Bubble, Bubble, Toil and Trouble, or 1929 Starts to Rhyme

tumblr_lurfaekStI1qfc5cxo1_250“History never repeats itself but it rhymes.” –Mark Twain

One of my very favorite American authors certainly got that one right. And it’s happening again. Our financial sector-dominated economy, based on bubbles of financial speculation, free money from the government to the Wall Street investment banks, and austerity for most of the rest of us, is about to see some bubbles pop. Capitalist economists themselves are sounding alarms, as nicely described in this World Socialist Website article.

According to the article, no less a bastion of American capitalism than the US Treasury Department’s Office of Financial Research warned that “the US stock market had entered a situation comparable to patterns seen in 1929, 2000 and 2007.” The Financial Times warned that “not since the collapse of Lehman Brothers in September 2008 and the freezing of money markets in August 2007 has there been such widespread concern over the structure of fixed income [i.e., bond] markets.”

In other words, wealthy investors have been sucking virtually interest-free money created on computers by the big central banks such as the Federal Reserve and buying up bonds to hedge on the wild bets they are placing on various global stocks. This is faith-based economics at its worst; if bondholders fear that they will lose money if they hold the bonds until they mature, they may bolt that market, which could trigger another panic like the one that ensued after Lehman Brothers collapsed. Remember that? It wasn’t so very long ago.

Since then, the Obama Administration and the European Union have done virtually nothing to regulate out-of-control speculation because the speculators have used the wealth they really didn’t work for to buy political influence. Supply-side economic theory rules, in spite of the fact that reality has proven again and again it simply does not work for most people around the world time and time again. Demand-side Keynesian types have warned about this for decades, but even they maintain that capitalism works just fine so long as it is properly regulated, preferably by themselves, of course. I think they’re wrong, too; more on that later.

Now on to some of the individual bubbles and their great historical antecedent, the Crash of 1929. One great big one is the Student Loan Bubble in America. Student loan debt is now estimated to be at about 1.3 trillion dollars. Earlier this year, the American government said that the default rate had exceeded 50%, yet for-profit junk schools continue to pop up. Hell, you can hardly turn on the TV without seeing an ad for Briggs-Stratton or some other school telling you to start a lucrative career as a (low-paid) medical assistant or something by taking out tens of thousands of bucks in federally-guaranteed student loans and getting a certificate or associate’s degree. Reminds me of Countrywide ten years ago. Remember that? Refinance your house! Take that dream vacation!

For that matter, the cost of higher education in this country has skyrocketed in my lifetime. When I started at the University of Texas in 1976, it cost a whopping $6/hour in tuition AND fees. By the time I graduated four years later, it was up to $10, but still, I could work part-time at a gas station or convenience store and pay my way through to a bachelor’s degree.

My kid and stepkids can’t do that now, no way, no how. Neither can yours. There are several reasons why the cost of higher education has gone up, but I think a great big one is that our universities and colleges have become just more money-making machines for the wealthy and connected. Ever notice how they don’t have Chancellors anymore, but CEO’s? As for their students, they rack up tens, maybe hundreds of thousands, of dollars in student loan debt to get that Bachelor’s or Master’s or medical or law degree and then are saddled not only with paying back the principal, but also much higher interest than the Wall Street banks do.

Wages and salaries have been increasingly stagnant since at least the 1980’s, but the cost of a higher education has gone up literally astronomically. It is little wonder so many former students default on their loans, yet the corporatist propaganda machine is already swinging into gear, blaming the students for their “irresponsibility” in failing to pay the loans back on time if at all, and for accepting deferments at even higher interest rates to delay the inevitable. Just like the speculator-driven real estate bubble turned into a trap for tens of millions of “irresponsible” homeowners in 2008, the student loan bubble is a trap for tens of millions of Americans who only wanted an education so they could improve their standards of living, as they’ve been promised all their lives.

The student loan bubble will probably be the first one to go POP!, but there are other contenders. The stock markets are back to their old 1990’s and 2000’s tricks in spades–credit-default swaps, derivatives, the whole nine yards. The credit rating agencies which knowingly lied to investors back then got away with it almost scot-free. I remember Attorney Eric Holder crowing about a fine of a few hundred million dollars to which a credit rating agency had agreed to settle, which was the real financial equivalent of a traffic ticket to the likes of me. Not one banker, not one Wall Street titan, ever saw the inside of a jail cell or was reduced to the penury which they deserved. In fact, the government just created money and gave it to them because they were “too big to fail.”

So why should the Wall Streeters not do now what they did before? They obviously see no reason not to do so, and they are. Sooner or later, the Financial Times seems to think it’s sooner, there will be another stock market panic, and we’ll be looking at either severe deflation if the government doesn’t create more money or even worse than what we have experienced in the last seven years if it does. The latter means more austerity for us, and another casino for them.

In 1929, the prevailing economic theory was laissez-faire capitalism, where the government would absolutely refuse to intervene. The stock market crashed because stocks were being sold to more and more people for far more than they were actually worth in real terms, much like the Dutch spent fortunes betting on the price of tulips going up in the 1600’s. Eventually someone simply refused to keep placing bets and sold, which triggered a panic when other investors realized that their stocks or their tulip futures were worth less than their own shit. POP! The same thing happened to the mortgage-backed securities in 2008, when some investors refused to keep gambling on the price of housing rising forever when it was so obvious that most homeowners simply did not make enough money to keep paying off what they had already borrowed. In 1929, the Hoover Administration did nothing, the supply of money dried up, and the worth of money went WAY up.

Unfortunately, few people had much real currency left, and many lost everything they owned.

In 2008 and 2009, with much fanfare, fearmongering, and smoke-and-mirrors propaganda, the Bush and Obama Administrations simply gave away the treasury to the same people who had wrecked the economy in the first place. When the next crash comes, the Administration, Democratic or Republican, will do the same thing again, only this time they will “pay” for it by destroying what’s left of the New Deal and Great Society programs and demanding that We The People somehow survive on even less than what we have now.

There will be no FDR II riding to the rescue this time, though, because Keynesian economics isn’t going to make things right, either. At least I don’t think it can. Here’s why.

In 1929, the American and European economies were driven by the manufacturing sector. We made things that people could buy and use. Most of the real wealth in this country came from wages and profits from manufacturing goods and providing services that had real, tangible, visible benefits to most of the population. Now, not so much.

When FDR was around, there was still at least a potentially viable manufacturing sector around that could make things like cars and dams and roads with stimulus from the government. The New Deal sort of worked in the mid 1930’s and things slowly improved(mostly) until that same sector, employing literally tens of millions of Americans, really took off during World War II.

Now, most profits and the highest salaries go to people who place bets, gamblers who bet on whose stock will rise and whose will fall and often win either way. There are two problems here: One, these people make up a tiny percentage of the population, and Two, what they are profiting from isn’t real. It’s not tangible, it’s not useful, it’s just…imagination, really.

Why is this? The answer is quite simple: Capitalism. Capitalism is a system which has only one objective: the accumulation of more capital, or profit, soonest. Capitalists don’t care, hell, they can’t care if they want to be “successful,” about things like the Greater Good or social stability or the well-being of most people. Not anymore, anyway. Back in the day, Henry Ford wanted to be able to sell cars to his own employees, but he made his money by selling something tangible. Today, Jamie Dimon doesn’t give a good god damn whether or not his bank tellers can buy JP Morgan Chase stock, and HMO CEO’s don’t care that their own nurses can’t afford a stay in the hospitals in which they work.

That’s the key difference between a dominant manufacturing sector and a dominant financial one. There are those who think that the clock can be turned back, but why bother? Capitalism has to continually expand to survive, and it’s running out of planet. Exploiting more and more natural resources to keep making more and more stuff leads to its own problems. That’s a whole topic in itself. For now, look at what happened to the Mayans or to Easter Island.

We need another economic system altogether, but we won’t get one until most people realize in their guts that capitalism hasn’t worked for them, isn’t working for them, and never will work for them. I fear it will take a great calamity to wake them up, and that I and my family will somehow have to find a way to live through it. My own answer is some form of real socialism, or the kind of society Gene Roddenberry envisioned when he came up with Star Trek. That, too, is another topic in itself. Please feel free to offer any ideas you might have right here.

And on that optimistic note, have a nice day.

Ohio Barbarian's Blog

“History never repeats itself but it rhymes.”                                                                    –Mark Twain

One of my very favorite American authors certainly got that one right. And it’s happening again. Our financial sector-dominated economy, based on bubbles of financial speculation, free money from the government to the Wall Street investment banks, and austerity for most of the rest of us, is about to see some bubbles pop. Capitalist economists themselves are sounding alarms, as nicely described in this World Socialist Website article.

According to the article, no less a bastion of American capitalism than the US Treasury Department’s Office of Financial Research warned that “the US stock market had entered a situation comparable to patterns seen in 1929, 2000 and 2007.” The

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19 responses to “Bubble, Bubble, Toil and Trouble, or 1929 Starts to Rhyme

  1. Well, there are electric car replacements for our current CO generators, solar-electric house-top panels and transportation infrastructure to deliver them and US;to be manufactured here (and everywhere), AGAIN and henceforth. And I have always advocated to my fellow Americans,low and high, that a system where all life’s necessities are guaranteed to each of US, with desired luxuries dispensed commensurate to the degree of excellence we produce in each of our chosen professions (from waste worker thru president); is that to which we should strive. In my own, of effective regulation, I also advocated interdisciplinary teams to insure an invariably excellent result in every case. Of course, the imperative for success would still be the selection of good-hearted leaders and ‘deciders’; but the true meritocracy of this would go a long way toward efficacy by its inherent reward of excellence and penalty of mediocrity (e.g., an excellent Memphis trash collector might be weekend pontoon boating and bass-fishing on the Mississipp; while a derelict DESPOTUS like Barry-0 might be having to rely on Michele’s harvesting the WH vegetable garden for garnishing his next Whopper “chopped steak” state dinner!).

  2. thanks much for cross-posting this, barbarian. for now, let me apologize that i not only failed to make a ‘More’ break, but couldn’t delete your initial version…because it wasn’t in the Editor, or at least on mine. odd bodkins all the way.

    the screwup seems to be rooted in the fact that wordpress had been offering a ‘new and improved’ editor that sucks bigtime. as of this morning, even using Chrome, i can’t access the classic editor (like the one my.fdl used), and there is a small war going on about it on the wordpress forums. ‘management’ isn’t responding, of course, even though a small poll they’re taking indicates huge percentages of responders want classic restored.

    it all puts a major crimp in my idea for inviting more people to author here in the eventuality that my.fdl doesn’t return ‘to fight another day’. the new editor seems to designed for pre-teens or something; blue and hideous, with an edit window not quite 2 inches high, and with the name ‘beep bing bong’ or some hideous dreck with an opening of blue bouncing balls, seriously

    to accommodate more diarists (if necessary and feasible), i’d even checked into upgrading to their ‘on sale until april 1!) business edition, but really all ya get is more bandwidth and some *very personalized service!* pffffft.

    anyhoo, great post, and i may have a comment later today.

  3. Hmmph. Well, next time I’ll just paste it over here instead of re-blogging in on word press. So much for the easy way, eh?

  4. @Bruce above: I fail to see how that is an economic system that’s an alternative to capitalism, or exactly what your comment has to do with my post, unless you’re advocating some sort of Platonic ideal of a meritocracy. If you are, then the question arises: Who determines who has the merit?

  5. oddly, i’m not getting emails from the site. (maybe wordpress is pissed at me, or it’s still bill gates, may his hair and teeth fall out tomorrow.) no suggestions past yours about socialism. but i thought i’d throw some more fuel onto the fire.

    More Than Half Of American Public Schoolchildren Now Live In Poverty: Study

    “For the first time, more than half of U.S. public school students live in low-income households, according to a new analysis from the Southern Education Foundation.
    Overall, 51 percent of U.S. schoolchildren came from low-income households in 2013, according to the foundation, which analyzed data from National Center for Education Statistics on students eligible for free or reduced-price lunches. Eligibility for free or subsidized lunch for students from low-income households serves as a proxy for gauging poverty, says the foundation, which advocates education equity for students in the South.
    The report shows the percentage of schoolchildren from poor households has grown steadily for nearly a quarter-century, from 32 percent in 1989. “By 2006, the national rate was 42 percent and, after the Great Recession, the rate climbed in 2011 to 48 percent,” says the report.”

    and those stats are from 2013!

    The Social Costs of Capitalism are Destroying Earth’s Ability to Support Life’ by PAUL CRAIG ROBERTS

    (author David Ray) “Griffin makes the point that the external cost imposed on the climate by fossil-fuel use is the source of the life-threatening crisis that humanity confronts. Capitalists make money by exploiting labor and by externalizing the costs of the wastes produced by the productive process by imposing the wastes on the environment. It is the short-term time horizon of production organized by selfish private interests focused on quarterly profits that is destroying the livability of the earth.
    Almost every economist on earth will rise up in opposition to that true statement, because they are brainwashed in the neoliberal ideology that masquerades as economic science, but in fact is nothing but an apology for capitalist exploitation of labor and the earth.”

    Food stamp cuts hit Wisconsin poor

    “Many of Wisconsin’s most vulnerable residents are facing painful cuts to food assistance benefits. As part of the bipartisan federal cuts to the Supplemental Nutritional Assistance Program (SNAP)—known as FoodShare in Wisconsin—the elderly and disabled are seeing their monthly aid sharply reduced, according to the state’s Department of Health and Human Services. The number of people receiving less than $20 a month has doubled over the last year.
    Nationally, the Democratic and Republican parties have joined in cutting food aid by billions twice in the last two years. In 2013, benefits across the country were reduced for the first time, as temporary increases included in the 2009 American Recovery and Reinvestment Act were allowed to expire following a month-long shutdown of the federal government.”

    Also two more bubbles from Yves Smith: subprime car loans, and as a few months ago, believe it or not, swaps on housing rentals. (no links)

    yes, so much for the easy way; i am burning with the injustice of it all. but back to the subject at hand.

  6. Thank you, OhioBarbarian for focussing on the student loan debt bubble. Remembering how the young came out to vote for Obama originally with such enthusiasm, I still can’t get over that betrayal.

    I like the idea of a Star Trek solution, though even just reforestation CCC style would work for me – two years of that and a debt forgiveness program. I figure the banksters can supply food, man the chow tent pro bono for their end of the deal. (That or the clink might save them from Madame Guillotine.) Not exactly Star Trek, but I don’t have Gene R’s creative imagination.

    Oh, and artists on the government payroll dressing up those reclaimed Post Office buildings would be nice. Excellent use of eminent domain, so we’ll get right on that as well.

    Is that kind of stuff Keynsian? If so, I’m a Keynsian.

  7. Since y’all asked, that was my idea. I was going for tectonic; but typically got Teutonic in response. Coulda sworn I said it’s dependent on goodhearted leaders and “deciders”; but mebbe the tin helmet blocks teh senses. I recall once asking for such from Tom Hayden and Todd Gitlin when they recently cautioned against repeating their ’60s mistakes against present-day Bush putschs, here and abroad; their alternative(s): cricketzzzzz …

  8. I attended a fund-raiser for the Chicago 7/8 in Detroit in ’69 where Hayden spoke and looked radical in black leather and wowed the audience with his rhetoric, I and my friends were not that impressed we preferred Jerry’s and Abby’s performances in and out of court. Did you know they were charged under the Civil Rights Act for their antics in Chicago?

    When Hayden moved to the Left Coast he put a lot of distance between himself and Port Huron and not just in miles.

  9. you were radicalized early, then, peter. the miles from port huron must have had to do with seeking and holding elective office, no?

    but hello, abby and jerry were revolutionary artists and meant to make the revolution funny and fun. kinda in the way some flashmobs do, even now.

    i’m embarrassed to say that i’ve lost so many memory engrams that i’d forgotten that tom was married to jane fonda. sheeesh.

  10. I think the seeds of my revolt were planted when I was exposed to the Devil’s music, Rock and Roll in the ’50s and my awareness that something was terribly wrong in our environment when the creek behind our country home ran red with blood from the slaughter house down the road.

    When I saw, in- person, and more importantly heard Martin speak in ’63 this White boy from Montgomery was deeply moved even if I was too young to realize it at the time.

    In ’65 I was questioned about what I was going to do about the draft by an older girlfriend’s father who thought I was 18. This was a shock because all I was interested in at that time was girls not war.

    The final decisive blow to free me from my conservative upbringing was attending an anti-war rally in ’67 where both sides of the divide were represented and made their appeals for or against the Amerikan Way. The anti-war longhaired radicals brought a band calling themselves the Pig Fuckers, how could the Squares match that.

  11. Juliana, I admit I focused on student loans partially because the crisis, and it is a crisis, affects many young people I know personally, and most especially my stepkids. Their mom and I actually advise them NOT to go to college because of the debt problem–learn a trade instead. Preferably something that can’t be out sourced.

    They have–we’ve got two cooks and a sheet-metal worker. My bourgeois parents, Depression babies and GI Bill beneficiaries both, would be horrified. At least none of the now-adult children are mired in the student loan quagmire.

    The current situation really got going under Reagan, who wanted to make sure that there would be no next generation of counterculturalists or politically aware young people in general. The Occupy movement proved he didn’t totally succeed there, but he DID succeed in making a liberal arts education, especially, too difficult for all but the wealthy few to really afford.

    Corporate America does not want critics, it wants desperate money-grubbers.

    As for Keynesianism, well, it worked at the time. Maybe it could even work again, but only for a time. So long as capitalism is allowed to exist on any but the smallest scale, it will work unceasingly to bring our descendants back to where we are now. It’s definitely better than what we have now.

    All-out collectivism, as Lenin and the Chinese Communists learned, doesn’t work, either. But if you’ll let this old pagan go Biblical for a moment, worshiping Mammon, as capitalists do, doesn’t work, either. In fact, doing so is truly evil.

  12. hey, barbarian. your amigo cmaukonen just attacked me at fdl (ukraine post) for being against capitalism…or something like that. he sure took me aback, i confess. purdy funny altogether.

    shoot, there isn’t even a Preview function on this stupid ‘new and improved’ boom bang blue editor. i assume you have to use it, too?

  13. you were a ‘bammy boy? and saw martin speak? and saw the pig fuckers? rivals my having been bitten by the Hog Farm hog in ’68 in boulder. as for seeing martin, i got nothin’ to compare to that.

    but i went to kent state, and that was where my slow radicalization began, especially against the war in viet nam. although i confess i was a dem activist for decades, and ran many campaigns for…dems. most of them lost, but i did get to see up close and personal how much money the DLC poured in to help defeat populist dems.

  14. Wendy, were you there at KS when the massacre happened?
    Allison Krause’s younger sister Lauren @ mendocoastcurrent.wordpress.com has a very interesting account of the harassment, threats and bribe offer her family received when they pursued justice for their daughter, it’s in the letter to Obama she wrote in 2012.

    Most of us had to find some way to rejoin society with hope of affecting change from within even as we came to realize it was futile. After ’68 I couldn’t ever bring myself to register as a Dem although I supported and voted for some of them but never again.

    Another one of my flashbacks is when I joined the Operating Engineers Union in the late ’70’s and was asked, more than once, whether I could submit to authority after being free and wild for so long.

  15. good on you, peter. i still made the attempts to ‘affect change from within’, although i now see throwing rocks from without as a more freeing way to go.

    no, i wasn’t there during the massacre. i was already at CU, boulder, but read everything i could find about it, and helped shut down CU at the time, which included the murders at jackson state as well, though history has all but forgotten those *black* students’ deaths.

    by a simple quirk of fate, though, i was in kent for the first anniversary commemorative events, and spent the day on campus listening to the poetry and songs, waiting, watching…and doing more listening. it had all taken place on the sidewalks and hills i’d walked during my 2 years as a high school student admitted to the U cuz…well, i could be admitted, back when i had some brain game.

    here’s her site; i confess, just thumbing through the titles and photos have been almost too much to bear for now. nd, oh, me; how much new info there is to read and know. will i ever?


    these were my stompin’ grounds, back when love came easy, knowledge seemed like pursuing in a grand way…i’ll tell ya about Devo one day. or maybe ya already know why they were radicalized on that day in hell.

  16. It does hurt to look back at those dark days and realize how many people viciously hated young people for rejecting their tainted gift of the Amerikan Nightmare. Seeing the same beast rear its ugly head during the Occupy Movement, from another generation our generation, was in some ways even more painful for me.

    BTW, I was accepted at Bolder in ’67 but never attended, went back to Detroit and got a job just in time for the riots.

  17. when i’m restored, i’ll go read more at allison’s sister’s site. it all through me for a loop. so much happened that i was unaware of, especially the photos by a student. i was looking for one of the poems read at the commemoration by a female friend of allison’s, but i only found this page, poems all written by males. such a touching page, though. “our daughter was no bum.” imagine that her parents felt the need to say that. most of the public, though, blamed their deaths on the dirty hippie protestors.


    oh, yes: the hatred. the blame and accusations. including within families, as in my own. i’ve long wished that my father had been alive to hear robert mcNamara recant and apologize for his grand part in all of it.

  18. Have you read the statement released by the parents after the out of court settlement in ’78? It is a sad document about a pitifully small settlement and their trying to rationalize the settlement after their long struggle as being proof that the system still works.

    Mr Krause was offered a $2Million bribe, from the Ford Foundation, to drop the lawsuit but the settlement was only $600K.

  19. i just read the parts at the ink above. “we never wanted the money, we wanted the Truth”. and they may be the only ones seeking it, but with some help. tragic. nixon and rhodes.

    along the way i found this: ‘Augusta GA: The Forgotten Dead Of May, 1970’

    early police brutality protests


    ack, i need to get to my chores.

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