Conspiracy, not c*ck-up

Michael Hudson sees the current crisis as deliberately fomented, and intentionally anti-democratic (htp: Anon, on Nourishing Obscurity). The economic is now shading into the political:

What do you mean “failure”? Your perspective is from the bottom looking up. But the financial model has been a great success from the vantage point of the top of the economic pyramid looking down. The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.

You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards; it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.

Meanwhile, Karl Denninger makes his case for the perpetrators of the credit crunch to be penalized under the US laws relating to mail fraud.

Stock market could halve again

As you know, I've been doing my own extrapolations recently, based on the Dow since 1928, and the implication is that the low point could be as deep as c. 4,000 points, i.e. another 50% off where it stands today.

Now, "Mish" looks at revised earnings estimates for companies and relates them to stock prices, applying various price-earnings ratios. His conclusion is broadly the same.

As Michael Panzer predicted* (reviewed here in May 2007) there's been a flight to cash, and now (as he also predicted) it looks as though inflation is set to roar. This will disguise what's happening to stocks, but underneath it I see that decline. As in the '60s-'80s. it may take some years after the apparent turnaround before real values increase again.

Provided you trust the government to pay up when due, and to calculate inflation fairly, National Savings Index-Linked Savings Certificates (or US TIPS) may be a valuable weapon in your anti-inflation armoury.

*"He predicts first a credit squeeze, which makes cash king and ruins our credit-dependent lives and businesses wholesale; then hyperinflation, as the government prints money to keep the system from complete collapse.

In this scenario, at first, stocks, corporate bonds, property, commodities (including gold), even government bonds and savings certificates, all decline in value against hard cash as everybody scrambles to settle their own debt, collect what's owed to them and continue to pay the bills. Then the hyperinflation hits and everybody tries to offload their currency."

Snap

Denninger:

JAIL the fraudsters, including those in Congress, Treasury and on Wall Street. Bluntly - if we can find a predicate felony to nail you with in this mess, off you go.
REMOVE all of the overseers. This includes The Fed. Set up a new agency that is charged with enforcing all of the laws related to the financial system including The Federal Reserve Act, and empower them with subpoenas. Direct that they must act and operate "in the sunshine", with everything published on The Web. You do an evil thing, the public sees it. They try to hide it, the public sees it.
DEFAULT all the bad debt. Yes, this "booms" a lot of banks. Tough.
SET UP new banks. Take the remaining $350 billion and capitalize ten banks with $35 billion each. IPO them to the public. By law no officer, current or former, of an existing public bank may serve on these firm's boards. Now we've got the means to replace the credit creation the boomed banks can't do any more.

Uncanny. We agree pretty much exactly. Either he's an amateur, or I'm a professional.

The disenfranchised shareowner?

A startling picture of how share ownership has shrunk - pretty steadily, despite the Conservatives' pledge in the 1980s to widen it. Though I can't tell from this to what extent it's down to individuals' purchase of unit trusts, investment trusts and collective pension funds.

htp: Patrick Vessey

P.S. I Like the flowers. Man.

Where to turn?

People are starting to run around looking for a haven for wealth. German bond issues partially unsold; US bonds yielding virtually nothing yet at risk of default and dollar devaluation; the UK's economic fundamentals worse than America's (without the advantage of having the world's reserve currency); others saying the PIGS (Portugal, Greece, Italy, Spain) may crash out of the Euro, and that the Euro itself may not see out another ten years.

Marc Faber is predicting that precious metals will outperform equities and bonds; this commentator reckons silver will outperform gold.

Dear me.

Money Management

As reported in The Hightower Lowdown, the Tribune Company is going under. It was bought last year for $8.2 billion by real estate magnate Sam Zell. Because he didn't have enough cash for the deal, he colluded with the CEO to use the employees' pension fund as collateral for a loan. The crushing interest rates meant that he had to slash payroll to try and make ends meet.

Not only is the deal itself troubling, but I do not see how a company can be bought with borrowed money, and then be profitable enough to pay the loans and make more.

Perhaps the whole idea of large amounts of credit is itself the problem?

A lesson from China

Shagang, the Chinese steel company owned by self-made billionaire Shen Wenrong, is raising its prices, according to Steel Business Briefing (4 January 2009).

In a manufacturing recession, this is a counterintuitive move by the man who bought what was left of the German "Phoenix" steelworks and shipped it to the Yangtze, reasoning that a ready-made factory would not only get into production faster, but (at the scrap price he paid for it) without the debt burden that would ruin his competitors when (as he foresaw) the next downturn came.

The company may also push ahead with its plan to "go public" and expand its operations.

We could do with people like him, over here.