The Mother of All Bear Markets..(Harvard Agrees? - VIDEO BELOW)

Stock Crash of 2011

The Mother of All Bear Markets

Seven Reasons Why?

Here we go. After forecasting the internet bust of 2000, then followed by the 2007 prediction that stock markets would soon face a major meltdown; and did in 2008, we put our record on the line this June, with the forecast of a global correction of historic magnitudes. Guess what’s happening?

So to help those in need of the primary drivers behind what is likely to be a financial storm of unprecedented magnitude, we decided to layout the seven primary causes behind this fiasco. Something that sets out the substantive points. Is handy. And, is simply, easy to remember. So, here we go, and we hope it helps to bring a little clarity to bear. The mother of all Bears that is.

The Economic Model is Broken

The meltdown in 2008 left one clear resounding message; all the economists had it wrong. There was something amiss in the theories and practises of the economic system that could not foresee and mitigate the crash long before it happened. Despite this, no major structural changes were made or proposed. Rather the same remedies that created the problem were embraced with greater froth. Print money, Create debt.

Same ole foolish and broken formulae from our Economic Doctors.

Too Much Global Debt and Circulating Money

Reason one then leads to the next cause. Global debt, inclusive of personal, corporate, government and derivatives, the total leverage some experts believe is now more than ten times world GDP. Frightening….you bet. There are two evil and powerful nemeses that are born from debt and its printing of money sibling. Leverage and dilution are reared to provoke levels of risk that are so unimaginable; the slightest wind blows the global financial house of cards into infamy

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US Military Industrial Overreach

Two great Presidents warned America about the overreach of the Military Industrial (Congressional) Complex and that such an overreach could lead not only to the loss of democracy, but also the financial ruin of a nation. Why listen to the wise words of Washington and Eisenhower? What could they possibly understand? Rather, 737 US bases are now located throughout most of the world, and the country is involved in three conflicts, and a cerebral war on terror.

The economic consequences of the overreach are high, and well documented by history in the demise of Rome, Spain, Britain and others. The “addiction to standing armies and engagements”, deploys scarce resources to activities that have little future benefit (reusable bombs?).This leaves little room in the fiscal process to cut expenditures to prudent levels, promoting the path to greater debt and insolvency. More importantly, it crowds out resources needed by the conventional economy to preserve its progress, safety nets and well-being.      

Major Countries Bankrupt

The list of nations facing this seems to grow by the day, as the perils of policies that encourage a debt induced economic demand and consumption is realized. When the nation does not currently have the resources to service its debts, and the possibility of future resources to pay its liabilities then the circumstances of bankruptcy prevail. Greece, Ireland, Portugal, Spain and perhaps even stalwarts such as Britain and America are members of this club.

America’s fiscal situation also castes a dark shadow on the club, due to its reserve currency status. The $12.4 trillion plus in debt, plus unknown contingent and unrecorded obligations, are beyond large, and certainly raise key questions. How will the interest be served when rates ultimately rise? In a world of depleting resources, the surety of repayment garners more than doubt. The debt at its total may even exceed the value of total oil reserves. A dark shadow indeed.

 

Growing Populations and Depleting Resources

The growth formula of the prevailing economic model is advancing the growth of populations and the speed of resource usage through consumption. For starters, no one ever questions the wisdom of perpetual growth. Does it not seem strange that a system pushing unbridled growth seems to simply grow larger economic and political problems? Perhaps to a point where solutions are no longer feasible.  

The above causes begin to tie together in simple fashion. Growth triggers populations that consume more resources, thus needing further military industrial overreach to fulfill the needs. The overreach combined with debt induced consumption causes government to print more money and issue debts to maintain the flow. Ultimately too much debt is created and a bankruptcy occurs when resources no longer exist to service or pay debts, due to consumption by the ever-expanding population and overreach. A population once needed to fuel the growth originally believed of benefit to economic progress, aborts attaining this goal. Ironic?    

No New Industries; Jobs; Consumption - Possible

The "growth economists" argue for more stimuli by way of debt to create more consumption and jobs, which in turn will lead to more industry. More debt…you have gotta be crazy? That’s what contributed to the mess in the first place. "No! No! they plead; this time is different, as it will grow us out of the problem". Sorry but the math and physics now dictate a more constrained view of reality. The clear constraints are in the future interest costs of the debt that may never be serviced when increased. Also, the unknown yet real constraints of resources that are not available to the nation to repay the total debt.

 

Thus new jobs and consumption seem highly unlikely as the additional debt is not practical, plus the printing of money has diluted its utility to a point where more debt has little impact on real industry. The hope of new industries is constrained by this and another reality. One observer pointed out that to retire the US debt equates to the market cap of today’s S&P 500. Now to create such comparable industry, requires the ingredients of more debt, consumption, population, growth and resources beyond the reaches of human ingenuity. Well beyond,

Goldman Sachs, Wall Street, Others

Lurking behind the curtains are the unknown, unknowns. And their magnitude is not known or measured by any. History has shown that as economies lose their resource and productive capacity bases, they shift to less concrete endeavours associated with finance, banking and technology. So too, in recent decades have we seen this burst into the mainstream economy, with purveyors like Goldman Sachs and others from the bastions of Wall Street.

The financial engineering of derivatives by their likes leaves a hidden liability that may one day be assumed by the global economy. This is sad, as not only have these practices distracted time and resources from real activity; they skimmed the outputs of these more concrete undertakings. When the curtain closes, as it did with the likes of Lehman Bros, Enron, Bear Stearns and many others, the resultant trillions of dollars in debt will be added to the global debt burden. Another drag on future prospects.

Seven Reasons or Seven Sins?

No doubt more contributing factors may be highlighted or reasoned at some future point. Yet within the context of these causes should be found an embedded thread. This thread has the potential to make this bear market much different than others. Much different.

It is different because growth should no longer provide the quick fix to the addictions of debt, consumption and military overreach. It cannot provide this fix because it is constrained by the laws of logic, physics and mathematics. Those constraints are real concrete obstacles that cannot be overcome with the past remedies prescribed. So there is a little clarity brought to bear. The mother of all Bears.

T, A McNeil

First Financial Insights Inc.

August 10, 2011        

Recommended Readings:

Quantum Realonomics

THE WEALTH OF PLANETS

Invisible Genocide: Fallacy of Economic Growth

"The Free Economic System" - Existential Economics

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WHERE'S THE CAKE?

Harvard Agrees?...WATCH

Economic Collapse 2020: A Failed Theory

WARNING: these comments may have certain theological ideas that are provided  only for the purposes of "clinical analysis"and readers may freely include theological beliefs of their choice in the analysis without disturbing the conclusions

Where's the INVISIBLE HAND now?

Economic Collapse 2020: A Failed Theory? 

A General Theory of Reality, Science, Economics and Money

Comments Swiss Bankers/ Economists, July 31, 2011

Thank you again for your comments and questions. Please let me take some time to respond to the others later Let me remark about the thrust of what I am trying to achieve. First no matter how complex the reasoning or analysis the final conclusions reached must be easy for all to understand and practical to apply. This clarity is critical.

There were a number of issues that brought me to where I am today. First it was apparent that the macro economic model had failed in 2008, meaning that all thinking up to then may be seriously flawed in someway. If the past theories were right; the world should never have reached the brink it had then.

Second a major part of the problem relates to the printing of currency both by the state and agents of the state such as banks, investment houses and corporations. The latter could also create surrogate currencies such as stocks, derivatives, bonds etc that could be converted to the state's currency through the "banking process”. These powers were in place for numerous entities to create infinite amounts of currency based on future events and resources. That is logically impossible as it assumes we can forever create goods and services from a finite source (earth) to provide everyday value for the currencies created by these entities.

Third, in looking to identify where the best future opportunity for investments might be, it was clear that the importance of the expected life of oil reserves was paramount to every element of economic activity. And the future investment possibilities too. Thus the exhaustion of oil reserves meant all economic activities, as we know them, could possibly cease. Worse, the best guesses as to the life of reserves were running anywhere from 15 to 45 years. How then could we be printing all these currencies and surrogates when the whole system would shut down in a very real sense in a few short decades?

In other words, the idea that currency was acting as a device to symbolize that a store of value would be in existence at some future point was likely a fraud. An economic system highly dependent on oil and energy to generate its economic stores of value would soon in all likelihood no longer exist. Yet many nations and their agents continued and continue to create more and more currency based on the almost magical belief that "we could learn to create another planet earth" at some point in the future. That's collective insanity

In the last analysis, this meant that the actual printing of money needed to be logically tied to the finite resources of the planet. The printing of money needs to be better controlled in a world where that relationship exists. Think for a moment about what will logically happen when we create more and more money and people; yet there is less and less everyday utility available to meet basic needs. Prices must rise sharply and social unrest will be widespread as currency (or gold too) no longer converts to the store of value needed for everyday use. Why? Because there is none...and so, the final days of money should be extremely unpleasant.

Did we really think that money would last forever? What was the "scientific logic" behind such a belief? In reality...none. Most, I believe will be shocked to discover, that for money to be eternally operative we must conquer the laws of thermodynamics. Not likely; so to extend human survival, we must decelerate both the use of resources and population growth. (In turn this extends the useful life of money too) Then build a macro-economic model and its related currencies around realities of the physical sciences of our planet. A new theory of economics and money is thus required to better tie economic goals and activities to the planet's "likely physical constraints"

In order to begin building the new economic model we would first need a practical theory of reality and a conceptual framework that could be applied to all fields of knowledge. It is amazing that, so far, no one has documented or theorized such a framework. Instead we see reality generally being defined within individual fields of study or by religious doctrine that is in opposition to the clinical or existential method. It appears that out of real necessity that logic brings us to the need to define such a framework.

The elements of this framework derive from the pillars of common sense. There are first concrete constructs, that are defined to exist by our five primary senses and cognitive functions.(dollar bill, water, electricity mathematics).There existence is confirmed by object device or observation Then second, there are abstracts that cannot be defined to exist through our primary senses and cognitive functions (Invisible Hand, Fairy Tales, Santa Claus, Supreme Beings). These matters are largely created in the mind and cannot be objectively confirmed to exist by any devices or object means external to the mind. They are imagined.

Both constructs come in two forms; they are either visible OR invisible. Invisible concrete constructs are elements such as air, gravity, magnetic force, oil reserves etc. Visible concretes are readily apparent and too numerous to mention. Visible abstracts come in the forms of art, music, symbols and money among others. Imagined or invisible abstracts no doubt progress well beyond the last eternity. There is no doubt too, that a body of work exists on this framework that may lead to exotic metaphysical discourses, however a rudimentary view should suffice for this discussion.

As shown in the diagram (see article) many objects or ideas overlap and are found to have the characteristics of more than one construct creating confusion. Human nature it seems when faced with an invisible construct that requires everyday utility; "creates a visible concrete construct(s) to symbolize its existence". The human species ironically did this for both Supreme Beings and money. Much could be discussed here.

Thus the human mind operating with elementary cognitive functions converts these symbols of the abstract construct into a "real concrete construct". The elementary mind cannot distinguish between what is by nature an abstract or concrete construct. In its mind the abstract constructs are as real as Santa Claus is to children or as the Invisible Hand is to Economists. Money also takes on the realty of its existence through its everyday use. However without human cognition the symbol in its simplest form is paper, metal or a number on a page. That's reality.

Much more will be discussed about money in later remarks, as it one of the most complex objects we use. Moreover it strongly blends many of the characteristics of concrete and abstract constructs. It is a "virtual concrete construct” of sorts because everyday we convert it into other usable constructs or utilities. So it is easy to confuse its classification.

 

Sorry, these comments are longer than expected, such are a few lines. My thesis works on the view that the foundation of the current economic thesis was built at a time when the world seemed to have unlimited resources, in the 1700s.Thus it was started and based around Adam Smith's book, "The Wealth of Nations"

Today we know in reality that the premise of unlimited resources is false. The new economic model should therefore entail this reality and focus on theories and concepts recognizing the physical constraints as to "The Wealth of Planets" This overall line of reasoning ties to the "Austrian School of Economics," but with more integration with the natural sciences added.

Hopefully this helps to bring together the central thrust and gives the puzzle pieces more connection. Folks let me know if you have further questions, or where you think further clarity is needed.

Thank you for your time,

First Financial Insights Inc

T A McNeil 
Toronto, ON  


@FirstFinInsight    

Recommended Readings

The Wealth of Planets

Quantum Realonomics

Invisible Genocide; Fallacy of Growth

Existential Economics

http://www.firsrfinancialinsights.blogspot.com/

Where did it go?

A long time ago; I can still remember, how the music made me smile... So its bye bye Miss American Pie