Global Economy as Zombie: When Will the Walking Dead Fall?

by lizard

Six years ago, when the bursting of the housing bubble triggered a severe financial crisis, there were two options: deal with the core problems of an economy that had abandoned fundamentals for tricksy Wall Street speculative shenanigans, or paper over the issue with a flood of interest-free capital injections from the Fed. Under the Obama regime, the latter strategy was implemented, making the next iteration of financial crisis inevitable.

The Fed’s cheap money injections, known as quantitative easing, is akin to a junky dependent on the next fix to function. When the QE smack is even hinted at being taken away, the markets freak out. The end of October was suppose to also be the end QE3. Will that actually happen? Here is how Yahoo Finance describes the situation:

The end of an era of easy money is looming, and markets are becoming increasingly jittery.

As the Federal Reserve bought government bonds to juice the economy through lower borrowing costs, its balance sheet has ballooned from $995 billion in late 2008 to $4.5 trillion today. That’s helped propel the S&P 500 to nearly triple in value since hitting bottom in March 2009, as investors poured into better-yielding assets.

But the Fed has struggled to let a co-dependent market go. When the central bank ended QE1 in 2010 and QE2 in 2011, the S&P 500 faltered until policymakers stepped in with new, aggressive action.

The Fed once again stops buying bonds this month, and while it’s said repeatedly that a “considerable time” will pass before the first interest rate rises from zero, investors are mulling a slew of new headwinds. The S&P 500 has notched five sessions of 1% or greater moves in the last seven. And the VIX fear gauge has spiked to multimonth highs.

The economy is basically fucked once QE is taken away and we collectively begin economic detox. Much of the growth has been corporate stock buy-back, driven by interest-free capital. Michael Whitney wrote about this yesterday at Counterpunch:

Since the end of the recession in 2009, investors have borrowed a record amount of money to finance their stock acquisitions. According to the Financial Times, margin debt on the New York Stock Exchange (NYSE) peaked in February, 2014 at $466 billion and has only recently dipped slightly lower. That’s $85 billion more than 2007 at the peak of the bubble.

When stocks start see-sawing like they did last week, it’s usually a sign that over-extended investors are dumping their stocks to meet margin calls. The same thing happened in the run-up to the Crash of 1929. Stocks dropped sharply in late October which forced deeply-indebted investors to unload their holdings at firesale prices. The falling prices triggered a panic that sent stocks into freefall wiping out billions of dollars, crashing the markets, and paving the way for the Great Depression.

It’s not just the US economy in trouble. The European Union is inching toward recession as well, making the prospect of a global recession more plausible. From the link:

The very real prospect of a repeat of the 2008 meltdown is now widely accepted in the mainstream media, and the many possible factors that could trigger it are readily discussed in policy circles. As the International Monetary Fund makes plain in its latest World Economic Outlook report, for example, the risk of a worldwide recession is of particular concern – especially as the Holy Grail of achieving respectable levels of economic growth is becoming ever more elusive.

Of particular concern is the Eurozone where five countries, including Spain and Italy, are already experiencing economic deflation. All eyes are currently on Germany, which is teetering on the brink of recession as its economic activity continues to contract over consecutive months. The implications for the Eurozone as a whole if Germany enters a contractionary cycle will be far-reaching, since Germany is widely regarded as the main engine for growth in Europe and often props-up neighbouring states when they experience financial hardship. The overarching concern is that this entire currency block could soon succumb to a deflationary spiral, which would plunge it back into a full blown Euro crisis.

That article goes on to make the following assessment and poses the following question:

From any angle, the world financial outlook can only be regarded as rapidly deteriorating, and this starkly reflects how little policymakers have done to address the root causes of the 2008 crisis. Instead of dramatically overhauling the global economy and safeguarding the needs of the majority, governments have chosen to resuscitate a discredited economic ideology that preaches more of the same deregulatory, consumption-driven, austerity-backed neoliberalism. As the social and environmental impacts of the ongoing economic crisis become ever more apparent, how long will concerned citizens be willing to tolerate a political elite that is largely self-serving and neglects the needs of ordinary people?

  1. Progressives are hot to blame “neoliberalism” while clinging to the belief there is some kinder, gentler form of capitalism that is attentive to the needs of the masses. ( See Amanda Curtis, Tom Hayden, MSNBC, etc)) When asked to explain the utter failure of European style social democracy they blather on about Margaret Thatcher and Rupert Murdoch.

    Of course there will be another crisis, capitalism requires crisis, capitalism is the crisis, whether you have a developed welfare state or a dog eat dog jungle. The imperative to grow means there will be periodic re-sets, otherwise known as “creative destruction”, no matter how regulated the capital flows or how progressive the taxation. Luckily, there is something called war to get us back to economic growth. Get used to it.

  2. Turner

    So can you run for senate in Montana by arguing for the outright replacement of capitalism? Of course not.

    Is it possible to elect people who will regulate capitalism so it’s less harmful. Yes, we can.

    • lizard19

      you can’t run without big bucks, and big bucks corrupts, so there’s that.

      • Turner

        I know it’s hard to elect someone who doesn’t have money. Part of the problem is how candidate information is communicated.

        TV stations make a lot of money on 30 second political ads. They bear no responsibility for the veracity of these ads. Or, for that matter, ads by restaurants, car dealerships, or treatment centers.

        A the same time, TV licenses are granted, supposedly, on their performing some public good. Profiting from political spending is a private not a public good. I think the FCC, if they wanted to, could require stations to hold political ads up to some sort of scrutiny. Maybe they could require ads making claims about political opponents to give the targeted opponent some time (maybe 30 seconds for every five minutes of ads against him) to rebut the claims.

        Another thing that interferes with candidate information is college policies that don’t allow political speech on campus. I’d like to approach students at UM-Western with information about the candidates I support. But if I tried to I’d be forcefully escorted off campus.

        There are posters all over campus for Homecoming King and Queen but no posters for Daines or Curtis.

        No wonder so few eligible voters vote. Many don’t even know there’s an election coming up.

    • JC

      “Is it possible to elect people who will regulate capitalism so it’s less harmful.”

      I’d offer here that the goal of economic reforms would not be to make capitalism “less harmful.”

      The whole welfare economic system is geared to make being poor and downtrodden just harmless enough so that the prols don’t revolt. And so that the oligarchs can continue to amass power and wealth. If a little less harmful is what is needed to keep the pitchforks at bay, then we do things like invoke the ACA, or allow lgbt folks to marry, or decriminalize pot (and we all know that a stoned hippy is harmless… right?)

      The wealthy and corporations love regulations. It gives them a predictable system within which they can capture the regulators to do their bidding.

      And even if we could elect someone that would attempt to restructure our political and economic systems, to paraphrase an old 60s tune: “One is the loneliest number that you’ll ever see!”

      Could we get a majority of the House and a super majority of the Senate to line up with the president to basically undercut the whole system of power running this country? Never.

      • How are those CDC regulations working out?

        • You seem incapable of answering an argument directly, instead shooting sidewinders that are somehow (in your mind) poignant and profound. Did Limbaugh talk about CDC today?

          (Going to five-star myself here.)

          • I’m the only in these threads who’s held to more rigid standards. Meaning of course others can pontificate on the previous authors comments with wild interpretations and conspiratorial rants and yet when I expand on a nugget the long knives come out.

            The response above was to the larger issue, that governmental intrusions into the marketplace and currently health care more often lead to diasterious results.

            The CDC is a perfect example. They dictated the protocol of procedures of handling Ebola in a hospital setting which got the nurses sick. And the newly appointed czar is a political hack.

            Quoting RR, ““Government is not the solution to our problem; government is the problem.” Which in itself may support JC’s point of crony capitalism and lambaste Liz’s more tiered regulations.

            Finally, in Billings, Rush doesn’t air on Saturday.

          • You are not held to high standards. People merely respond to you in frustration due to your annoyance factor, your throwing out links and comments that do not get to substance. You’ve got your core beliefs, which appear to me not to have changed in at least 49 years, unaffected by evidence, to wit:

            that governmental intrusions into the marketplace and currently health care more often lead to disastrous results.

            That is not true, and you’ve been advised on countless occasions to view in depth the health care systems of other countries that are either government-run or supported, and it has no effect on you. You refuse to look at the evidence and alter your views which are written in stone, and wrong. And you’re the last to know.

            Ebola is another interesting case, as there is bigger game afoot. If you look at the CDC website, you’ll find that they are telling us that Ebola is not a problem or threat, but other noisy voices in the larger media interfere, using Ebola to introduce a new scare into the American public (which is working on you). The calm voices of CDC are handling it correctly, but there is interference from other places. Why?

            You don’t know, cannot know becasue you cannot get past your idioitc and thoughtless 1965 Randian notion that government cannot perform useful public functions.

            Anyway, stop your whining about being mistreated and man up on these arguments, bring thoughtful and directed responses into the debate, and you’ll find that people treat you fairly.

            • The “picking on” speaks more to ideologically favoritism than being thin skinned. Idiots can get a pass here as long as they tow the line.

              As far as other countries “free HC” it seems to me than long waits, inferior care, death panels, abortion furnaces, less innovation/R and D out weigh a free market system especially for the dumbed down masses. Insert quote, trading security for freedom delivers neither.

              The CDC did provide the rules of coverage for those nurses and they were wrong. They also allowed an infected doctor his nights on the town and the nurse’s plane rides. So lax were these protocols that both NY and NJ enacted their own rules to supersede the CDC, where they can now return to their efforts in promoting gun control.

              This next election does not hinge on specific fear on an Ebola outbreak. It’s based on incompetence, plan and simple.

            • As far as other countries “free HC” it seems to me than long waits, inferior care, death panels, abortion furnaces, less innovation/R and D out weigh a free market system especially for the dumbed down masses.

              This is just ignorance on display. Those are right-wing talking points, probalby Limbaugh, though I knwo there are many. This si why you drive people nuts – you’re impenetrable. I said you’ve never looked at the evidence. I stand by that assertion.

              You know even less of CDC or the bigger reason why Ebola would be used to scare your silly ass.

              This is why you don’t get the respect you think you deserve. It’s not ideological. It has to do with your insulation and impenetrability. Everyone here, including idiots who tow [sic] the line” knows more about health care, Ebola, elections, foreign policy, “capitalism” than you. You’re a product of reactionary right wing talk radio, nothing more.

              • Really? When Cuba says its HC is the best in the world you swallow. The other nations who have fooled its subjects into believing its care supersedes private, you gush. And just reports these unbelievable stats of quality care? The rulers themselves, along with the brown nosed lapdog media.

                Let’s review the lies, shall we? We were told there’s no WMD’s, false. We were told the F and F wasn’t a gun running conspiracy, delayed TP applications, Bengazi was a Utube creation, Govt. care like the VA doesn’t kill it’s patients, open borders are good for us along with $18T in debt, global warming/CCC exists.

                While when a oil company says fracking is safe you erupt in spittle enhanced denial.

                Look in the mirror Mark. Should be easy for you.

              • Step one” Rush says it. Step two: You repeat it. That’s just utter, unintelligible nonsense you wrote there, collected impressions, stereotypes, prejudices,none of it the result of skeptical inquiry.

                You are also up to your elbows in confirmation bias. We all struggle with it. You seem to embrace it.

                How would you know what I think about anything? You don’t read, by your own admission. If you did, you would know that I’ve never written the word “Benghazi” anywhere. I don’t give a shit about it. Never did.

              • WTF? Where did that come from? King of the non sequitur strikes again?

                I don’t give a shit if you get your news from a fortune teller. If you get your news from mainstream American sources, you’re getting the mushroom treatment.

                Liberals go to NPR and the Daily Show. No different. Those are distinctions without difference.

          • I keep forgetting to link to this thread.

        • JC

          First off, Swede, you’re talking apples and oranges here. The CDC puts out “recommendations” on ebola, not “federal regulation” like what I was referring to. EPA, OSHA and DOT put out the regs on ebola. Do I need to give you a primer on Federal Regs as promulgated in the CFR? I used to have to read and follow certain ones for a job I had almost 30 years ago, so I got to understand the process very well.

          Having said that, obviously the recommendations haven’t worked out for certain individuals very well. Of course, instead of being a problem, that may have just been a “feature” that was intended to invoke some fear into the populace.

          And what are Senators Hatch and Warren doing? Writing “bipartisan” legislation to inject a ton of money into the military-health-industrial complex. I’m sure there’s a couple of corporations that are going to be salivating at the prospects of getting a few cool billion to work on ebola.

          • Your response is an deflection in itself. I don’t need to reiterate how f’ed up this govt is, Sen. Hatch and Warren included.

            Call it a guide line, regulation, or even a suggestion. The persons involved looked to them for guidance and they were inadequate.

            • Steve W

              Just make stuff up and call it shinola guide line, shinola regulations. Just keep making stuff up, Swede. And call it whatever.

  3. Assume, just for sake of argument, that it is possible that a person of high Integrity and intelligence can clear all of the hurdles, collect the necessary money to run clever 30-second ads and still maintain her integrity, and win the election.

    What next? Democrats do not hold their people accountable. In fact, they turn off politics the day after the election, and don’t turn it on again until the next round.

    Suppose that Curtis wins. Even if she is a person of high intelligence and integrity, once in office she finds herself under pressure to do things that are against her moral codes. And yet no one has her back. There’s no reward for doing the right thing, for standing up to the impressive powers already in place when she takes office.

    Worse yet, she will be rewarded for doing the wrong thing. She’ll have more campaign money than she can know what to do with, and the press, owned by the same people who finance her campaigns, will leave her alone, even if corrupt. (None of Conrad Burns’ corruption was ever uncovered by Montana media.) All of the incentives work against her character and morals.

    This is all that ever happened to Markinee, Williams, Burns, Tester, Baucus and all the others – once elected they realized they were free do do the wrong thing, and would never held accountable. So they went rogue, became corrupt, and were assured that they could hold office as long as they continued to please the money people.

    I fail to see where anything short of a massive restructuring of our political system, impossible via party politics, can remedy our corruption. That’s hard in regular times, but man, during football season, forget it.

    • Turner

      The comment I hear most from my friends is that Amanda Curtis is an authentic Democrat. Most rank and file Dems feel that the party has become too wimpy, too corporate, too Republican.

      There’s no need to assume that Curtis, should she win, will be corrupted. I think that some predicting her corruption are merely projecting what they might do in her place.

      • I don’t know her, but assume that she, like most who enter politics, did so for honorable reasons.

        What I am saying is that because of money in politics, because we do not have a burrowing press, and because Democrats do not hold office holders accountable, if she were to win she would soon find that there were no rewards for doing the right thing, and plenty for doing the wrong thing (lots of campaign cash, no primary opponents, no scandals, weak general election opponents … These things are not happenstance. They are the rewards for corruption.)

  4. Eric

    Interesting article – I’m not sure when interest rates will go up, but I’m really glad I didn’t buy gold at $1800/oz a couple of years ago, since it’s traded as low as $1196/oz last week.

    • JC

      The goal with gold is to have something to trade when the paper market crashes, not to make money off of it. Of course, that’s assuming you believe in a gold-backed dollar system in the first place.

    • Gold has no intrinsic value, but does not rust or deteriorate over time. It also was limited in quantity and so became a medium of exchange.

      These days its a shelter in a storm. People run to gold when it looks like markets are about to collapse. $1196 to me looks like a good jumping in point, as these stock and bond bubbles cannot last forever.

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