Next Revolution: The Second American Revolution

Hey Kids! I wrote this analysis in July, and it has been becoming more accurate every day. Check out this broad view of our economic situation that explains how we got here, and what we can do, besides giving hundreds of billions to the biggest thieves in our country.
 
The Situation: The mortgage-credit-banking-currency-energy-inflation crisis we are now facing is not just a superficial, temporary bump in our path of our never ending growth in profits and values, as the corporate press and politicians would have you think.
 
We are on the brink of a significant loss of market value, a significant further decline in dollar value, and a significant rise in the cost of credit the world will charge the US.
 
According to Bernake, who has opened our govt's treasury to cover the massive losses by wall street investment bankers, and now, apparently to cover the massive losses in fannie may and freddie mack, giving hundreds of billions of our money to the people who already made hundreds of billions causing the problem, will solve the problem.
 
Let's examine the background of the problem closely, and see if he's right. For convienience's sake, we will begin our analysis when the dot com bubble bursted in feb of '01.
 
Alan Greenspan, the Fed chief at the time, responded by dropping interest rates precipitiously. This caused the capitol fleeing from the collasping dot com bubble to refinance itself into real estate, sparking the real estate boom that has just gone bust.
 
Dropping interest rates put downward pressure on the dollar, which put upward pressure on all dollar denominated commodities, especially food and energy. After transforming the dot com bust into a housing bubble, wisdom would have required greenspan to reign in the expanding housing bubble.
 
This would have balanced suppressing the housing bubble against supporting the dollar, which would have effectively stabilized food and energy markets, and reassured global investors as to the security of dollar demoniated investments.
 
Greenspan failed to act responsibily and drain the housing bubble with rate increases, so the housing bubble expanded to titanic porportions, magnified by the irresponsible financial leverging in the unregulated financial markets dominated by wall street bankers Bernake is now showering with our cash.
 
The bubble was not caused by of sub-prime mortgages, but was caused by the artifical demand created by cheap cash. The cheap cash was the product of a 35 year process of stripping our lower and middle classes of their share of our nation's wealth, and concentrating it at the very top of our society. The sub prime mortgages were the most outrageous example of the rich in our country offering to loan the stolen wealth of the middle class back to the middle class at loan shark rates.
 
This sitiuation did not happen overnight. Behind the financial chaos we are experiencing is a 35 year path of massive irresponsible demographic growth which was the fuel that powered the process of separating the middle and working classes from its share of our nation's wealth and political power.
 
Our irresponsible growth during the last 35 years has made 3 significant transformations that have altered the balance of political, economic, and social power in our country.
 
During the last 35 years the engine of political and economic parity in our country, our educational system, has been stripped bare and has become an engine of inequality. As the educational system was declining, so too were middle and lower class wages. Today, both parents work to qualify for the loans, on credit and equity, to fund the same lifestyle one wage earner produced on income 35 years ago.
 
Our country's massive concentration of wealth and power during the last 35 years was based on a process of internal destruction. Our incredible rise in corporate profits was based on sucking the life out of our social infrastructure, which is not just the basis of social equtiy, but is the foundation of our economic productivity. Our corporate aristocracy transformed our polity into a corporate fascist state by eating the basis of it's own vitality, and our democracy, a healthy middle class. Once the middle class lost their share of the national wealth and their education system, the democratic restraints of the middle class on corporate wealth and power slipped away.
 
As the middle class lost its economic clout, it lost political clout, and both parties, our free press, our public utilities, and about anything else they could steal was stolen. Our massive expansion during the last 30 years was a smokescreen covering the robbery of our economic, social and democratic resources by our corporate aristocracy, giving them the wherewithall to transform our nation into a corporate facist state running a global empire. Our citizens have devolved into consumers.
 
In a nutshell, it's not just us that's been robbed, it's the whole world. But now it's time to pay the piper.
 
Let's review the situation that we are in. Housing prices are in freefall. Prices have fallen far enough to invert prime mortgages, and we still have a couple of years of sub prime mortgage interest adjustments in front of us. The rising rates of inflation and interest assure all of these readjustments will default.
 
What this means is that all of the holders of mortgage securities, from the national engines of home mortgages, freddie and fannie, to the wall street private capitol banks (bear stearns and most of investment banks) who were financing the massive flow of mortgage loans into the public real estate market, then formed the resulting contracts into huge mortgage securites, and vended them to a wide range of hedge funds, commercial banks, and just about every type of private and public investor around the world have no idea what they are worth.
 
More accurately, they cannot predict how fast and far the value of mortgage securities will fall. Not being able to see the bottom is just the tip of the iceberd.
 
As many of these mortgage securities are being used as collateral in complex investments, or are being listed as standing liabilities by commercial banks and other public investment devices, the lenders and financers of these devices are rightfully demanding that the borrowers put up a dollar for every dollar of value their collateral loses.
 
The banks and other financial institutions holding these dubious securities are facing massive demands to increase their reserves to cover the deepening loss of value that their mortgage securites are experiencing.
 
Now that we know how we got here, how do we get out?
 
The root of the problem is not in the center of the markets, where bernake and our bribed politicians are pouring billions of our dollars to cover the losses of private speculators, and relieve their biggest bribers from the consequences of their irresponsible greed and the damage they have done to our society.
 
The only federal intervention that will stabilize freddie and fannie, reinforce the banks, and calm investors around the world is to directly reinforce the value of the mortgage securities. The only way to do this is to establish a solid price and level of housing sales. Bailing out freddie, fannie, and the private banks before reinforcing housing prices is only throwing good money after bad.
 
There is only one way to stabilize the mortgage securities: stabilize housing. Once a price and level of sales is established in housing, the value of all of the mortgage securities around the world will be known, and that will subsequently determine the amount and cost of credit that will be avaiable to the housing market.
 
Pouring billions into the morally corrupt and economically bankrupt private banks, who, by the way, have made many billions over the last seven years of irresponsible bubble lending, will not do a thing to prop up housing prices and sales.
 
As much as I believe that this bubble must pop, the way to immediately establish a solid price and volumne in housing would be to transfer the whole cost of all income taxes on everybody who makes less than 100 grand a year onto the corporations and everyone who makes over a million a year. Housing would establish a solid level of sales and values the day after signing that baby into law. The value of mortgage securities, and recipricolly, the amount of capitol available to credit markets would be known, and the credit markets would begin to operate again.
 
But the character and basis of market activity would be completely different. Rather than being driven by ever increasing flows of cheap money competing for real estate, housing prices would be driven by the purchasing power of the middle class.
 
To establish a healthy and stable housing market into the long term future, the economic underpinnings of the middle class will have to be reestablished. The logical place to start would be by restoring our stolen educational, medical, and retirement systems. Stable social infrastructures, besides contributing to economic vitality, creates a stable well paid consumer base capable of maintaing spending even when the greedy and corrupt disrupt our financial markets, as they have done today. A stable social infrastructure also acts as a governor on social and political instability, as well as providing economic stability.
 
But that's not on the adgenda yet. The wealth and power of our corrupted corporate elite and their bribed politicians, the very people who damaged our social institutions, stripped the wealth of our economy of our money, and betrayed our democracy, the very people who brought us to this point, are incapable of identifying or admitting that it was their system of greed and corruption that brought on these social, political and economic disasters that have destroyed our country.
 
If they did, the whole basis of their wealth and power would be destroyed. That's not going to happen. Yet. These people have already proved that they are enemies to our democratic rights, identifying themselves as traitors who have put themselves before our democratic rights and the general welfare of our country.
 
What's going to happen to the credit and financial markets
to be continued...later in the AM
Top of Page
Background:
Economic Chaos/Crisis
 
how we got here, how we crawl out of here
 

What a long, strange trip it's been...
 
The "Beginning," june 23, '07: Krauts taking a Beating in Morgage Securities Market: Where will it end?
 
august '07: Markets ready to Kill Economy
 
august 17, '07: Feds Bailing Out Greedy Speculators
 
september 5, '07: How much Mortgage Liability do the Banks Have?
 
november 24, '07: Housing-credit crisis exposing the rotten core of American Markets and Economy
 
january 14, '08: The impending meltdown
 
march 14, '08: Death of the new economy, get ready for the big selloff
 
march 29, '08: economic or ethical crisis?
 
april 29, '08: Market Perception and Reality are nearing parity
 
 
april 6, '08: how we got here, how we crawl out of here
 
 
more background: all economic links
 
 
A Few Thoughts on the Markets
july 2, 2008
 
advice to the Fed: The Fed better shore up the dollar right now. Massive inflation has almost fully emerged into the retail economy. Expect immediate retail price increases between 14% to 20% across the board for all consumer products, including food. Prices will continue to rise as increasing energy prices work themselves through raw material, manufacturing, and transportation costs. The main source of this rise in inflation is energy price inflation, which is being driven by the spiraling price of oil.
 
Of Oil pricing's three main components; supply and demand, speculation, and the value of the dollar, the Fed can move directly to support the dollar and quash the decling value of the dollar as a significant component contributing to the growing crisis of energy inflation. A tightening would have a secondary effect lowering energy prices by slowing economic activity. Congress could then effectively work on the second component of energy inflation, speculation, by devising regulations to limit energy futures speculation. But that is naive, the Dems would have curbed market excesses during Clinton's era, if both parties were not ruled by Big Oil and Wall Street, then and now.
 
In any case, energy inflation is feeding the beast of food inflation, and once energy inflation spreads across all catagories of consumption, which it is rapidly doing, it will drive consumption into the ground. The only place the fiscal policy powers of the Fed can directly address energy inflation is by significantly strengthening the dollar.
 
A major market downturn is underway, and the high demand, speculation, and the weak dollar which have supercharged the oil/energy markets have now merged with the american mortgage security/credit crisis to offer the markets a clearer vision of the unsustainable market conditions and valuations that sit atop our looted economy.
 
What does this mean to the average working dude?
Labor has little leverage to demand wage compensation, so I expect the contribution of wage inflation to the crisis will be minimal. The middle and lower classes will suffer significantly. Hell, they were sacrificed to get here, so they should expect no more than more of the same.