Dress Rehearsal [2008 for What Is Ahead In 2012]

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Subject:	FWC: Dress Rehearsal [2008 for What Is Ahead In 2012]
Date:	Mon, 8 Mar 2010 08:28:00 -0800
From:	Jas Jain

Thanks, Kevin, for the article.

"The lower level of consumption in the future will significantly lower capital's returns. And without asset appreciation to supplement lower wages, workers will demand higher pay.

 

"Workers will demand higher pay" and get it? Amazing ignorance of supply and demand of labor in the US.

 

"Contrary to the popular belief that a weak economy means low inflation, the opposite will occur this time."

 

Amazing contrary BS. Oversupply of plant capacity, labor and housing not only would mean "low inflation," but outright deflation (rents being a big factor going forward). Deflationary depressions are hard for economists to grasp, even for a good one like Andy Xie. Only thing that has been fighting deflation, in a policy of controlled inflation for the past 25 years, is Pushing Debt, which would be forced by markets to end.

 

"The world had a near-death experience in 2008. It may not be so lucky in 2012."

2012 might just be the year that the party ends, as Xie suggests, but not the way he supposes. The best play is short Scams and long USTs! Something very hard for dopes to grasp and that is what makes it an cinch. The end game in the game of crooks and dopes, when both are cornered, is very predictable. Checkmate!

Jas

-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

http://www.cibmagazine.com.cn/Columnists/Andy_Xie.asp?id=1231&dress_rehearsal.html

 

Dress Rehearsal
February 1, 2010
By Andy Xie

 

The first decade of the 21st century ended with a near-death experience. But financial markets that collapsed in 2008 have roared back in the decade's closing year, with Time magazine naming Ben Bernanke "Man of the Year" for "saving" the American and global economies. The mood symbolizes the `free lunch forever'ethos of the decade-long party that crashed and burned, only to be bailed out to party again. Bernanke is viewed as a savior because no one wants to take responsibility for what happened and wishes Bernanke could erase the past.

The magic ingredient for resuscitating the financial markets and the world economy has been trillions of dollars of bailouts. That money, not a better economic future, saved the financial markets. It has led to an emerging markets bubble that is supporting the global economy. It will take time for the money to become inflation, but when it does it will show the true cost of the crisis. With the world economy still not structured for another growth cycle, stagflation may stalk the world for a decade.

The two decades following the fall of the Berlin Wall will be remembered as a gilded age. After the ideological struggle of the Cold War, the world embraced globalization and making money in any way possible. The pursuit of profit became the most powerful force shaping the world. Factories were moved to wherever wages and environmental standards were lowest. Local neighborhood shops were put out of business by superstores on the outskirts of towns. Wherever regulation stood in the way, deregulation took its place in the name of efficiency.

This relentless cost-cutting has meant a rising share of income for capital and a declining one for labor. If this trend is left unchecked, deflation will follow to destroy returns for capital, as working consumers have less income to buy the abundant products that capital produces.

Financial capitalism, though, extended the profits firms were making. By shifting capital into paper assets, it killed two birds with one stone. Workers could support their consumption by borrowing against asset appreciation, supporting the returns on productive assets. Capitalists could deploy their surpluses into paper assets, indirectly lending to consumers, rather than physical assets that would hamper returns. This happy combination continued to shift income from labor to capital. The boom laid the seeds for its own destruction. The capitalists were unknowingly paying for their profits by lending to consumers with overvalued paper assets as collateral.

Two decades of income shifting to capital and asset inflation came to a halt last year when derivatives were exposed as frauds rather than ingenious designs that reduced risk to capitalists with no cost. The lower level of consumption in the future will significantly lower capital's returns. And without asset appreciation to supplement lower wages, workers will demand higher pay. Contrary to the popular belief that a weak economy means low inflation, the opposite will occur this time.
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