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Worldwide Economic Crisis

"In a few years, the market will be flooded with real estate because heavily indebted home builders will sell at any price.. Americans are buying things in Japan and China they don't need with money they don't have.. Everything must be done to reduce dependence on oil.."

By Elmarion

[This article published Dec 9, 2004 is translated from the German on the World Wide Web,  http://f17.parsimony.net/forum30434/messages/304789.htm.]

Caused by the globalization pressure, overcapacities, savings pressure and consumer strikes, the deflation in the next years will threaten our economic system. Prices will fall and labor will become cheaper and scarcer with consequences for the social systems. Later the deflation will probably pass into inflation when the state bankruptcy becomes acute and the price pressure increases from the raw material side (above all through scarce oil).

Whoever wants to buy a house, for example, should wait until the cement dries (the special offer punishes the one who buys too early). In a few years, the market will be flooded with real estate because heavily indebted homebuilders will sell at any price. Real estate could conserve value when inflation comes.

The succession of deflation and inflation already occurred once before the Second World War. While there may be no new world war, German army deployments in the interior are likely when the "systems" are no longer supportive and the middle class falls into an existential panic. Citizen surveillance is already planned as well as the dulling of people through "tittytainment," media trash, glossing over facts and "weapons of mass obesity."

The timing of this development cannot be determined. The "deflation tanker" is still sluggish...

We liberated the world from communism. Now the deregulated forces put us under a deflation pressure and become rivals on the raw material markets. The Chinese work for 70 cents an hour; they hardly know any social security and environmental standards... We cannot (even approximately) close this cost-difference through reforms. Little reforms operate like bicycle brakes on ice.

We are in a treadmill in which every developed society falls in the long run (like ancient Rome). Free enterprise systems need constant growth because of the interest pressure (one must always pay back more than one borrows). However constant growth devours itself at the end or strikes limits. The universal law of decreasing marginal utility is in force. The hangover comes sometime or other with beer consumption and with economic growth. Cancer cells that grow exponentially in their host also become victims of their excessive growth at the end. There are limits for everything. Thus it is logical that threshold countries have more growth potential than faded Germany. My 8-year old son has more growth potential than I have. Reforms are admonished because we have now obviously reached limits concerning indebtedness and the range of social systems. Without drastic reforms, the systems crash. However through drastic reforms, the circulation is also strangled. If everything in Germany is "cut in half," the systems (pensions, health care, unemployment assistance and income support) cannot survive. The budgets of the country, territories, communities, businesses and private persons will also collapse. For example, cutting pensions produces deflation pressure since domestic demand takes a dive. Everyone is somehow right and wrong because squaring the circle is impossible.

It is right we must save and lower costs. It is also right that cars cannot buy cars. It is right according to Keynes that the state should accept debts as a substitute consumer in weak phases and invest to prevent deflation.

It is also true that debts and interests have long weighed us down. I fear there are no solutions outside of drastic contraction and system breakdowns stipulated by the "normative power of the factual." This process has already crossed the "point of no return." Without repairing the system error "compound interest," every system must hit the wall sooner or later.

To "market" anything, an enterprise needs capital. It obtains this capital on the capital market, as a rule through the commercial banks. Through interests and compound interests, more and more must be repaid than the investor borrowed. The entrepreneur must gain this surplus value that is paid pack to the creditor as a risk- or opportunity premium (something different was always possible with the borrowed money). To avoid going bankrupt, this investment must produce growth. Since this spiral reaches a limit on account of the exponential effect (chain letter system) sometime or other (historically every 70 years) because markets are satiated and debts and assets accumulate at different poles, the system must collapse at the end.

The end seems near. The mass purchasing power obviously goes up in smoke since "the mass" must gain more and more for the interests of the capital owners. Unlike labor (one must earn one's livelihood), capital is not subject to any supply pressure. One financial bubble forms after another (new economy, stocks, real estate). To prevent this, idle and speculative capital assets must be taxed. Motivation for investing in the economic cycle is only possible this way. An increasing concentration of power and influence in a few multinational corporations ultimately reap vast inequality and economic demise. Small- and medium-size businesses and employees are shaken by globalization while international corporations grow to political oligopolists or monopolists that flatten everything from the existential necessities of many market actors to cultural identity.

Politics can do what it wants - the interest-vacuum cleaner leaves us dry so that deflation or stagflation gains the upper hand at the end. This process has already been running at full speed in transition to the exponential phase. For 15 years, Japan has been stuck in deflation and hasn't perished only because the Japanese have saved massive buffer stocks. Neither the Europeans nor even less Americans have this rescue boat. Their capital holdings shrivel.

Too little is invested because there are over-capacities and the middle class can hardly obtain credits. "Whoever wants credits must offer securities three times as great. What was regarded earlier as a security (for example, company property) is often regarded as a joke that makes everybody laugh. Whoever needs a credit and would take it doesn't receive it. Whoever receives it doesn't need or take it."*

Demography (child shortage) operates as a multiplier of our problems just like the decline of our innovation advantage and raw material dependence, especially the "peal-oil problematic." What is central is not the moment when oil runs out for us but when the cheap, easily accessible oil runs out and the first supply problems arise. Fossil energy provisions are finite. An extravagant lifestyle with no regard for sustainability can only last for a limited time. Distribution battles have already begun. No power bloc will drop out without a fight in the end game.

In addition, there are plundering costs (global warming). The environment is sold off dirt-cheap. There are also costs that can still be shifted to the future and in the past largely arose in other continents. The western "way of life" cannot be maintained. When one plunders t6o the last drop, murder is committed on the future and the present. We need a global project of "energy efficiency" instead of blowing scarce resources for oil wars.

The financial crisis and the oil crisis are symptoms of a system that needs constant growth in order not to collapse. We are witnessing the last phase of the indebtedness race. The first bubbles have already burst. The new market no longer exists. Many jobs in Germany are precarious. Four or five years of deflation will be enough to blow out the lights. For many, this will happen much quicker.

The industrial base and the support of our value-creation chain will be treated with the wrecking-ball. The only ones that (still) grow are discounters and monopolists. The majority of market actors applies the brakes and saves. What one saves another loses as a sale. Visit a property market and see what is still "made in Germany". Dumping prices are everywhere! Nearly every day, firm relocations and personnel cuts are reported.

A service society without a strong industrial base cannot provide the necessary growth rates for system stabilization. The attempted solution according to the motto "You cut my hair and I will repair your fence" is like a perpetual motion machine. The same corporations and politicians who once loudly spoke of a "service society" apply the axe and cut services for the sake of short-term profit. In the meantime many services like call-centers also move to foreign countries or are rationalized away through software.

Dough for bread is imported from Poland and sold off dirt cheap in Germany. Discount bakeries and discount pubs appear. Even if the "greed is good-madness" slackens, the savings pressure will continue. We will not be able to produce cheaply in location Germany. The present structures and costs of living necessary for our economy do not allow this even if we tighten our belts even more. When the innovation capacity is leveled worldwide, the prosperity levels will also adjust. A drastic adjustment "downward" imminent for Germany and other western countries includes the risk of "dismissals."

Tax revenues are increasingly lost to the state. Feeble-minded ideas appear like abolition of holidays. Perhaps using retro-rockets could slow the rotation of the earth down and the day lengthened to 36 hours to work longer. The shot exploded downward as expected in increasing tobacco taxes. The "Laffer-curve" was confirmed. Tax revenues have dissolved in thin blue air and been skimmed off. If the state had not become heavily indebted exponentially for many years (a chain letter system) to compensate the growing value-creation deficit, the shot would have been pleasurable. Through the indebtedness, the sinister growth over many years could be shifted to the future where the height of the fall would be ever greater until the explosiveness of the compound-interest effect will be heard at the end. The crucial question is: How long can additional state indebtedness grow faster than the gross domestic product?

The "reunification subsidies" have delayed the deflation pressure in Germany several years. The mounting debts will never be repaid and will end with inflation in my opinion.

We have a long boom behind us that ended with the "new economic mania." The consequences have not been worked out even approximately. The economy is kept alive artificially as in the US. The money press is already started up there. Americans buy things in Japan and China they don't need with money they don't have. Almost nothing consumed in the US today can be produced at a better price in this country. Hardly anything produced in the US is a good value and even roughly competitive. The consequences that will also impact Germany are clear today in their beginnings. The result is a gigantic foreign trade deficit of the Americans. China and Japan buy American government bonds as compensation and to maintain the circulation. However these purchases are no longer enough which puts the dollar under pressure. What is involved here is a chain-letter system with an expiry-date. If this pump comes to a stop, this could be the "trigger" for the knockout in Europe. The bursting of the real estate bubble in the states would have a similar effect. What we see now for example in the stock market is an "echo rally" driven by the "fair weather generations" who cannot imagine anything but constantly increased prosperity and larger warehouses interrupted by little "consolidations."

The US seeks to solve its economic problems in geo-political wars. "Scraping the barrel" already occurs. Cheap oil becomes scarcer more quickly than many are aware. Everything in our power must be done to reduce dependence on oil, first above all through saving and efficient use and later increasingly through technical alternatives. Obviously not much time is left whether the availability of "cheap oil" now amounts to 20, 50 or 60 years.

Our politicians pretend that the upswing is right around the next corner. But they secretly make things worse with new emergency laws undisturbed by the highly celebrated democratic media. Although they were protestors against the 1968 emergency laws, they replace the old "economic security law" with a much stronger "economic security decree." This was passed surreptitiously on 11/25/2003 in the Bundestag and came into force on August 13.

Regional economics could experience a new upswing. Foundations for this should be laid now. Globalization strikes its limits. Regional networks could prevent an abysmal fall. Investments must be withdrawn from air bubbles and returned to the (regional) bedrock of facts. Germany becomes a wilderness if we face Asian competition one to one!

homepage: homepage: http://www.mbtranslations.com
address: address: http://www.foodfirst.org

When capitalism fails... 11.Aug.2005 09:21


When capitalism fails altogether, the bubbles will break and millions of people will be thrown out of work, and the governments will go into default and not be able to pay social services. When that happens, it's time for the little people of the world to seize, hopefully peacefully but by force as a last resort, the business and industry that is used to produce houses, food, medicine, whatever. A socialist revolution, I believe, will be the only way out of the mess we are getting ourselves in!

Limits 11.Aug.2005 15:48

George Bender

In the 1970s President Carter irritated people by talking about limits. Somewhat ahead of his time. After the 70s people became convinced that there were no limits. Sometime in the 90s I read that "the world is awash in oil." Now reality is slowly setting in. The collapse of the housing bubble will probably lead to the next recession and a change in thinking. We need to individually prepare by getting out of debt and saving money. Although deflation may cost many of us our jobs, it would also help us by reducing prices.

The U.S. has a huge potential for reallocating federal government resources. We could drastically cut the amount of money we spend on the Defense Department and wars. Likewise prison expenses to support the moronic war on drugs, which is mainly a war on marijuana. Spending could then be increased on social services like education, Social Security, unemployment, Medicare, Medicaid, food stamps, welfare etc. This would help make up for a decline in employment and wages, and would also help to stabilize the economy, since demand for necessities would be increased.

money solves everything! 12.Aug.2005 06:45

not really

When the actual physical commodities that keep modern civilization running are disappearing and the entire infrastructure of our lives is falling apart, stockpiling little green pieces of paper is not going to solve anything. You can't eat money. At best it might put you in a better position than your neighbors in a fight for the table scraps when the party's over.

to George Bender 12.Aug.2005 10:45


George, interesting post, and I agree in a general sense. But could you help me out? I don't understand how you conclude that the demand for necessities would be increased.

to not really 12.Aug.2005 10:59


Suppose the economy does collapse. Maybe money won't be worth a thing, but a medium of exchange (gold, money, bullets, whatever) will probably persist. I don't think it's realistic to expect organized society to fall apart to the degree that there is no longer an exchange of goods. As long as goods are exchanged, it's not realistic to expect that a society would lack a convenient unit of exhange. Look at Russia. Look at Niger, even. Bartering exists, but money is still around, and it's a lot easier than bartering since I no longer have to get my hands on whatever it is that some guy down that street wants in order to give up what he has.

But you're right. At the end of the day we just need to fill our stomachs and keep warm. Maybe I should become a slum lord with a grocery store!

NOfta 12.Aug.2005 14:04

George Bender

By "demand" I mean not just the need for necessities, but the ability to buy them.

The main purpose of safety net programs is, of course, to keep people alive in bad times. These programs also help stabilize the economy.

Like any complex system, economies have feedback loops built into them. A recession can be self-accelerating: people lose their jobs, then have to depend on a greatly reduced income from savings and unemployment, so they spend much less, even on necessities like food, which reduces the income of business people, who lay off more workers, which further reduces demand, and the economy spirals downward.

Safety net programs like food stamps can interrupt this feedback loop spiral, putting money back into the economy. They help to maintain demand. People think of these programs as charity, but they pump money into the local economy, and the money has a multiplier effect as it circulates.

Money given to poor people, through safety net programs, will be spent, whereas tax cuts given to the rich and middle class are likely to be saved or invested, since they already have what they need. So it's more stimulating to the economy to give the money to poor people.

thanks 12.Aug.2005 16:35


That's a good point.

I consider the military-industrial complex to be somewhat of a stabilizer in the sense that it's a huge employer on the taxpayer's dime. It keeps our economy artificially large since we don't really need to spend all that money on missiles (though I wouldn't want to ditch the military altogether).

On the other hand, if we re-allocate that military money into "perishable" things that people need like healthy food, medical care, energy, education, and such, the effect of economic stabilization is even greater because dropping a missile doesn't circulate wealth back into the local economy whereas the net product of government "safety net programs" is a dollar sent back into the local economy.

I guess I didn't say that very well. Give a dollar to a war profiteer, and only part of that dollar goes back into the local economy. Give a dollar to a poor person and it all goes back into the local economy. Also known as: trickle down economics doesn't work.