Most Popular

Depression 2009 The Largest Train Wreck in Economic History

Economics / Great Depression II Jan 06, 2009 - 10:52 AM GMT

By: Darryl_R_Schoon

Change is a constant whether perceived or not; but only when we see it do we believe it has occurred. Then, it is too late.

The phrase, speculative bubble, is used to describe the financial tumescence that characterizes the often manic unfounded rise of asset values. The phrase, however, is inadequate for it fails to convey the destructive aftermath that follows; for such purposes, train wreck, is a better description. In 2009, the largest train wreck in economic history is about to occur.

Unfounded manic speculation, e.g. the 2002-2007 real estate bubble, is not new. Similar manic speculation occurred in internet stocks in the 1990s, radio stocks in the 1920s, as it did in railroad stocks in the 19th century and in tulip bulbs in the 17 th century. Manic speculation is as human as the markets.

THE DELUSION OF RATIONAL MARKETS

The first stock exchange in the world was the Amsterdam Stock Exchange, established in 1602. Amsterdam was also the site of the world first speculative bubble, Tulip Mania, which appeared shortly thereafter, 1621-1636

This is from Wikipedia's recounting of Tulip Mania:

http://en.wikipedia.org/wiki/Tulip_mania :

.. traders signed contracts before a notary to purchase tulips at the end of the season (effectively futures contracts). Thus the Dutch, who developed many of the techniques of modern finance, created a market for durable tulip bulbs.

Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers were not prosecuted under these edicts, but their contracts were deemed unenforceable…

As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus [a tulip-specific virus that caused more spectacular colored tulips] . By 1634, in part as a result of demand from the French, speculators began to enter the market.

In 1636, the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold. Traders met in "colleges" at taverns and buyers were required to pay a 2.5% "wine money" fee, up to a maximum of three florins, per trade.

Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with the individual counterparties rather than with the exchange. No deliveries were ever made to fulfill these contracts because of the market collapse in February 1637…

The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without the valuable mosaic virus also began to rise in value. The Dutch derogatorily described tulip contract trading as windhandel (literally "wind trade"), because no bulbs were actually changing hands. However in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.

It is clear that today's “complex and sophisticated” markets are not as unique as some would believe. What is new, however, are the circumstances and consequences of the current collapse. Today, financial markets are a global phenomena; and so, too, will be the consequences.

The invention of the stock market in Amsterdam in 1602 combined with the issuance of the Bank of England's credit-based paper money in 1694 was to change the course of human history for the next three hundred years. That epoch is now ending.

The world that credit gave rise to is collapsing as is its credit-based foundation, turning like the proverbial carriage into a pumpkin at midnight, as the hoped for financial fairy tale turns instead into a nightmare of defaulting debt in 2009.

The collapse of global markets and global trade is a sign we have reached the end of this epoch. The current financial collapse is the beginning of its end. When it is over, so, too, will be the era it spawned. Human history moves in waves. Another is about to begin.

ON THE TRAIL OF JOHN LAW

Last year during the Christmas holidays, Martha and I toured the Bank of England's museum on Threadneedle Street in The City of London, the original cistern of the global well of paper-based credit. Last year, the mood in London was still hopeful. It is no longer.

This Christmas holiday, we followed the trail of John Law from Amsterdam to Paris to Venice . John Law, a Scottish banker and economic theoretician was well acquainted with Amsterdam 's financial markets before introducing paper money and subsequent financial ruin to the nation of France on his way to escape, exile and eventual burial in Venice .

It is perhaps appropriate than John Law is buried in the Chiesa di San Moisè; a church in Venice now surrounded by fashionable stores such as Gucci, Fendi, Valentino, Prada, and Versace, luxury retailers who profited handsomely from the excesses of the recent global bubble.

But just as the speculative bubble of Tulip Mania presaged today's markets, the story of John Law has particular relevance to the current collapse. The combination of financial markets and paper money is a volatile mixture and none was ever so destructively volatile as John Law's introduction of paper money to the financial markets of France .

John Law believed it was not necessary that money possess intrinsic value such as did gold or silver, money could be fiat, paper notes issued by government edict, an idea resembling those later promoted by American economist Milton Friedman.

John Law's disastrous experiment with paper money combined with his role in the Mississippi Land Company, a stock bubble on the scale of Tulip Mania, eventually transformed France and much of Europe into an economic wasteland leading eventually to the overthrow of the French nobility.

John Law's destructive influence on France has been exceeded, however, by today's extraordinary über- mixture of central bank credit-based paper money, excessive risk and leverage and the globalization of markets—a volatile mixture whose fragility, extreme size and combustibility are now about to destroy the 300 year old world built on debt and paper money.

ON THE SELF-CORRECTING NATURE OF IRRATIONAL MARKETS

In November 2006, Professor Antal Fekete addressed the 2007 class of MBA students at the University of Chicago , the then bailiwick of Milton Friedman, the well-known academic apologist for fiat currencies.

Professor Fekete was to deliver a scathing rebuttal of Friedman's theories. The professor, a long-time proponent of the gold standard and its role in monetary affairs, believed that John Maynard Keynes on the left and Milton Friedman on the right had given intellectual comfort to policies responsible for today's monetary problems—the elimination of gold from the international monetary system.

But Professor Fekete did not deliver his address criticizing Friedman. The day before he was to speak, Milton Friedman passed away. Instead of criticizing Friedman, Professor Fekete instead warned the students about the fragility of today's paper markets, markets that had become an extraordinary inverse pyramid of derivatives (then $480 trillion, now $668 trillion) and potential defaults built on irredeemable promises.

The students gave little thought to the Professor's warnings. They had prepared too long for their chance at the brass ring offered by Wall Street investment banks, the wealthy moneychangers in the temple of fiat currencies.

As about-to-be graduates of the prestigious MBA program at the University of Chicago , the students had much to expect upon graduation. When the Professor delivered his remarks, the August 2007 credit contraction was still nine months in the future; close, but still well outside the world of possibilities the students believed real.

One student asked:“Even if you're right, won't the markets self-correct?”

To the true-believers in paper money, paper markets and paper profits, self-correction was the accepted ideological panacea to whatever the markets would do.

That student never expected that the coming self-correction would wipe away his expected future. That instead of a large starting salary with significant bonuses at Lehman's, Bear Stearns, Merrill Lynch, or Morgan Stanley, he instead would be wondering how he could repay his student loans when the bank he believed would be his future home had collapsed or merged with another institution to avoid insolvency.

At the time, such possibilities appeared improbable if not outright impossible. Today, they have become the precursors of what is yet to be. A world so at odds with yesterday, that few can imagine what will happen next.

Dmitry Orlov is one of the few that can do so.

DMITRY ORLOV'S FIVE STAGES OF COLLAPSE

Dmitry Orlov, author of Reinventing Collapse; The Soviet Example and American Prospects (New Society Publishers, 2008), watched the collapse of the Soviet Union in the 1990s and predicted a similar crisis would later occur in America .

Buckminster Fuller had also predicted the collapse of the Soviet Union and America in 1981— the twilight of the world's power structures— in his book, The Critical Path (St. Martin's Press, 1981). Both nations crippled by excessive debt brought on by excessive military spending (what Bucky called killingry ) were fading behemoths whose passing would make way for a better world.

Orlov writes:

Having given a lot of thought to both the differences and the similarities between the two superpowers - the one that has collapsed already, and the one that is collapsing as I write this - I feel ready to attempt a bold conjecture, and define five stages of collapse, to serve as mental milestones as we gauge our own collapse-preparedness and see what can be done to improve it… 

Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed to resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm…

Stage 1 in Orlov's scenario is well underway. The vast majority of investment and commercial banks are now insolvent, propped up and still in business only because of recently granted government guarantees designed to prevent workers from realizing their life savings are in imminent danger.

In Orlov's Stage 1, savings and access to capital are lost. In modern economies, capital, i.e. credit-based paper, has been substituted for real money, gold and silver. Credit-based paper money is no more real money than an image/belief in god is GOD. Savings, in mature credit-based economies as the US and UK are now virtually non-existent.

Capital is but thinly disguised credit and credit is now rapidly disappearing, a condition that will be fatal for those addicted to its continuing presence, e.g. corporations, governments and workers, especially in the US , UK , Europe , etc. New loan activity has fallen 91 % year to year. The consequences will be unprecedented and extraordinary.

In 2009, the economic train wreck now in motion will occur. It will not be a one time event. It will be a successive series of protracted crisis in conjunction with continuing breakdowns in access to credit, goods and services, an escalating and cascading series of pre vio usly unimaginable events.

In today's monetarily debased markets, credit has become essential for all commercial activity. This dream of bankers is the nightmare of producers and savers. Credit becomes compounding debt which becomes bankers' profits also resulting in increasing defaults and bankruptcies. Modern economics is not rocket science. It's an abomination on the economic body of mankind.

Stage 2 in Orlov's scenario will follow in the wake of Stage 1. Stage 2 is closer today than it was yesterday. The end game predicted by some will now become the reality for all. The predicted events have no basis in recent memory for those who will be affected.

The three hundred year old world founded on credit-based paper money is ending. The world's central banks which substituted paper for gold are finding themselves unable to solve the problems their fiat money has created. The consequences are far greater than people can imagine—a limitation that will not prevent them from happening.

GOLD, SCISSORS, PAPER

We who have grown up in the world of credit and debt have no memory or real understanding of the role that gold played in monetary affairs prior to the substitution of central bank credit-based paper for sound money. When the connection was cut between gold and money, few understood the consequences, consequences which are now upon us.

Uncle Milton and Uncle John
Gave much thought to what was wrong
But their bright ideas about the public purse
Have now made things so much worse

Discussion of the monetary role of gold and silver has been expunged from discussion in today's universities. One of the world's great economic thinkers whose writings consistently predicted today's collapse, Ludwig von Mises of the Austrian School of Economics was never accorded a paid position in an American university.

Although given the status of a visiting professor by New York University , Mises was not paid a salary and had to depend on outside assistance in order to survive. That far lesser teachers were salaried in America is an indication why today most American economists are unable to adequately explain or solve our economic problems.

PUTZES FROM PRINCETON

The influence of the US military-industrial complex over academic discourse, while exceedingly effective, has come at a considerable cost to the nation. President Dwight D. Eisenhower warned of this possibility in his Farewell Speech to the nation in 1961. Freedom and intellectual inquiry are not unrelated—nor are tyranny and blind obedience.

Professor Fekete's intended address at the University of Chicago was titled Where Friedman Went Wrong and included the following quote from Professor Walter E. Spahr, Chairman of the Department of Economics at NYU from 1927 to 1956:

What is the meaning of a gold standard and a redeemable currency? It represents integrity. It insures the people's control over the government's use of the public purse. It is the best guarantee against the socialization of a nation. It enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless. It tends to force standards of honesty on government and bank officials. It is the symbol of a free society and an honorable government. It is a necessary prerequisite to economic health. It is the first economic bulwark of free men.

Professor Spahr's eloquent words are a timely reminder of the importance of the gold standard and do much to explain how we have arrived at our current circumstances. The gold standard is the constraint upon bankers and government that would have prevented the disaster that is now upon us; and, now in 2009, it is too late to undo what they have done.

Professor Spahr understood that the essential role of gold in monetary systems is to prevent bankers and government from overstepping the bounds of sound governance and prudent banking, bounds, which if undone, will bring ruin to the nation and to its people.

When President Nixon severed the ties between the US dollar and gold—as encouraged to do so by Milton Friedman—the very fears of men such as Spahrs and Fekete were set in motion. Now, three decades later, the results are in.

Financial markets are frozen, global trade is slowing rapidly, governments have debased their now fiat currencies and the collective excesses of government and bankers have brought the world to the edge of another Great Depression.

The warnings of those such as Spahr and Fekete were not heeded. Indeed, they were not even heard. The suppression of open dialogue and issues contrary to the purposes of corporate, banking and government interests carried over into colleges and universities as well as the media. It has cost America dearly.

Only When Freedom Is Lost Do The Reasons For Its Absence Become Clear

For those interested in the critical role of the gold standard, Professor Fekete will be giving a series of lectures March 27, 28 and 29 in Hungary . The gold standard as well as the backwardation of gold and silver and the coming depression will be discussed. For information, contact GSUL@t-online.hu . I will also give a talk at the conference.

THE LEGACY OF JOHN LAW
VERSUS
THE FUTURISTIC VISION OF R. BUCKMINSTER FULLER

I was fortunate to have met Marshall Thurber in law school in 1966, a friendship that has lasted far longer than my abbreviated tenure at law school. I am especially fortunate that Marshall later became a close friend and important supporter of Buckminster Fuller and his work.

In November, during a discussion about the current crisis which was predicted by Fuller more than 25 years ago, Marshall recommended I read Fuller's final book, Grunch Of Giants (Design Science Press, 1983).

Out of print and offered at the time through Amazon at a collector's price of $199, Marshall offered to send me his original signed draft if the book was not readily available. Fortunately, Marshall then directed me to the website of the Buckminster Fuller Institute where its price was $17.95, see http://bfi.org/?q=node/406 .

I finished reading Fuller's extraordinary work, Grunch Of Giants , on Christmas Day as Martha and I crossed the Alps . At this time I will refrain from a personal recapitulation as the work stands on its own and readers are easily capable of reaching their own conclusions. Nonetheless, Grunch of Giants confirmed for me the greatness and breadth of Fuller's vision.

After reading Grunch of Giants I could not help but see the clear distinction between two diametrically opposed visions/versions of our world: At one end of the spectrum is John Law's “Scarcity Theory of Value” and at the other is Buckminster Fuller's “False Assumptions of Scarcity”

The two assumptions and theories are diametrically opposed in intent and consequence and do much to explain the difference between today's world of crisis (confirming John Law's theories on scarcity) and tomorrow's possible promise (Buckminster Fuller's belief in abundance)

EMERGENCE THROUGH EMERGENCY

Because of Marshall Thurber 's friendship with Buckminster Fuller, I am aware of Fuller's belief in “Universal Emergence Through Emergency”. It is increasingly clear that today's crisis is rapidly approaching that of an emergency—the prerequisite for Universal Emergence.

Let us stand aside and help its birth. A new and better world is on its way. Gold and silver will help in the interim.

By Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
blog www.posdev.net

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.

Darryl R Schoon Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Comments

BicycleTheif 21 May 09, 17:37	gold standard Maintaining a gold standard while the relative price of gold increases requires deflation in the dollar prices of all other goods. A combination of rising interest rates and mounting deflation would make debt increasingly expensive to repay, resulting in widespread business failures, and destabilizing speculation on the (at present) 1.3 Trillion every 24 hours currency markets about when the government was going to abandon the gold standard. Bullion marketing people never seem to mention that gold standard politicians were driven out of office in 31-33 for the exact reasons that I outline above. Gold prices collapsed along the same lines as Euro throughout 08, as a result of a decline in manufacturing demand, and will do so again, as soon as any attempt will be made to curb US national debt by cuts to fiscal spending.
OldeReb 28 May 09, 09:39	THE PENDING COLLAPSE Is it possible that the scenario you so vividly present can be complimented mathematically ?? We must identify the operation of the Federal Reserve SYSTEM as it relates to Congress and the creation of fiat money. When Congress wants to spend money it does not have, it issues securities (bills, bonds, and notes) to the FR SYSTEM and the Fed creates a line of credit (fiat money) on its accounting books and Congress’ checks will subsequently not bounce. The fiat monetary value of the security PRINCIPAL is created as a bookkeeping entry on the accounting books of the Federal Reserve. The agreement is that Congress will pay off the principal AND the interest of the security in the future. It is impossible. The value of the interest has never been created. The interest can only be paid by issuing more principal. The debt is perpetual. It can never be paid. A scheme wherein interest is paid to early investors by the funds of later investors is a Ponzi scheme. A Ponzi scheme (actually any contract that cannot be culminated) is an act of fraud and is void from its inception. The subtle mathematical progression that is inherent will be overlooked by the casual reader. As subsequent issues of securities will be required to have value deducted from the issued principal to pay for the earlier interest obligations, the effective interest on the later securities will be higher than the rate stated at the sale. As time progresses and the debt is continually rolled over, the interest that reduces the effective value of issued securities continues to mount---it is an exponential expansion. If the rolled over securities value is constant, the resultant interest will eventually consume the entire value of the issued securities. There will be no money from the securities to pay for government programs. It is essential to continually increase the issued value of securities to conceal from the public the exponential increase in interest payments, but the exponential increase cannot be outrun. The greater the issue of securities, the greater the increase in exponential growth of interest. The inevitable result is hyper-inflation from fiat money creation via securities issued to pay the interest payments. The trillion dollar deficit spending now facing posterity is the accumulated effect of sixty five years of a debt based national currency. As to the public/private ownership of the Fed, we must distinguish between the twelve Federal Reserve Banks and the Federal Reserve Board of Governors. They are distinctly different legal entities. Ref. Title 12, Sections 221 to 530. The FR Banks have been adjudicated to be privately owned (Lewis v. United States, 680 F.2d 1239) with the stock required (by the BOG) to be purchased by member local banks. However, Title 12, Section 248(j) provides that the BOG has supervisory and regulatory control of the FR Banks. The banks should be considered as mere franchisees of the SYSTEM. The BOG with 1800 employees in D.C. claims to be an agency of the government but it fails to comply with numerous parameters of an agency. The ANNUAL REPORT OF THE BOARD OF GOVERNORS TO CONGRESS required by Title 12, Section 247 for 2007 is available at http://www.federalreserve.gov/boarddocs/rptcongress/annual07/default.htm. My 2006 hard copy has been signed by KPMG accounting firm at pages 303, 313, and 319 while PriceWaterhouse signed at page 321. Considerable financial data has been compiled on the 12 FR Banks while only three pages of fluff are devoted to the financial operations of the FR Board of Governors (304 - 306). Ownership investigation of the BOG would start with detailed analysis of their accounting books. (All government agencies are subject to detailed accounting investigations by the GAO, are they not ??) Fiat money is a way to steal the wealth of the people without taxation and has been used many times. The creators of the Fed put up an acceptable façade in 1913 and Congress has used it as an open-ended credit card to buy votes with pork. The cohorts of the Fed are on Wall Street---they are not in Washington. It does not take Ivan Bronsky or Milkin to know insider information is of great value. The historic punishment of perpetrators of economic chaos on a nation/theft of the citizens’ wealth is not water boarding as some have suggested.
Traian 17 Sep 09, 09:22	mortgage problems? 1. Do you have problems paying your mortgage? 2. Have you lost your job? 3. Do you find it hard to pay for your daily expenses? 4. Are you scared that this period will reach you, and if it already has, do you find yourself unable to overcome this period? Whatever you might think, we live in a “credit crunch society”, and this why things like the economic crisis heaped. The bad thing is that while billionaires lose money, but they still live, on the other hand you get to have huge problems and you find yourself with your face back to the wall. 98 percent of the globe population do not own huge companies or are extremely rich and they are the ones who are seriously bitten by the economic crisis. They are the one who find it difficult to save enough money to overcome this period. What caused the crisis? In many ways the root of the financial crisis is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to any country. Not only in America this things have happened but in other countries too. The problem is that normally an average family should afford an average house. In reality things stay differently because a family must necessarily get a loan so that they can afford a house. The problem is that this kind of behavior kills he economical workflow. So instead of buying directly the houses, people are taking credits from the banks. So if you want a normal house, you must take a loan to afford it and then work your ass of for the next 20 years. This gets the market very slow until the point where a financial crisis like this happens. Of course there are other factors that contributed to this event but this is one of the major ones. And what’s worst is that the crisis is not even close to an end. So do you think you can overcome by taking the usual steps when facing a crisis? Nobody will remain unharmed by this period. In order to help you successfully overcome this hard period of time, I’m giving you a step by step guide that will help you elaborate a plan that best suites your financial situation. For more go to http://www.how-to-survive-the-crisis.com/
bashxstar 24 Sep 09, 10:00	depression UK All statistics and past and present information indicate that the recession has a long way to go. A whole decade or two. From recession to depression….it can happen….why……. Borrowing money now to fix the current state of economy (short term goal as everything else in politics will only make further future debts even higher then they should be especially the way the western international banks charge interests, rates never stay low…for long periods unless we become a nation that conforms to the Islamic way of banking where interest are not allowed hence their economies have low interest for life….which I highly doubt the big banks in the our part of the world will ever allow that. This huge debt burden will be passed down to a future generation who are yet to finish the primarily school. We have to think how is this future generation is going to make all this money up and if the state of the economy at that period will allow or facilitate them to do just that, they will have make very large contribution in tax from their wages, assuming that highly paid private sector jobs will be available to them in this country in huge numbers, which I will explain a later stage. The new generation that we will be relying on or passing on the debt burden will be fewer in numbers in terms of total working population, as we no the current lifestyle in the UK has been for a while is to have one or two kids some leaving it to their 40s to have kids and when they do they are not having kids like so called baby bloomers who are currently going into the retirement stage….which as you should of guessed by now that their pensions are paid by the present working population through tax and national insurance contribution for the state pension, and private company pension is paid by the present earnings of the present pension fund that is invested in stocks and shares, hence when money is whipped off the stock market where all these company have locked the employees pensions, you create what is a pension black hole!!. On top of that as the baby bloomers are now expected to live longer which will means the total payout will be much higher then any forecast made by the NHS or any government health agency/ treasury, as they will have to payout for longer time period on the other hand medical treatment cost or NHS costs will sky rocket as older people get they tend to have more medical treatment needs and the fact the current population trend suggest that there will be 3 pensioners per one adult working assuming that in the future all adults will be employed and pay their tax and is enough to pay for public services and the NHS bill. I guess someone somewhere has been working on a balance…between pension costs and medical costs. ie I have no doubts that the smoking band and other such policy is probably worked out with above two ratios in mind. For each one has such I high costs related to it, probably cost levels are as high current debt levels…which very alarming. the next major factor that can push us further into a depression is our position as a property/ mortgage lead economy and its consequences for the nation. Many have cashed their pensions or transferred most of the saving to property at the height of the property boom, hoping that it will be a nice little nest egg for them to spend from when retired, thinking that the property price will keep going up at a fast rate, however like all things, it is much dependent on the state of economy, prices can co go down to any value they were in the past, depending on the state of the economy a recession like this with such high debt levels going back to levels of the1950 depression debt levels. A house once thought to be security can now be a huge burden on the taker of the mortgage, interest rates will never stay low as they are at some point they will rise and with the rise those that are still employed and paying the mortgage will suddenly find themselves paying much higher mortgage payments which will either leave them with very little of amount of disposable income, intern affecting other parts of the economy such as retail sales etc….or losing their houses all together. This will affect millions. Like the millions already affected in the property market in the so called stabilisation of the property market we have seen in last two years 2008-2009, those that are still hanging or depending on the property market as a livelihood are in for a big surprise and soon add further numbers on unemployment counter. The other major factor intertwined with the above two factors I already mentioned is in the job creation areas. We need more private sector jobs to be created then public sector jobs and theses jobs need replace many of the jobs that we have lost and may never get those types of jobs again. Public sector jobs is funded by tax collected from the private sectors, many jobs in the past 5 years were created by government or local governments which are not sustainable, and we see the affects of that phiscally in the economy in the next few years as especially after the general election. This massive stimulus package has been great for the economy but only in the short term by keeping jobs for bit longer, but because they were short term solutions based politics, and not addressing the real problems, like the sensational news that we have now without much depth of analysis then it reasonable to believe we have bought year of good statistics for the price of ten years of bad statistics, if only politicians stop to think about themselves and really put the country first. As the stimulus package runs out and the economy will face the same problems it had before the stimulus package, unless new wave of stimulus is available and if we can afford to have them and not because on a whim of politician who wants to keep their seats. More we borrow more we have to pay back, the further in red we go and the only out is to pay it all back starting from now, hence the jobs creation is the only vital thing that will enable us out of this financial meltdown. We need really seriously look into this the creation of jobs and business development especially as we are now in a global world, we cannot afford to think locally, nationally without taking into context that we are competeting globally for business and jobs. Radical rethinking must be applied if we are going to be competitive in a world platform where technology is rapidly increasing reducing the barriers of protectionism and driving competition to extent that those that embrace the technology through people intellect and technology infrastructure and lowering costs maybe win the hearts of big multinationals, conglomerates…(meaning jobs) Just looking in the past history of UK, from the close down of coal mines and heavy industrial business that once thrived in the UK and employed many people and to its demise which probably lead to increase of a manufacturing sector rising and in the late eighties as we all now to well that came crashing down due international competition from overseas who were producing faster and cheaper, this however lead to rethinking of the UK job market, where UK then found it self becoming a service sector economy where most people were employed in what is now as tertiary and quaternary economy, people working in offices and retail which lead to us becoming a nation of shopper holics and shopping over our means leading as to a position we now as a nation, a mortgage lead/ debt based economy. Where the rise in our property value is actually our so called wealth and not the actual property. The affects of this model we adopted we are now feeling the wrath of it and will always feel it as it as become a business cycle of boom and bust, majority of society will always get busted and lose everything, as they say in gambling, ‘the house always wins’. In the UK we have enjoyed what could described as a world leader in finance and banking, where many countries have relish the UK model and expertise that could found here, many of the world biggest companies had many advantages of locating to the UK for that reason which intend gave the UK great boost especially in job creation we had in city of London. However with the recent crisis due to the financial institutions of UK and America…this may have been hampered….will the growing economies of India and china want a financial model like us or any other countries want model their systems on our systems…with that in mind we have to look at the pace of technology and its effects to national economies. There’s is a huge potential that we may be facing yet another crisis of jobs that we are losing now may never come back to the UK due to this digital technological revolution, as internet and software now play a integral part in companies operations and a source of economies of scale to be reached many of the jobs that once was not feasible to be outsourced overseas can be done so, from back office jobs, customer services, accountants, law to teaching jobs. Majority of theses can now be outsourced overseas for much lower costs, ie accountants and law jobs that require much of their time going through paper and analysing documents can be sent digitally to anywhere in the world and sent back for to countries they originated from to be signed of by one main accountant, lawyer etc. Going back to my earlier point of a lost generation. the future does look bleak unless we have radical rethinking about education, job creation and attracting business to the UK, we need more then a Peter Mandelson to save our economy, maybe we should put all the top university economics and business professors together in one room to find solutions for the future of UK. In my opinion the recession (depression) will last 8 –12 years with unemployment reaching 6– 7 million around 2012-2014. the lost generation that I refer is a generation who are will be unemployed for long periods time first of them will be educated and not find jobs and the later will be a fall out from schools that are under funded and whose parents will be unemployed growing up with poverty which will lead a social breakdown in communities and crime rates soaring all over the country. In cities This cause the neglect of housing estates as founding are cut back from redevelopment, the problem will be expiated as recent city redevelopments during the boom in housing market where space was of great value, many extra dwelling were created very close proximity to each other at the expense of social areas, where you get an area clustered in many people it only takes a few grieved teenagers and drug related activities taken up by a few to wreck an entire neighbourhood. Making some areas no go zone, as depicted in many of the late 80s movies. economistdude.blogspot
Andrew Ian Murphy 16 Oct 09, 18:43	Extra Credit I am wondering about this great train wreck...it is now October of 2009 and no such event has yet occured. There was a stimulus package, and lot's of money and credit has been created by the government, so I guess I just want to ask someone out there, will the governments actions not prevent this predicted collapse, or will it just be delayed, maybe through an inflationary spiral?