Saturday, May 31, 2014
Friday Beaver - world economic edition
What happened in the 1920s that lead to the great depression is much again following suit. Just like today banks were leveraged to the hilt. The stock market soared as investors borrowed 100% to "invest" in a market that had no chance of success at least in the long run. "Bucket shops" placed side bets on the direction of the market much like the hedge funds of today. When the entire economic system unraveled cooler heads finally prevailed but not until much damage was done. Homes and farms were lost. People's entire savings were wiped out and same as Detroit homes were bulldozed as banks foreclosed and tax revenues fell.
There was the drought in the Midwest forcing many farmers to either leave or endure the ravages of the dust bowl. Many died, in fact it's estimated that 5 million died from the effects of the depression. Republicans back then did much the same as Republicans are doing now by blocking any legislation that would help regular folks. FDR came up with the New Deal much of which was done through executive orders. Things were slowly coming back to normal. In the late 30s the republicans convinced FDR to start cutting programs and lowering taxes. The country started to slide back into depression. That's when WWII broke out and unlike today all of our military hardware was made in the USA. Soon factories that had turned out cars were turning out jeeps and tanks. Everything became geared to winning the war with everyone doing their part in the way of sacrifice. Bosses took a 10% pay cut. Workers had to deal with rationing coupons and shortages as everything went to the war effort.
Today everything is done on the cheap. Much of the military hardware or at least it's electronic components are made overseas. Car factories aren't cranking out tanks. There's no rationing and top management is making more than ever before even as companies lose money. Workers on the other hand are making less than before. Everything has become for the benefit of the elite when you look at it. It's been going on for a long time. Ever since someone thought that moving a little wealth around was something akin to communism. Agree with it or not FDRs "New Deal" built a nation and a strong middle class and much of our infrastructure we have today but much of it is slowly falling apart as those at the top see no need for maintenance. If we do nothing it will be like a slow drip in the living room ceiling. Just a matter of time until it falls. And of course you know who'll get the blame. It'll be the ones who pointed out the problem in the first place.
Now we have entire countries set on the verge of collapse. Greece is a good example. Years of tax cuts and the off shoring of wealth lead to it's demise. It is at present $400 billion in debt with no prospects of even paying the interest on its' loans. What was once a game of 'vulture capitalism' has now become a game involving entire countries. You know the drill. Watch as a nation cuts it's taxes and gives loopholes to its' wealthy and like a game of Monopoly a select few win as everyone else loses. So easy to do when you're the one making the rules.
Ukraine is in a unique position at present. Yes the country has debt and there is that tug of war financially speaking between the west and Russia, but it has the opportunity to redeem itself if it can somehow wean itself off of gas and oil. But then there's the matter of corruption that seems to be a long tradition in the country. Perhaps a hold over from the old Soviet days how could anyone expect a country to change its' economic model overnight when bribes and kickbacks are still ingrained in the culture. It seems only Putin has learned modern day vulture capitalism in that part of the world or at least he's the only one with the economic clout to use such tactics. They could pull an Iceland move on these financial malcontents but there isn't enough honest people in government to try that not when their president is "the chocolate king". Iceland by the way defaulted on its' debt and jailed the bankers responsible if you didn't know.
To conclude it appears that what once started out as a debt bubble of working folks, you know it was the leveraging of simple things like bank deposits that started all this, soon moved to houses that were tied to cities that were tied to states and then entire countries that created the mess we see today. Don't be lulled into a false sense of security just because you have a job and a steady income, this debt and borrowing has to reset itself sometime soon because soon there won't be enough income to pay the interest just as we see in Greece. Well that's my two cents. What say you?
What banks have failed this week?
One bank in Maryland is no more.