“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.