From economic crisis, towards politics and social change

Leo Kolivakis deeply regrets having to miss lunch with Michael Hudson:

[Dr Hudson argues] that we are moving to a "Neo-Feudal" world where the landlords and the bankers are again in charge of the economy (and the world).

Their strategy is to get the rest of the country into as much debt as possible. Whether this is so they can increase their claims on financial wealth (rents, interest payments, and capital gains on asset prices) or whether it's a political program to subjugate the population...that's one of the questions we were going to ask.

We were also going to ask if the "de-industrialisation" of advanced Western economies that Dr. Hudson talks about is a reversible process. Can Europe and America ever compete with China and Asia in manufactured goods? And if they can only do so in high-end goods (capital goods, technology, aerospace, IT etc.) what does that mean for the structure of employment in Western economies and corporate earnings.

Dr. Hudson, it seems to us, is right to point out that there is a kind of "Financial Oligarchy" that seems to be benefiting the most from the financialization of the economy. But everyone else - those betting on higher share and house prices to pay for retirement (and pay off huge debts) - may not fare so well. What should you do? What can you do? More on this in future reckonings.

Where to turn, for financial security?

Richard Bookstaber (whom we've met before, here) looks at asset allocation and makes a point he's made before: in a crisis, everyone wants out, and the relative merits of different assets are ignored in the dash for cash. Provided cash (at bank) hasn't itself become risky - and after last year, that's not a given. Even outside the bank, there's inflation, devaluation and also, potentially, the fate of the Confederate dollar.

Leo Kolivakis comments, "I happen to believe that diversification is still important, but loses its power as huge inflows are going into all sorts of public and alternative asset classes."

That's the problem: we no longer know where to turn. As Kunstler comments, "the most perplexing part is that there hardly seems any safe place to preserve one's savings."

How about the smart, nimble operators? Investment guru Marc Faber spends his time looking at liquidity flows, trying to predict the next sudden tide and get in beforehand - not a game for the type of clients I have usually advised. And even he appears to be readying himself for the worst, "a total disaster, with a collapse of our capitalistic system as we know it today."

Recently, I seem to have been reading more commentators tending to the view that we are heading for that Mises "crack-up boom" - outlined here nine years ago, for example. And worse:

"And 'mid this tumult Kubla heard from far
Ancestral voices prophesying war!"

The great pleasure gardens of China's Emperor took some 40 years to build, in the first half of the eighteenth century. Vast, complex and exquisite, they were testimony to the wealth and power of the Middle Kingdom, only to be methodically destroyed in an act of punitive vandalism by the French and English in 1860. Premier Zhou Enlai decreed that the ruins should remain unaltered, a monumental lesson for the Chinese about the Western powers.

Of all the curses on humankind, long and vengeful memory may be the worst.

The long crisis, and the rediscovery of the family

Calculated Risk plots the actual and projected change in demographics from 1950 to 2050, adds the observation that over-65s cost 3 times as much in medical care as their juniors, and the rest is future history.

Meanwhile, Leo Kolivakis looks at the looming meltdown in US pension schemes, mirroring what's going on now in the UK.

Long term, it looks like down with house prices (since the younger generation will have much less free income to take on debt) and (thanks to the oldies' rising income need) down with stocks.

Nurture your young.