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.."
WORLDWIDE ECONOMIC CRISIS - MY SCENARIO
[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!
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