(snip)"Many Victorian novels focused a great deal on the sex/money matrix. Emma Bovary wanted to live in a nice house and have nice things. She also wanted sexual excitement. Everyone around her as well as herself, who she interacted with, wanted to pay later for transient happiness. Eventually, the party came to an abrupt end for all of them as Emma ran out of places to park debts. She ends up running from China to Saudi Arabia to Europe, begging for people to loan to her at cheaper rates. She rolled over previous debts into newer, bigger debts.
In the debt industry, if someone is deep in debt, interest rates do not go down, they go up. If you have no debts at all, the bankers are happy to lend at very cheap rates. But as it climbs, they get nastier. Once one is near insolvency, the rates are astronomic.
The US is being run as if we are the Bovary household: all our creditors now are overseas. All of them have their own goals and desires. And none of them are truly 'friendly' once we hit the debt accumulation wall. This is reflected in the news this week:
The US consumer is not the only one feeling down and out. Since the start of the year, higher food and energy prices have undermined consumer confidence not only in Detroit but also in Dusseldorf, Delhi and Dalian. The upshot: a global slump in personal spending is unfolding, portending rockier times for the global economy and world financial markets.
At best, global private consumption expenditures – roughly $32,000bn in nominal dollars in 2007 – are expected to rise by 2-4 per cent this year. That compares with an 11 per cent jump in 2007, and contrasts sharply with the boom in personal spending this decade.
Global consumption surged 63 per cent between 2001 and 2007, a bonanza fuelled by easy global credit conditions and soaring equity and housing prices. Globalisation and its beneficial effects – lower inflation and lower-cost imports – also boosted consumption.
*snip*
Consumer spending in many developing nations is increasingly being subsumed by basic staples – food and energy – at the expense of more discretionary items. Meanwhile, beyond the urban and rural poor, more well-to-do consumers in the developing nations have seen their spending squeezed by rising interest rates. As inflationary pressures have mounted, tighter monetary conditions have become commonplace in places like China, India and Chile, threatening to not only dampen consumer spending but also curtail private capital investment.
Private capital investment is dying because the cost of commodities has shot up. This has reduced profits. All bankers would dearly love a system whereby this dynamic never appears. Inflation was banished via cheap oil and cheap labor. But the lower interest rates themselves created inflation! This is the paradox at the heart of this system's dynamics! And by now, even the stupidest central banker should have figured this out. And trust me, they have. Since everyone wants to be Madame Bovary, the bankers can't resist allowing wild lending. So we get these waves. The above graph clearly illustrates not only how we have waves but how the dynamic of these waves get worse, over time.
As the hedonistic army of many Emma Bovarys gets totally out of control, the bankers frantically raise rates very fast. This crashes the economic systems so the bankers then suddenly and swiftly drop rates again. Each cycle excites greater and greater spending binges. The US is the worst at this: we never balance our books anymore. The last time we didn't run a trade deficit was the year we sold our entire military power to the Kuwaiti and Saudi royals. They used this to drive Saddam out of Kuwait in 1990. The price of oil went up and the US went into a recession and the value of housing here dropped. I lost over $100,000 in 1992 due to this.
The last three cycles of rate hikes/rate drops have made some very serious bubbles. In the Dot Com bubble, we saw stocks soar and then crash. Frantically, the Fed dropped interest rates to only 1% and we got the epic housing bubble. During all this, the US trade deficit soared. In 'Madame Bovary', Emma excites the economy of Rouen and her home village with her wild purchases on credit. So it was with the Greenspan 1% lending: the US went on a massive buying binge. US debts soared while 70% of our economic activity was registered as 'consumer spending.' The US balanced its government budget exactly one year out of the past 35 years. It balanced the trade numbers the same number of times: once.
Everyone lending to the US so we could overspend our public, private and trade budgets was done for cynical reasons: everyone wanted to feed off of FUTURE US earnings and savings. The first warning sign of this was the collapse in US savings. Normally, when bankers can't get more savings, they have to raise interest rates to attract profits and savings to themselves so they can continue lending. The US fixed this by having the US Treasury's US budget debts be declared 'assets' and these debts could be used as a basis for future lending. This is the present 'fiat' system. When Nixon ceased using gold as the basis for determining the value of paper money, debt from wars and social spending were declared to be a better basis for determining how much lending bankers could do. And this rapidly shot to infinity. "(snip)
(snip)"Madame Bovary, when she knew perfectly well, her credit was overextended and she had to stop spending, simply refused to look at her bills or asked for more credit, anyway. Merchants who wanted business tried their best to extend her more credit but she couldn't pay the interest anymore and that was pretty much the end of her spending and her life.
Up until this year, creditor powers like Russia and China were content to let the US Emma spend and spend. But Emma tried to destroy first China's integrity with the attempt at cutting Tibet off from China. Then parked missiles next to Russia and now is trying to prevent Russia from reconsolidating old borders that were breached when Russia went bankrupt twenty years ago. So both of these very powerful creditors are now squeezing the US. And the US is going crazy, trying to intimidate or control creditors.
In battles whereby wild spending lunatics menace creditors, this leads to war and bankruptcy. Not of the creditors, but of the debtor empires. All empires that went deep into debt and then used the 'let's go to war with our creditors' scheme have failed. History is very firm about this."(snip)
from
deepest thanks to Elaine for her unique insights !
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