and large amounts of existing personal debt. (houses, CC's, student loans, etc). Increased unemployment will make the situation worse and start a vicious cycle.

Ultimately you will need increased government spending that results in real job creation. The availability/cost of oil a few years down the line is a big wrench that could easily muck everything up as we try to get back on track. I actually think we get out of the coming recession briefly before higher fuel costs cause the breaks (again) to be applied.

[dohboi]

Let's not forget PO, here of all places.

We probably will never know how all the various factors contributed, but you can keep all sorts of crazy financial shenanigans going as long as you have ever-more-available sources of cheap oil. Look at the "economies" of many oil producing nations. By neice and her husband went to Dubai to study their economies, and came to the conclusion that is was entirely a sham. Whenever they asked business CEO's what would happen if their companies lost profitability, they all unhesitatingly answered that they would just go to the emir for more cash.

This obvious sham is some indication of how things have really always been world wide before the era of PO. Now that we are heading into a post PO era, the sham is more open and increasingly desperate.

There is no "solution" to peak oil, so there is no solution to the financial crisis. The crisis is made much worse by all the wacky CDS's and other derivatives, totaling by some estimates over a quadrillion dollars. This means basically the whole world economic system is underwater.

We, as a country and world, could have had some strategies for dealing with a post-PO world in a way that might have mitigated some (but by no means all) of the pain, but we didn't.

Now we are in for a very rough ride, to put it mildly. There will be huge swings in the markets and commodities, and with each upswing, there will be choruses of idiot voices proclaiming that the dark times are over and we are on our way to the good old happy days. Such expectations will be quickly dashed.

[threadbear]

I think some deficit spending should be allowed when there is a possibility of mass starvation and economic dislocation, particularly in a commodity and natural resource based economy. Canada is simply too exposed to the vagaries of the world market to adopt a purely "pull yourself up by your own bootstraps" mentality. I think what has happened in Canada is we have never actually been exposed to a system that completely ignores it's family's basic food and shelter requirements. When was the last time anyone saw a starving person, let alone a starving child in this country?

Nobody likes deficits and it should be every govts. number one priority to balance their budgets, but unusual times, may require some unusual measures.

That being said, I had to laugh at Jack Layton's universal day care proposal. Over my dead body. I will NOT pay for someone else's child's day care, when poor health (I worked sick) and poverty (worked at a very crummy job looking after other people's kids) kept me from having my own. I CHOSE that. If people can't afford to stay home and look after their own kids, or afford a nanny or a good daycare, the planet is trying to tell them something, through necessary constraints. Having children is becoming less and less a right, and more and more a priviledge.

[Duende]

dohboi wrote:

...you can keep all sorts of crazy financial shenanigans going as long as you have ever-more-available sources of cheap oil.

Good point, dohboi. I think ultimately this sticky financial situation will be overcome, only to slam into resource depletion in 2011 or so. Each period of growth will be increasingly shorter, interspersed with periods of contraction which will be increasingly longer. Suffice it to say that we've hit 'peak Dow' at 14 thou and change; we'll never see it again because the resources are just not there to support further expansion.

[DaleFromCalgary]

"How did we get here to this point in time and this crisis."

It all boils down to "We got greedy and forgot ourselves".

"The Inevitable Boom/Bust Cycle Of Capital-based Credit Creation (perhaps best described by Kondratieff)"

More people need to be thinking and writing about Kondratieff long waves, also known as two-generation waves. The Kondratieff long wave averages 50 to 60 years long but this is not exact. The last Kondratieff nadir ended in 1939; we are slightly overdue for the next but it looks like it has arrived. Nothing so far in the mass media but I wasn't expecting them to know anyway.

One point about deflation. I am thinking of a scenario where wages and prices drift back down to 1970s levels but oil still stays relatively high but not at $80. If we have deflation because of current events, and everything drifts downward, both wages and prices (assuming no government interference, which is quite an assumption), oil could sink deep down in money of the day, although still stay high in adjusted dollars. Say, for example, $30 a barrel but a skilled tradesman earns $5 per hour and bungalows collapse to $20,000. Some commentators might claim that Peak Oil is disproven because the price is so low, while ignoring that it is still actually quite high in adjusted dollars. New projects in the Athabasca Tar Sands need $80 oil minimum, but if tradesmen could be had for $5 or $10 an hour, that would suddenly change the economics.

"Jack Layton's universal day care proposal"

Firstly, I should explain to non-Canadians that Layton is the leader of the New Democratic Party (labour-socialist, members know most of the words to "Solidarity Forever" and always look for the union label). The NDP is a minority party at the federal level and forever will be; Canadians will not trust them with the keys to the Royal Canadian Mint. They are of no importance whatsoever, and are fringers like the Green Party, the Western Guard, the Libertarians, and the Western Canada Concept.

[Snowrunner]

When was the last time anyone saw a starving person, let alone a starving child in this country?

Dunno, walking through Vancouver's downtown eastside some of the people don't look like they get to eat a lot, which at times is almost cruel considering the re-gentrification that is happening there right now for the olympics, involving oodles of restaurants and cafes.

Nobody likes deficits and it should be every govts. number one priority to balance their budgets, but unusual times, may require some unusual measures.

I would agree, a Government isn't a business, it's role is not to make a profit but to ensure it's citizens safety and provide an environment that allows the individual to succeed.

That being said, I had to laugh at Jack Layton's universal day care proposal. Over my dead body. I will NOT pay for someone else's child's day care, when poor health (I worked sick) and poverty (worked at a very crummy job looking after other people's kids) kept me from having my own. I CHOSE that. If people can't afford to stay home and look after their own kids, or afford a nanny or a good daycare, the planet is trying to tell them something, through necessary constraints. Having children is becoming less and less a right, and more and more a priviledge.

Actually it may soon become a NEED again in order to have insurance for old age. Kids (especially in North America) to a large part have become a "fashion accessory" more so than anything else, the question is if they can "keep it up" and I doubt it, even in a place like Canada that technically (by modern standards) isn't overpopulated it will get much more expensive to have offspring.

[galacticsurfer]

nationalize banks. Forgive all thdebts. Make credit illegal. Cash and carry only. No credit cards, no installment payments.

Resource nationalization will follow.You will own the clothes on oyur back. Food and rent and electri and heating for free with mostly empty store shelves and a massive alternative enrgy infrastructure program globally.

Only return to free market system carefully when starvation and freezing to death are slowly disappearing problem. Then it will be strongly regulated to avoid resource wastage, maximum 5 employees, and minimal profit, savings and profit fince growth, not cheap credit.

Births will be rationed and health care as well.

Credit, something for nothing, greed was the problem, ulltimately population growth, lack of predator animal to keep homo sapiens in check. Avoidanc eof species, global extinciton consciously seems hard. PO could be a good predator, back to germs we can't keep in check with ever more complicared medical technology and lower crop yields due to phosphorus and water shortages.

[vtsnowedin]

I don't know about" peak Dow " or the inevitablity of this sense Roman times but I'd kind of like to work on todays problem with possible real solutions.

What if they outlawed CDSs except for the holder of the debt and that limited to one policy for the value of the debt. Ipsofacto rules may get in the way but we could have every cds that has not come to term terminated with the origination fees returned to the purchaser. It would be like saying "This is gambling stupid and you cant do this ,especialy with my money".
I see no reason why we should turn over all the wealth in the world to a few gamblers that won a bet on poor people not being able to make a morgage payment after the interest rate reset.
Even the mob wouldnt rip you off this bad.

[mos6507]

With the mass exodus of companies and jobs, Americans were forced to take lower paying jobs with lower or no benefits. The cost of living to the American consumer just got more expensive as Americans didn't have the cash to buy what they needed to stay middle class.

Not the whole picture. You're ignoring the Wal-Mart factor. Lots of things are artifically cheap because of the cheap labor in China. This has helped mask the depressed rate of wage increases. Also, the cultural changes which have led women into the workplace have resulted in a "new normal" where cost of living all but mandates two-earner households to approximate the standard of living that a single-earner household had in the 1950s. Hence everyone's stress levels go up not to mention latch-key kids never seeing their parents. But that's still not enough for most, so they rely on easy credit to create "phantom" standard of living. So that's basically where we are. Unless you have two lawyers or doctors married to eachother, there is some sort of unsustainable gamesmanship going on in order to maintain the standard of living that americans expect to have.

[mos6507]

What if they outlawed CDSs.

The damage is done and the crash is in progress. I think we have to worry more about getting through this crisis before we think about how to avoid the next one.