Category Archives: China

Does Cap and Trade Signal China’s Rise as the World’s New Super Power?

U.S. President Barack Obama (L) and Chinese President Xi Jinping have a drink after a toast at a lunch banquet in the Great Hall of the People in Beijing November 12, 2014. Obama is on a state visit after attending the Asia-Pacific Economic Cooperation summit.  REUTERS/Greg Baker/Pool    (CHINA - Tags: POLITICS) - RTR4DTFJ

For the past 40 years, China’s leadership has systematically implemented a 50-year strategy to overtake America as the world’s leading economic and political power.  In the history of the world, no country has ever accomplished this feat without a major war.  Yet China brilliantly planned to dethrone America without bloodshed by disabling America’s ability to conduct war well before our politicians would ever think to drum up a war frenzy.

China strategized that she could accomplish a first ever bloodless transition of superpowers through rapid economic growth, overbuilding industrial infrastructure, cheapening the dollar with massive American debt, building a gold backed Yuan world reserve currency, strengthening her military to protect critical trade routes, co-opting America’s elite to support China over America, and gutting America’s industrial capacity to support a sustained world war.

A critical assumption of China’s strategy was that America’s international investors and financial institutions would scurry to help her grow, given the chance. America’s elites did not disappoint China’s leadership.  With promises of riches, America’s capital investors feverishly rushed in to help China achieve most of her goals in just four short decades.

While both China’s and America’s leaders wanted China’s economy to grow dramatically, the motivations of each country’s leaders were strikingly different.  China’s leadership grew rich while building a massive economic and technological infrastructure to support her people’s future.  On the other hand, America’s leadership grew rich by stripping our citizens’ future to fuel their own personal wealth.  China simply had to offer a gold rush to America’s investors, and they in return blindly transferred America’s wealth for China to overtake the United States.

Knowing that the world could only extract a finite amount of debt from western economies to support China’s growth and that the cash flow from West to East would ultimately create an unsustainable debt bubble, China rapidly overbuilt manufacturing capacity in anticipation of slowing of investments from America and others. Now, China sits atop a mountain of physical assets while the rest of the developed world sits atop a junk pile of debt.

The West is now in the precarious position of either propping up China, or of sending the world into depression.  If the World’s debt bubble bursts, much of America’s investors’ wealth will evaporate. China will also default on her debt, but tens of thousands of new factories will remain in China.  China, will recover from an unprecedented depression with infrastructure, skills, trade relations, and gold to restart a new world economy.

Given America’s amassed debt and gutted manufacturing capacity over the past 40 years, we cannot withstand a long, deep depression. Our central bank has no alternative but to assist China in keeping the bubble afloat.  But, our citizenry must adopt a long term strategy to reverse what has left us in this dire predicament.

With a massive shift in power that the world unwittingly gave China as a backdrop to the issue of global warming, China’s President, Xi Jinping, has now come to America offering his support for pollution cap and trade.  Until now, neither America nor China has been willing to sacrifice economic growth to reduce carbon emissions.  Why then is China now willing to offer pollution cap and trade?  At this stage in the progress of her 50-year strategy, China can now manipulate cap and trade to further her bloodless revolution.

Americans believe that a small consolation of our slowed economy from tens of thousands of factories being transferred from America to China is that pollution was also transferred from America to China.  Our air and water is cleaner as a result.  Yet, in a cap and trade environment, this transfer of pollution now gives China “pollution assets” to either expand her own economy or to sell back to America.   Cap and trade would force America to either trade existing American pollution for new pollution or to buy pollution from countries like China.

Cap and trade thus could give China the ability to manipulate America’s industrial collapse even more.  With a massive worldwide debt bubble already in place, cap and trade would give China yet another powerful lever to either rise through the bubble or to send the world crashing into depression, to then rise through the ashes of world economic chaos as the world’s next superpower.  Adding pollution cap and trade to the mix would give China an untenable political and economic lever to control America’s destiny.

America’s dollar is so diminished, our central banking tools so depleted, our industries so gutted, our trade relations so reduced, our nation so indebted, that we are almost toothless to counter China’s 50-year strategy.  If we do not coalesce around a focused strategy to counter China, our Constitutional Republic could be endangered.  Xi Jinping’s visit should be a wake-up call.  America must not let Cap and Trade have a place in our economy until our economy, national security, and future is placed first in the hearts and minds of America’s investors and politicians.

1 Comment

Filed under American Politics, China, Free Trade

Will Knowledge Explosion Lead to Peace…or War?

snowden
Some ask why prognosticators predict war over peace, as if it is blindly an easier and more provocative path to predict, rather than the harder path to achieve of world peace.

The answer lies in the historical pattern of power transitions between nations. While the world superpower period that we are in is unprecedented, regional superpower, empire, and hegemonic patterns are fairly well defined. As such, we are entering what historically has been the final phase of a hegemony, when a competing power grows powerful enough to wage war.

Hegemonies typically last for 3 to 5 generations. We are in the last generations historically of our hegemony. China already has way more people, acceptable manufacturing capacity, burgeoning technological ability, growing military strength, and a breadth of neocolonial trading relationships. The pattern for emerging war within a generation is concentrating.

Historically, when a nation emerges to wield similar capacities as the World’s dominant nation, and is not happy with the world’s economic and political systems that are designed to benefit the dominant nation, it sets the stage for war. The emerging nation attempts to bend the economic system their way, is met with opposing force of the dominant nation, and conflict erupts.

China is winning ground on all fronts. So, examining the historical patterns, the phase of our hegemony and China’s transition, and the pattern of conflict that has occurred consistently over the past millennium, some predict military conflict in the future.

A couple of trends oppose a classical war transition. One is the size of hegemonies involved. The U.S., being the most powerful hegemony that has ever existed, then requires a competitor to extend their capacity for war to unprecedented levels. Yet, China has been highly successful in gutting our military manufacturing capacity, which actually creates a more unstable environment that could lead to war simply because it equalizes power more quickly.

Another has been the resolve by which America pursues protection of hegemonic resources such as oil in the Middle East. Yet, our ten year wars have drawn us into the same economic drain that took down the Soviet Union. China, on the other hand, has been successful in creating new trading arrangements that circumvent the dollar as oil trading currency. These trends ultimately will prove the axiom of the taller you are the harder you fall, for as the greatest hegemony in history, America will fall the farthest if knocked down from our pedestal.

One hopeful trend that I discussed a few posts earlier is that the world is on the vertical slope of the information age, and gains in knowledge are progressing at light speed. It was hopeful that that Arab Spring was born from social media. The world’s citizens are connecting through the internet and are beginning to break down nationalist prejudices. There is the potential that people throughout the world will choose peace through knowledge.

Yet, history has shown that increased knowledge leads to military superiority, which leads to a higher probability of war if gained by the opposing force of the hegemony. This leads us back to why both China and the United States are attempting to fly up the vertical path of the world’s knowledge explosion to gain the upper hand. Hence, we have seen, thanks to folks like Snowden, the massive buildup of knowledge processing capacity by the NSA.

If mankind will make the leap toward removing worldwide bigoted barriers through an explosion of knowledge sharing, then Snowden will have earned a historical place as a true hero of world civilization. If, however, mankind follows our consistent historical pattern of technical superiority leading to armed conflict, then Snowden will be recorded by world history to have been simply another crack in the dyke of America’s hegemony giving way to war.

Leave a comment

Filed under American Governance, China, National Security, Social Media Democracy, social trajectory, War

Detroit is the hole that Mike’s Steam Shovel Dug

mikes shovel
Who here remembers the story about Mike Mulligan and his steam shovel? Detroit’s problem is like Mike’s. Mike’s steam shovel, Mary Anne, wasn’t as nifty as new diesel shovels, just like land-locked Detroit auto plants were not as nifty as new, single story automated ones. But Mike vowed to work hard building a basement hole for city hall, so he and Mary Anne got the job. They dug a great big hole but with no way to get out of it.

Detroit dug a big hole with no way out too! Everything Detroit did to help herself didn’t slow the hole getting deeper, and her city hall was left with a dilapidated steam shovel in its basement. Detroit’s impossible hole is that it needs good paying jobs for its illiterate citizens….period. It’s that simple and that difficult.

As auto jobs left, whites left with them. Blacks could not qualify for federal housing loans because of federally supported racism and could not enter communities built up around the new plants because of restrictive covenants. So the low level jobs that the auto manufacturers allowed them to have went away.

Now, they were left in the city with poorly supported schools with few good paying jobs. Crime got worse. Family situations got worse. Home values plummeted. City revenues dropped. And as the city blight worsened while the outer suburbs improved, new businesses chose to build in growing, safer areas rather than in the city. Dig, dig, dig…

The diesel shovel jobs that competed with Mary Anne steam shovel, those jobs that illiterates in the inner city of Detroit, 47% of her citizens by some accounts, could qualify for, they are growing at 10% per year in Eastern countries but paying well less than the mandated minimum wage in Detroit.

America created an economic infrastructure that produced generations of illiterate Detroiters. Our failure to face institutional racism kept our most oppressed of citizens corralled in the city. Our elites took away jobs that illiterates could have worked. Now, our latest generation of Detroiters sit in a basement hole with no chance at earning a living wage as an alternative to crime and dysfunctional communities.

In the story, “Mike Mulligan and His Steam Shovel”, because he was stuck in the hole, he created a living wage in the hole by converting his steam shovel into the new city hall furnace, making a living wage to provide the city hall with heat.

America, having created this impossible hole, must now create living wages for our tens of thousands of illiterate unemployed, and we must vow to create a future economic infrastructure that does not dig such impossible holes. Political intransigence must now make way for a willingness to fix the problem.

I wrote an article in 2011, explaining the mechanisms of job transfer to Asia that is worth reading, Called How China Ate America’s Lunch…

http://www.zerohedge.com/contributed/how-china-ate-americas-lunch

China was ready to take back its world leadership in 1978 after “150 years of shame” and America’s elite were all too willing to sell out our posterity to help them. Detroit’s bankruptcy was foretold by the decimating our middle class to fund China’s emergence.

Yet, just as was seen in the Arab Spring, it is the fringes of society that break first. While the whole of our middle class is having its life slowly drained, those poor souls on the outer edges, such as our citizens in the inner city of Detroit, are the ones whose life supply of economic blood is the thinnest. They die first.

Detroit is America’s problem to fix.

Leave a comment

Filed under American Governance, American Politics, Capitalism, China, City Planning, Class warfare, Full Employment, Jobs, Racism

Robots Haven’t Stolen Men’s Jobs, Capital Flaws Have

4.1.2For thousands of years, men toiled with nothing more than the work of human hands and draft animals. The vast majority plowed the fields and labored from dawn to dusk. Yet theirs was a life in tune with nature and they were well connected with their sense of God.

After 5,000 years of recorded history, man invented work through carbon based fuel. No longer was production bound by labor alone. Little by little, men’s minds were released from the drudgery of forging furrows in the fields. Year after year, the miracle of the industrial era happened upon us, and the minds of men multiplied output through new inventions of machinery.

Lives that at one time supposedly spanned centuries but that had devolved into just a few decades began to expand again as men were free to create new ways to increase life expectancy. And those lives, while freed from some of the past drudgeries and dreadfulness, were still filled with ever specializing forms of work.

As machinery thrust man into highly productive generations, items such as books that were once expensive luxuries became available to the common man, expanding his access to knowledge even more. And work that had once been deemed that of the most refined now began to thought of as the new drudgeries. These tasks would later be consumed in the information era. Yet, even as drudgeries continued to be eliminated from the workplace, more and more previous luxuries became commonplace, and the masses in wealthier countries began to live better than kings of old.

But they now provided to each other services that heretofore would have seemed frivolous luxuries of the wealthy. Life became ever more livable even while all continued to work. Only that periodically, sometimes without warning, economies would shut down and work would dry up for want of demand.

It seemed that economies were built on credit and that providers of credit could accelerate and decelerate the economy on their whim. They could also pick and choose to whom they would provide credit, and who would prosper from their decision. For when credit was available, man was ever increasingly finding new inventive ways of employment and services to expand livability of mankind. But when credit was pulled, these newly expanded, inventive forms of employment suffered.

Did machinery stop man from working? No, it allowed him to expand his portfolio of work. Did computers stop man from working? No, they exponentially expanded his capacity to devise new work. Did robots stop man from working? No, they eliminated new drudgeries and created opportunities to elevate livability to more of the masses.

Man will work to fill the limitless void of undiscovered livability upon the Earth. Yet the yoke of our capital system flaws must be lifted for that to occur.

Leave a comment

Filed under American Innovation, China, Full Employment, U.S. Energy Policy

US economy is as simple as US CH IOU.

Slide1Person U buys trinket H from Person C and gives a U IOU. Person C doesn’t want trinket S and instead saves U IOU from person U. With no demand for trinket S, person U is laid off. But he still wants another trinket H so he gives person C another U IOU, which Person C saves again.

After a few years, person C has more demand for trinket H and uses U IOUs to buy a factory from Person K, who then uses U IOUs that travel throughout the region but never go back to purchase trinket S from Person U. Meanwhile Person U continues to purchase more trinkets S with more IOUs.

U debt grows. U unemployment grows. U trade deficit grows. U economists suggest that to put person U back to work, government U will put other Persons U to work, pay them more IOUs that they can then give to Person U for trinket S and that then he can go back to work. So now to “fix” the problem, people are put to work in government instead of making trinket S, so that they can buy trinket S, yet the debt still grows.

Economist U says this is a perfect solution for Person U can now buy trinkets from Person C, Government person U can buy trinkets from Person U and the only thing that seems odd is that the U IOUs continue to grow. But IOUs represent work that must be done eventually to compensate those holding the IOUs. And if Person U holds more IOUs than he can possibly repay in his lifetime, person C eventually becomes concerned.

Eventually, Person C figures out that Person U can no longer repay the IOUs with the amount of labor available to Person U. Person C then decides that the IOUs circulating are not worth the amount of repayment labor originally intended. Person C then tells Person U in order to buy trinket H, Person U must give Person C two IOUs.

In this way, person C begins to make person U repay his debt. Person U must now labor twice as long to obtain trinket H. Person U becomes “poorer” due to now having to labor harder to repay decades of IOUs paid to Person C. This perfect solution touted by Economist U as a way to fix unemployment is not so perfect after all.

Person C has profited from not buying trinket S over the years. Person C has grown employment, bought factories, grown GDP, and increased real assets at home. Yet, Person C has paid a price in choosing eventually to not accept U IOUs at the same face value as before. For now, while choosing to make person U give two IOUs for trinket H, person C also accepts that all the IOUs he holds are only worth half of what they were a moment before.

Person C’s economy is now robust but his wealth is a little less now than before. Person U’s economy is now fragile and hollow. Person U must labor twice as hard now to buy trinket H. Even though his labor is worth less buying trinket H, he will still labor the same number of hours to repay his debt. Yet a pyrrhic victory is won for now other countries holding IOUs will buy his labor that is worth less.

In summary, for decades Person U bought trinket H thinking it was inexpensive but in reality it really bought him unemployment and borrowing to pay for trinket H. Then later, to repay his debt, Person U became poorer and sold trinket S cheaply into the market to repay Person C for the trinket H that he borrowed U IOUs to pay for earlier. Going forward, Person U has less GDP and less factories for decades as he attempts to catch up.

Leave a comment

Filed under American Governance, China, Economic Crisis, Foreign Policy, Free Trade, Full Employment

World War III Say Hello to the I-Phone

Slide1
Hmm, this is my first contemplation of the new year?!? No change of empires has ever transitioned peacefully. Those that have sold out America for personal gain will one day reap what they sow as the empire they thought protected their foreign assets no longer does. America’s foreign asset bubble, vastly larger than that destroyed in the 70s, will eventually pop. We found that factories placed in Mexico in the 70s could not be moved once borrowers reneged.

As power shifts and militaries continue to build, America’s forces will once again be called upon to help our nation’s captains of industry. Somehow, our financial interests will be entangled in age old military treaties threatened by China’s regional advances and the costs to our nation will be too great to not attempt to reverse the financial woes of those that bet too much of their immense fortunes on rise of China’s newest dynasty.

My hope is that America will be the first nation in history to take our lumps as an outgoing hegemony without going to war as a salve for our broken financial ego. My study of history suggests my hopes are futile. When that time eventually comes, how will military conscription of the last centuries confront the binary fission of information conflating all known ideas into perfecting knowledge of the 21st century?

Will our young people understand the combining dynamics of national security and corporate prosperity more than those that came before them? This will be the first time in history that a worldwide war propaganda campaign will wage war against a massive, globally available, network of information connecting the world’s young people through their Apple apps. Theirs will be a more perfected understanding of the true dynamics driving war. Theirs will be the first world war challenged by a collaborative information front.

Yet, even perfect information may not stop this century’s apocalypse. The masses did not have perfect information in Iran. Saddam seemed to be given the signal from America that it was ok to invade Kuwait. He seemed to be given the signal that he had done enough for us to not to later invade again on a weapons of mass destruction charge. Yet, before information could be assimilated worldwide, America’s regional alliances, fueled by a patriotic uneasiness of 9/11 recurrences, set in motion the destruction of a million souls. In the end, our young people fought with dignity because their nation called upon them to sacrifice.

Was Iraq about weapons of mass destruction or rather a military foothold against the imperialistic destiny of Iran? Was Afghanistan about Osama or rather reinforcement of bases in the countries surrounding it, countries essential in the transfer of oil and gas from Russia to the East? Are our military efforts more about securing immediate peace for Americans or rather securing economic security through this inevitable hegemonic transition?

We debate the treason of Wikileaks, yet it was merely the nose of the camel under the tent toward world transparency. Julian Assange is no friend of the United States yet he was only an opportunist riding the wave toward tomorrow’s perfecting information. The incredible rate of information exchange, collaboration, and assimilation occurring before us will clarify nation-state strategies open and raw. Whether they be internally generated inside national security organizations or externally driven by corporate interests, an understanding of their origin and motivations will some day, sooner than we expect, be apparent to the man on the street.

I do not worry about such things for I have no power to change them and my time stands still in the information crawling age. But information is growing at such a rapid pace that when the time comes for the next generation to take up arms for our nation, it may be the first time in history that all will understand not only the patriotic rationale but the underlying financial dynamics involved. Happy 2013.

Leave a comment

Filed under American Governance, American Politics, China, Social Media Democracy, War

Changing the Current Corporate Paradigm Will Help America Thrive


The corporation is an artificial construct originated centuries ago to give investors and workers legal protections that balanced risk taking with entrepreneurial rewards. This construct propelled national economies to new heights, which would not otherwise have been achieved. Corporations and derivatives such as LLCs to this day provide America with the best balance for entrepreneurial growth. Yet, with the creation of the corporation, a new life form began that has now evolved to test the very nations that gave it life. Like Frankenstein, the corporation has loosened its legal bindings at the economic frontier and now has the potential to become the corporate-state master of its nation-state creator.

This imposition by corporate-states upon nation-states is appalling. Our government institutions have been rotted from the inside to their skin and their innards have been replaced with government zombies that dutifully perform functions set upon them by their corporate masters. It is a ghastly phenomenon centuries in the making, visible to the naked eye for at least a hundred years, formed from the initial character of corporations. Yet, we humans are caught in our original paradigm of corporations as servants of the nation and are unable to see a new corporate threat evolving.

We call the newest corporate form transnational or multinational. Yet these terms merely define the world’s current paradigm of the frontier edge of corporatism. They name this static moment in the development of the corporation, and not what it is becoming. “Anational” refers to the transforming paradigm of the corporation that has loosened its host nation’s bindings and that is no longer attracted to any nation except in terms of what it might gain from that nation, similarly to how the term “asexual” refers to a human that is not attracted to any gender sexually except for how that contact might produce its offspring.

We mistakenly attempt to label anationals’ evolving perverse power as having a human form, AKA Citizens United. Yet the only way we can continue to call corporations people having citizen power is to also label their behavior humanly perverse, almost psychopathic. Our problem is that we attempt to give human characteristics to all life forms. We would rather call a great white shark a man-eating monster than to swim in its skin, defining its repeatable patterns meant to enhance its sustainability on this planet. If instead of calling corporations people, we could understand how corporate-states consistently act to sustain their lives, we would not have to denigrate corporate existence with human behavioral terms but rather celebrate corporate life form, as we should any other on this planet.

Celebrating a life form does not mean approaching it cavalierly. At their evolving frontier boundary, corporations are gaining enormous capacity to bend nations to their will, in ways that do not help our citizens. In an effort to stave off the inevitable, scholars like Michael Porter write of co-opting corporations toward patriotism, citizenship, or perhaps more precisely corporate responsibility to host nations, or at least including nation states in the list of corporate stakeholders. Yet these attempts to persuade corporations to take on human characteristics are only stop gaps to the evolving threat.

Just as the U.S. can coax China to participate as partners at this stage of our empire’s shifting power sharing, the U.S. can still coerce corporations to participate as national citizens to some extent, even those as powerful as corporate-states. Yet, just as the power struggle between China and the U.S. will ultimately intensify, our ability to co-opt the growing power of corporate states is also waning.

The time will come when corporate states gain a plurality of world power and work together for the betterment of the metropolis of corporate states. By then, nation states by necessity will also have evolved to retain our maximum power. We will then no longer see corporations as people with the rights of citizens. Instead they will finally be correctly defined from the nation-state perspective as a means to an end and will be measured and rewarded for what they can add to the nation-state.

The idea that corporations are people with citizens’ rights will be replaced by the idea that corporations are self-sustaining life forms that live amongst us just as bacteria and bears do. We will acknowledge that corporations perform vital functions in the advancement of humanity but that they can kill us if we do not respect their limitations. Nations will pursue the harnessing of anationals’ positive aspects and will intensify efforts to corral their negative ones. We will understand that corporations are not wild horses that can be contained in national regulatory pens and ridden rodeo style.

Most nations today are nowhere near large enough to contain anationals’ eventual strengths with only national regulatory and legal tools. Nations will by necessity have to cooperatively combine efforts. Unfortunately, the world will also destabilize as smaller nations attempt to consume one another to find scale large enough to survive the next millennium. The very existence of corporate-states will cause tribes to devalue regional differences that have defined current national boundaries formed to combat external threats. China is not a single tribe nor is India or the United States. Others will follow.

Some might label my corporate musings as conspiratorial paranoia. Yet conspiracy is simply another human trait that would attempt to contain the evolution of anationals within our human boundaries. Conspiracy by definition suggests that anationals are somehow more aware of the global shift taking place than nation-states and thus are light years ahead in their planning and efforts. Along the bell curve, some nations such as China are able by their historical circumstances to have a much longer planning horizon than others. Similarly, some anationals are much more aware of their future posterity than others and are acutely acting on their global economic advantages. As a whole however, nation-states and corporate-states are adrift in this sea of evolution, making short-term sustenance moves, as they are able.

Great white sharks instinctively know that they must sometimes migrate throughout the entirety of the ocean, but like humans they give their greatest weight of thought to their next meal rather than where they will be during mating season. Yet, somehow the world aligns to bring them home again, and it will also align to reposition the power of anationals higher in the hierarchy of states. Thought to how nation-states must react to this realignment is warranted.

What this realignment means for humanity is unclear. The role of the nation-state to serve its people, economically and otherwise, providing a balance along the life wheel of work and play, protection and freedom, stability and exploration, sustenance and opportunity is becoming increasingly threatened. People’s allegiances to corporate-states will strengthen as realignment intensifies, threatening national allegiances and humanity’s balance further unless we learn to coexist. Shifting our current paradigm of the corporation will serve us well in that effort.

Leave a comment

Filed under China, Foreign Policy, Multinational Corporations, social trajectory, World Sustainability

America Faces a Worldwide Economic Revolution


In the midst of America’s great economic crisis, factions from every point in the political spectrum have raised issues as causes for America’s demise. Yet most of America’s problems, when examined in the light of day, are simply symptoms of our greater issues or even just political noise, offering no real hope in deducing the core of our dilemma. America will ultimately begin a path toward our thriving future. Yet, to do so, we must first clarify the true essence of our core problems before we can agree on viable solutions.

To that end, let’s peel back the political onion to examine what some say are our core issues, and then continue to peel until we briefly reach and peer into the collective complexity of our true core. Fret not however. An onion can make one cry because of its many stinky layers, but America’s solution knives, even those identified within these bindings, can cut through all of them.

Over the past three decades, we Americans spent our way to a debt mountain and a housing bubble that will take years to correct. Factions such as the Tea Party have risen up to chastise our government and to slow its ballooning debt even as record Federal deficits are predicted to continue for at least the next decade. Theirs is a worthy cause for what seems a politically irresolvable dilemma. But even if America comes together to solve our debt issues, reducing our debt will only remove a symptom of our nation’s core problem.

If we are to reduce America’s debt without defaulting on our worldwide financial obligations, we must once again employ all able Americans in productive, well paying jobs. Yet in the midst of our bursting housing bubble, we discovered that for three decades America had also created a false employment bubble, which burst as our economy faltered. As a result of our jobs deficit, America is now in danger of lingering in a severely dampened economy for many years to come, certainly another critical symptom.

America has fallen into a monetary contraction resulting from a combination of our housing debt overhang, our poor credit and a lack of jobs. A viable turnaround solution to this monetary implosion should be immediately implemented to begin America’s journey toward our thriving path, and Congress and the President must support it. Yet, while our slowly eroding jobs base, diminished credit and housing debt overhang must be simultaneously corrected if we are to have any hope of more than a token recovery, our monetary implosion, however frightening, is still at the edge of America’s core problem.

Faced with such dismal prospects for debt reduction and job creation, America is now forced to choose between two competing constituencies. Our very concept of freedom almost demands that we support free enterprise, for it has helped America’s multinational corporations compete in the world’s rapidly transforming marketplace. Yet, the immense worldwide scale of free enterprise is now tearing apart our middle class, assaulting the American worker, and we seem powerless to even slow its destructive path. This choice between competing alternatives of either 1) supporting American businesses in their quest to rise above world competition or of 2) supporting the American worker, who is being diminished by those same corporations’ conquests, begins to converge toward the core of America’s problems. Over the past thirty years, emerging nations have conducted mercantilist attacks on America’s gross national product. Yet, our government has resisted creating the economic weapons required to defend our nation against modern hybrids of global competition.

America is already thirty years behind the curve of economic revolution. We are seemingly only observers to a world in which free enterprise is a both a bulwark of defense used by nations against those that would employ mercantilist offenses against them, and also an offensive siege weapon used by emerging corporate-states to destroy the classical defenses of nations that would attempt to resist their growing invasive economic powers.

During these thirty “standstill” years of observing the world’s economic revolution, America’s baby boomer generation rose to positions of power in business and government. In the comfort of our former world prestige, our baby boomers enjoyed the luxury of basking in decades of societal actualization. We focused our attention on America’s internal problems at the expense of creating a competitive manufacturing base. Our political struggles over competing societal goals of social justice and military superiority blinded us to our emerging jobs crisis. Yet, the hungry world fiercely competed for and took from us our very own consumers and employers.

America’s consumers naively embraced the world’s competition for our dollar. We enjoyed the low priced fruits of a desperate world’s labor, not understanding the impact that our purchases would have in the destruction of American jobs, the explosion of our debt, and the diminishment of future opportunities for America’s growth. For awhile, the savings we enjoyed from globalization offset our slowly diminishing purchasing power. Yet, over three decades, our purchases raised the world’s productivity, brought an onslaught of global competition to our shores, and ultimately replaced the American worker with an army of overseas laborers.

Eastern nations adopted hybrid economies of neo-mercantilism to rise above the fray of neo-colonialism and to position Asia for a century of prosperity. Unchecked by any natural defenses against them, neo-mercantilist nations joined forces with international banks and emerging corporate giants to concentrate the world’s economic power for China’s 21st century rise toward hegemony. In the process of this world economic shift, America’s future competitors, the corporate-states, were born.

Fierce, global competition required American businesses to employ all manners of competitive measures including intercontinental scale efficiencies. As the world would soon come to realize, the international skills multinational corporations learned to survive included those necessary to pit nations against each other and to overcome the regulatory frameworks nations imposed in vain attempts to restrict corporations’ intrusions into domestic markets.

In the process, these commercial behemoths of corporatism trampled on America’s two hundred year foundation of classical free enterprise. Within the context of our government’s regulatory framework for fair competition, America’s version of free enterprise envisioned all nations playing by our rules of engagement. In the past thirty years of economic revolution, America instead became Redcoats in the global economic war. Our structured business legal system was a bright red target easily slaughtered by guerrilla warfare of nations and corporate-states intent on pillaging America’s capital and intellectual property.

As defined by our anti-trust laws, America’s isolationist views of perfect competition required that our industries limit any one competitor’s size to well under what could be called a monopoly within our borders. Our legislated size limits were smaller than the mega-factory direct foreign investments required to compete globally. As a result, even if not the root cause of business flight, America nonetheless needlessly influenced American businesses offshore in their bid for massive customer markets such as India’s and China’s.

Some of American corporations’ resulting worldwide operations have grown into virtual states. In their unquenched quest for profit, they have created international offensive siege weapons to easily circumvent the purposes of such antiquated American concepts contained within the Sherman Antitrust Act. Many of our historically American-centric enterprises have since blurred their connections with America. Consequently, the Sherman Act has become increasingly challenged by free market advocates as an albatross of regulation. Alternately, it has been condemned by those charged with protecting the rights of consumers and domestic small businesses in America as a weak, antiquated tool of defense.

Globalization has brought competing American interests to the brink yet we dare not allow political dysfunction to keep America on the sideline of global competition any longer. We somehow must now collaborate to support America’s multinational industries’ quests while simultaneously protecting our own competitive domestic market. We must provide a pro-business environment that places America’s businesses on par with those of other countries while stopping international corporations from employing siege weapons of free enterprise against our citizens. We must provide competitive yields for capital in America to ensure America’s posterity by reversing the tide of capital outflows from our country. And we must ensure that our loose federation of American businesses can compete globally against neo-mercantilist countries. America must define the post neo-mercantilist era.

We will soon be living in a land full of global corporate giants that employ modern offensive economic weapons to consume nations. Yet unlike the neo-mercantilist countries that have attempted to create hybrid, state run industries immersed in private capitalism to compete with these futuristic monstrosities, America has not yet even begun to create its weaponry against neo-mercantilists such as China, and certainly has no viable plans against emerging corporate-states.

As America faces the prospects of diminished power in this 21st century economic revolution, we must adapt to the corporate power realities that all nations will face. Our future thriving path strategies will inevitably merge the goals of our giant, American born, corporate-states with those of our nation and its citizens. Yet our government must go beyond such surface strategies to create America’s post neo-mercantilist framework to harness the power of corporate-states for the betterment of our citizens and for all nations.

If we are to create a thriving outcome from the 21st century economic revolution for all on our finite planet, America must seek out the core of our problems and create a model for other nations to follow. Our thriving path forward begins here.

1 Comment

Filed under American Governance, China, Economic Crisis, European Crisis, Free Trade, Full Employment, Multinational Corporations, National Security, social trajectory, U.S. Monetary Policy, World Sustainability

Congress Must Act Now To Save America’s Homes or Seal Our Fate!

INTRODUCTION:

As of December 2011, housing prices have fallen 38% nationally, 7% more than during the Great Depression. While pricing has already dipped below the trend line that housing might have followed had the housing bubble not occurred, the outlook is for prices to continue freefalling another 4% during 2012. Some experts predict prices could drop nationally below 50 % of peak levels or more. Yet others suggest that economic fundamentals should be supporting a leveling of prices, and they wonder if normal economics of supply and demand have abandoned the housing market altogether.

Even though they may not appear so, the rules of economics actually still do apply to the housing market, and unfortunately they point ominously to even more alarming conditions in the years ahead. While many believe that Congress makes things worse every time they fiddle with the economy, Congress really has no choice but to intervene in this housing market if we are to save a cornerstone of America’s economic future. This post describes why housing prices rose and fell, and why they will continue to fall in the absence of intervention. It suggests why half the home mortgages in America could end up underwater and disrupt our economy for decades to come if Congress fails to act.

HOUSING’S RISE:

1995: Total housing units (in millions) 112.6 Renter Occupied 35.2 Vacant 12.7

In the five decades leading up to the 2000s building frenzy, housing prices rose predictably according to the principles of supply and demand. Housing pricing surged and slumped in response to peaks and troughs of business cycles, increases and decreases in interest rates, and growing or obsolescing local market commerce. Yet, nationally, averages followed historical patterns of a gradually rising nominal price market. Adjusted for home square footage that increased with each decade, new home prices tracked inflation nationally. Housing starts followed population growth, and as a major 14 % component of America’s GDP, housing generally has led the nation out of recessions.

Beginning in the mid 1990s however, housing economics began a dramatic divergence from historical trends. For the next decade, a sustained building spree added 6.6 million more housing units than was needed to support the rise in U.S. population, as many as one million units per year. In a rationally functioning market, this excessive addition of new homes would have quickly precipitated a business cycle slump and prices would have dropped to encourage a slowdown of new housing starts. But America got caught up in a housing frenzy and added enough demand to absorb this excessive supply while bidding prices up 225% above their historical trend line, a speculation that Fed Chairman Alan Greenspan as early as 1997 called an “irrational exuberance”.

COMPONENTS OF INCREASED DEMAND:

2006: Total housing units (in millions) 126.6 Renter Occupied 34.1 Vacant 16.7

LOW INCOME BUYERS: Some blame the excessive demand that pushed pricing well above its historical trend line on low income buyers who benefited from government regulations that forced lenders to ease requirements for lending. By passing the Community Reinvestment Act (CRA) and substantially revising regulations in 1995, Congress pulled these non-traditional buyers and their higher risk into the housing market. In doing so, Congress did nudge the beginning of the feeding frenzy, but the immediate effect of adding these buyers was not a large component of demand but merely a catalyst of future demand.

More importantly to the housing bubble than the numbers of low income CRA buyers was their impact on creative financing. Being forced into accepting additional risk, banks responded by creating risk spreading financial tools to mitigate high-risk, subprime loans. These tools would later be used to set the housing industry ablaze. Without them, the Housing Ponzi could not have developed.

BABY BOOMERS: Others blame the added demand of the bubble on Baby Boomers whose retirement accounts had been consumed by the bursting of the Dot Com bubble. In need of a quick fix for their fast approaching retirements, some Baby Boomers took advantage of “exotic” loans to buy too much home at too high prices hoping for substantial returns. As more Boomers entered the market, they pushed up home prices and acquired excessive debt in the process. At the beginning of the bubble, the median home price was $120,000 and the median income was $73,000, a ratio of 1.65. At the peak, the median home price had soared to $215,000 but incomes remained the same increasing the loan to income ratio to 2.94, an unsustainable level.

To cover the shortfall of income needed to make their new debt payments, consumers relied on home equity loans and credit card debt. Between 2000 and 2006, home equity debt increased $1.2 trillion and credit card debt rose $900 billion, again to unsustainable levels. By the peak of the Ponzi, home ownership had surged from a historical 65.1 percent to a 69.9 percent of the population and home ownership debt load had increased from 65% of GDP to an unsustainable 110%.

CONGRESS: More blame the actions of Congress for the housing bubble than the addition of non-traditional buyers and overreaching Baby Boomers. Certainly the Community Reinvestment Act and its subsequent regulatory revisions in 1995, including HUD’s direction that Fannie Mae and Freddy Mac set aside 50% of guaranty funds for low income earners, increased subprime loans tenfold and increased demand. But the repeal of Glass-Steagall, through the Financial Services Modernization Act of 1999 that allowed commercial-banking, Wall Street banks, and the insurance industry to merge, created banking products that swelled demand much more. And the Commodities Futures Modernization Act of 2000, that excluded certain financial commodities from oversight by the Commodity Futures Trading Commission, the Securities and Exchange Commission, the Federal Reserve, and state insurance regulators, allowed bankers to flood the world with lucrative credit-default swaps and to push exotic retail products into a growing speculative housing market to feed the swap market. Without the collusion of Congress, the irrational exuberance of consumers needed to fuel housing’s excessive demand could not have been enticed by the resulting banking products.

INVESTMENT BANKING: Most place the blame for the Housing Ponzi squarely on the shoulders of investment bankers. To allow non-traditional buyers into the market in the mid 1990s, banks initiated low doc and low down payment introductory loans to the primary market and combined these loans with others to form securities called Collateralized Debt Obligations (CDOs) which were then sold into the secondary market to transfer bank risk off their books. While 52% of low income loans were securitized by Fannie Mae and Freddie Mac in the early years, securitization quickly became a lucrative international commodity product of investment bankers and the market topped $2 trillion at its peak in 2006.

Yet as big a profit maker as CDOs were, an even greater profit was made in the issuance of Credit Default Swaps (CDSs), a form of unregulated insurance that allowed banks to take the risk of loans off their books, to increase their loan-to-collateral values four fold, and to profit from insuring events that they thought could never occur. At the peak of the Ponzi, the CDS outstanding market topped $60 trillion and had made $4 trillion in profits for participants in just three short years, much more than the $2.7 billion paid for lobbying Congress or the $1 billion paid in campaign contributions by the financial industry (peanuts in comparison) to persuade Congress’s votes allowing this free-for-all in the decade prior to the financial crisis.

To feed this frenetic pace of profiteering, international banking required the pace of loan origination to increase even though housing prices were accelerating upward beyond traditional affordability, and thus they began what became their final phase to lure additional demand. To bring the last customers into the Ponzi before its collapse, banks introduced a myriad of “exotic” loan products. After low doc and low down payment loans came no down payment and no doc loans. Later, interest only and negative amortization loans were offered. Banks then created piggy back loans with first and second mortgages that eliminated PMI and even offered to finance closing costs. From 2003 until the peak of the Ponzi, fully 25% of mortgage loans included teaser introductory rates. And in the final two years of the housing spree, banks allowed consumers to acquire pay-option mortgages that gave them the choice each month of paying fully amortized, interest only, or even very small monthly minimum payments. All of these risky products fed the secondary CDO and CDS market with mortgage securities by targeting the U.S. market for excess demand and exuberant prices.

RISING HOME PRICES: By 2003, all semblances of historical housing pricing metrics were gone. Brokers, agents, and bankers all explained that the new measurement of housing value was not bound by either the historical rental rate of housing or the constraint of trailing American incomes, but was instead measured by a new metric, combining these traditional valuations with the rate of return of increasing home prices themselves, thus spurring a real estate bubble with the fallacies of hope and greed. Half of all home buyers responded to this new flawed ideal by purchasing beyond their means, and in the process, pushing up the price of housing.

FEDERAL RESERVE: The Federal Reserve, flush with investment from China and concerned about recession because of the bursting of the Dot Com bubble and the economic shock of 9/11, consciously chose to support the housing surge through lowering of interest rates from 2001 through 2005. As a result, average mortgage rates reduced through the period from 7.9 percent to 5.6 percent, increasing demand and supporting higher home prices.

SECURITIES AND EXCHANGE COMMISION: The SEC inexplicably allowed five of the nation’s largest brokers to waive their capital-to-debt requirements that had historically been held to a 12 to 1 ratio. The brokers responded by leveraging their capital as high as 40 to 1, adding liquidity to debt financing, fueling housing demand, and pushing up pricing. Three of the five qualifying brokers later went bankrupt or were absorbed by other firms.

In the aftermath of the financial crisis, when many are demanding prosecutions of what seems to have been criminal actions by some in the financing industry, the SEC has been loath to act. Data suggests that the SEC had significant knowledge of financial firms’ negligence in following regulations for several years prior to the financial crisis and yet the SEC chose not to act on its knowledge. If the SEC were to take action now, the resulting trials would focus as much on the SEC’s foreknowledge and complicity as they would on the potential criminality of bankers and would shine an ugly light on the revolving door between government and industry, two reasons why the SEC might conspicuously choose to continue its inaction.

THE HOUSING BUBBLE POP:

2008: Total housing units (in millions) 130.3 Renter Occupied 35.8 Vacant 18.6

Inwardly, the banking industry knew that it had stretched the bounds of credibility and sustainability as it introduced riskier and riskier loan products to create additional demand. Bankers feared that resulting aggregate loan to income ratios exceeded all historical limits and might eventually collapse. In fact, some industry insiders even began to bet against CDO portfolios of other companies through CDSs, expecting to profit on rising defaults that began as early as 2004.

So when these defaulting subprime loan cracks appeared in the dyke of this elaborate housing Ponzi, a nervous fog settled in over the entire industry and many began to speculate whether highly leveraged firms such as Bear Sterns could cover their liquidity gaps. After some banks refused to cover Bear Stearns with short term loans, confidence waned, Bear’s stock plummeted, and Bear was purchased by J.P. Morgan Chase. By allowing Bear’s leverage to grow to 35 to 1, the SEC allowed just a 1% loss of asset value to increase Bear’s leverage to over 70 to 1. In this maximum consumer debt environment, that extraordinary leverage caused market confidence to collapse. Lehman Brothers followed suit six months later with a delayed total collapse of their 40 to 1 leveraged firm.

In the after shock of Bear Sterns and Lehman Brothers, the U.S. Government stepped in to rescue Freddy Mac and Fannie Mae, made loans to AIG, put in place a $700 billion bailout of teetering banks, forced the sale of Washington Mutual to J.P. Morgan Chase, and implemented a stimulus plan to strengthen Wall Street. The two remaining firms that had taken advantage of the SECs allowance of extreme leveraging, Goldman Sachs and Morgan Stanley, abandoned their status as investment banks. One effect of such sweeping industry changes was to substantially reduce the demand for higher risk mortgage CDOs in the secondary market, thereby dampening exotic retail products which then diminished housing demand and depressed pricing.

THE UNWINDING OF HOUSING SUPPLY AND DEMAND:

2011: Total housing units (in millions) 131.2 Renter Occupied 38.3 Vacant 18.7

SUPPLY:

EXISTING INVENTORY: At the peak of the housing bubble, housing inventory for sale equaled about 4 months of sales. From that point, listed inventory rose steadily to level off at about 9 months of inventory. Additional shadow inventory being withheld from the market, such as bank REOs, has kept listed supply at about 9 months for the past two years. However, as housing prices continue to decline, more houses will be returned to banks either through walk-aways or foreclosures, adding to bank’s already significant shadow inventory. In addition, job uncertainty and job immobility due to housing illiquidity continues to add to shadow supply. If demand increases, shadow inventory will flow into the market and continue to depress pricing.

NEW INVENTORY: Demand for new construction is now running at about half of the 1.2 million new homes per year required to fill the needs of a growing population. The excess supply of existing housing and the increasing cost of new construction commodity materials have combined to keep existing housing prices well below the cost of new construction. This price differential not only pressures construction labor rates downward and reduces profitability of the new construction industry, but it causes demand to be filled by existing homes rather than new ones. Therefore the vacant inventory of existing homes is being absorbed at a rate of 600,000 units a year. At this rate, the excess 6.6 million homes that were built during the Ponzi will not be fully absorbed until 2020, extending pricing slide and/or excessive gap for years to come.

VACANCY RATE: At 9.8%, vacancy rates are about 40% higher than the 40 year historical norm. Vacancy rates increased to such historical highs for two reasons. First, housing construction lagged the housing crisis and new units were completed even as the crisis unfolded. Vacancy rates surged as these lagging units came online. Second, as the crisis unfolded, foreclosure rates increased fivefold adding to the rental population. Increased vacancy rates have depressed pricing.

RENTAL RATE: Home ownership unwound from its Ponzi peak rate of 69.9% back toward its historical averages of 65.1% as home owners gave their homes back to the banks and entered the rental market. As a result of increased demand for rentals, the percentage of new construction rental units has increased. In addition the monthly rental rate in many U.S. markets now exceeds monthly mortgage rates. The growing gap in rental versus mortgage costs suggests either that home buyers are unable or reluctant to buy and indicates a lax demand that is depressing pricing.

DEMAND:

PURCHASE RATE: At a rate of 4.9 million purchases annually, housing purchases are occurring at approximately the rate that would be expected had the bubble not occurred and had the trend of purchases extended with population growth from the early 1990s until now. The current rate of housing purchases is slightly below historical standards, but only appears depressed when compared to the excessive standard of the housing bubble. No indicators point to any trends that will materially increase purchase rates for the foreseeable future. Therefore, an extended period of excess housing supply will continue to support a long term downward drift in pricing.

Buyers have left home ownership in droves since the beginning of the housing crisis by either selling, short selling, walking away from mortgages or being forced out through foreclosures and have shifted to either rentals, sharing quarters with others, or becoming homeless. Home ownership has unwound from its Ponzi peak rate of 69.9% back toward its historical averages of 65.1%. Nonetheless, there are no indicators to suggest in this high unemployment and uncertain business environment that home ownership will level off at its historical average of 65.1%. It will likely continue to decrease, depressing demand and pricing further as a result.

REDUCED DEMAND OF SECONDARY MARKET: While the market for credit default swaps still exists and continues to destabilize the world’s economy, demand for CDSs has dropped to half of its peak of $60 trillion at the height of the housing bubble. Demand for underlying CDOs has been hampered by the scandal of claims to title that has rocked the CDO market. During the frenzy of the housing bubble, short cuts were taken that left the chain of title to millions of individual notes in question, threatening legal entanglement for years to come. At the same time, housing value deteriorated, reducing the value of their packaged CDOs and in some cases triggering repayment from their corresponding CDSs. The resulting title debacle collapsed the secondary market for CDOs, squashed the exotic loan supply, lessened demand for housing, and dampened housing pricing.

REDUCED ACCESS TO CREDIT: Banks, that had received bailouts from the Federal Government in its attempt to preserve lending liquidity, instead chose to reserve funds to enhance balance sheets. In addition, without being able to pass risky loans to the secondary market, banks tightened credit criteria and withdrew to more standard loan products, requiring PMI insurance, higher down payments, higher credit ratings, more solid work histories, and historical income to debt ratios. Tighter credit requirements diminished demand for housing and depressed pricing.

Banks also substantially retracted from the credit card market, eliminating 25% of $5 trillion available credit. In addition, banks increased average rates on credit cards from 10.9 percent to 16.2 percent. Buyers had counted on consumer credit to support their short fall between income and housing debt during the bubble, and without it, home buyers lost the ability to carry higher priced homes. Even though the financial crisis eliminated the motive to flip houses for profit and thus removed a primary reason for excessive use of credit card credit, the loss of credit as a cash management tool for existing housing dampened demand and depressed pricing.

SAVING TREND: After the housing bubble burst, consumers prudently used excess funds to pay down loans, eliminating more than a trillion in housing debt, and more than $100 billion of the peak credit card debt. Another $4 trillion is needed to reduce housing debt overhang and close to $800 billion in credit card debt still remains. If the economy and housing prices continue to drift downward, these numbers will grow. The trend toward repayment has subsided somewhat but continues to remove funds from the purchase market and to depress pricing.

INFLATION: While median salaries essentially remained stagnant throughout the housing bubble and beyond, prices for commodities have increased. As food, energy, clothing and other essential commodity prices continue to increase against a back drop of stagnant wages, less income will be available for housing which will dampen demand and depress pricing.

The Fed has signaled that interest rates will be held at essentially zero for the next two years but the Fed may be forced to change its position as external events overtake it. Housing ARM interest rates are threatened not only by creeping inflation but by rating agency threats over continued Congressional inaction, the Fed’s stuffing of long term treasuries with the its Operation Twist, and by potential overflow reaction as the Euro Zone worsens. The mere uncertainty of interest rate increases that would cause more funds to be used to pay interest instead of higher home prices dampens demand and depresses pricing.

POPULATION DEMOGRAPHICS HAVE SHIFTED: The housing bubble was driven in large part by Baby Boomers who controlled 80 percent of America’s wealth. During the bubble, they aggressively added 12 million housing units to the existing inventory of 112 million units, influencing the size and style of new inventory. Boomers reached beyond their means to buy more square footage than they needed or could afford. From the post war 1950s, the average home gradually increased from 258 square feet per person, but during the bubble, size increases swelled to over 960 square feet per person. To fill the square footage void, boomers added immediately obsolescing features such as gargantuan walk in closets, media rooms, sitting areas, and home offices that would not be valued by the following green generations.

The housing bubble burst just as the Baby Boomers began to retire, wanting to shed themselves of large houses. Their 1.7 children were flying from the nest and Boomers now wanted to condo-size. However, the 20 years following the Boomers’ births, 1965 to 1985, produced about one million less babies per year, not enough to absorb Boomer houses. This group of home buyers is now entering their peak earning and peak square footage years at a time of economic slump and increased awareness of energy and space efficiency. Therefore, the demand for large Baby Boomer houses will be diminished as contractors build new houses to meet this group’s desires. Changing demographics will place a downward pressure on Boomer housing pricing that will permeate the entire home market.

PRICE STICKINESS: 28.6 percent of homes with mortgages, or 14.6 million homes, have underwater mortgages. If the cost of selling a home and putting a down payment on a new home is included, then fully 50% of home owners cannot afford to sell their homes now. As pricing drifts downward, this figure will only exacerbate. As a result, would be buyers who cannot take the loss of a sale of their own property are trapped from entering the market, reducing demand, and depressing pricing.

Employers, who used to buy workers’ homes to initiate job transfers have ample local employee choices and can no longer justify the cost, further exacerbating a reduction of demand and thus putting a downward pressure on pricing.

GLOBALIZATION: After WWII, the United States military provided a modicum of economic stability in the world, lessening the risks of businesses transferring operations to overseas locations. As a result, mass transfers of capital and jobs to direct foreign investments increased significantly. With China’s doors opening in 1979, the U.S. flooded China with 40,000 new factories that each took away certainty of America’s future and that accelerated a trend toward wealth disparity and a diminishing middle class. The resulting impact on wage pressures over the past three decades has lowered the expectations of the new generation of home buyers, reducing demand and depressing pricing.

MONETARY IMPLOSION: The artificially stimulated economy of the past two bubble decades hid the underlying sickness of America’s base GDP. When the housing bubble finally popped, our consumer based economy was clogged with both housing and consumer debt that had been diverted from the real economy to feed the housing bubble. After the banks quickly pulled credit to protect themselves from what they knew would be a chaotic implosion, America’s consumer base had no means to continue consuming, the credit engine of small business was stopped even before small business could fulfill its current client requests, and business shortfalls translated to employee layoffs, precipitating a circular implosion of consumers, businesses, and employees wealth and debt capacity.

After the implosion, as the economy lingered without commerce or money creation, debts mounted, credit ratings suffered, and unemployment intensified. The ability of home owners to pay their mortgages decreased which in turn increased mortgage delinquencies and foreclosures and accelerated the deflation of the housing bubble, exposing the housing debt overhang.

The resulting economy now suffers from a trifecta of dilemmas. The greatest bubble America has ever experienced has led to a housing debt overhang that stifles America’s engine of consumption. It has also damaged credit ratings that have pulled American businesses’ and home owners’ access to essential cash management tools and vital growth credit. And it has led to a loss of productive jobs for 25 million Americans who without work cannot help to restore America’s economy. If a simultaneous solution to these dilemmas is not enacted, the economy will spiral lower and will create an environment for a continued downwardly drifting malaise of the housing market.

CONCLUSION:

Since the passage of the National Housing Act of 1949, Home ownership has been heralded as a benefit to American society, supporting stable families and prosperous communities. It has provided the number one source of economic security for the majority of Americans for the past six decades. However, rather than bring hope to millions of Americans that had previously been left out of the American dream, two decades of governmental policies and international banking have led to the gutting of that dream not only for those who could not afford homes previously but for tens of millions more Americans, eroding home ownership benefits in the process.

Rather than the rock of social stability that it could have been, the American home has become the proverbial albatross around the neck of the middle class, draining its limited wealth to keep banks from suffering the consequences of their prior decisions. If Congress is to stop the housing crisis’s deterioration of families and communities across America, and if it is to protect the cornerstone of our economic and national security, Congress must act now to stabilize what, by all indicators, will be another decade of housing pricing decay.

Components of my plan:

Equity for debt swap to remove excess housing debt
https://jobvoucherplan.com/2011/08/04/hawaiians-have-the-hale-housing-solution-to-right-america-housing-bubble/

Job voucher plan to employ all able Americans immediately
https://jobvoucherplan.com/must-reads/

Credit amnesty program to quickly repair business and consumer credit
https://jobvoucherplan.com/2011/09/08/yes-america-can-quickly-turnaround-heres-how/

Modified Republican multinational incentives that entice domestic investment without giving carte blanche tax holiday and that do not entice further foreign domestic investment
https://jobvoucherplan.wordpress.com/2011/10/26/our-economy-can-be-re-ignited-like-a-boy-scout-fire/

Leave a comment

Filed under American Governance, American Politics, China, Economic Crisis, European Crisis, Job Voucher Plan, National Security

A Titanic, Macabre Story of the West’s Final Money Flow to the East

Consider the world’s economy to be two ocean liners. The Western world inhabits one ship with various countries of Europe taking lower berths and the U.S. on the upper deck. The Eastern world contains the various countries of Asia throughout its floors with China inhabiting its upper deck. The wealth of each civilization is contained within each ship and relative wealth is measured by its height above the water line. The two ships are travelling through the arctic pass at night, let’s say in 1912, when the Western ship strikes an iceberg ripping a large gash in its side.

As the water begins to pour into the bowels of the Western ship, all is quiet except for the pure terror that has erupted in the ships bridge, for the captain and his mates know that grievous errors have been committed, perhaps even criminal acts, and as a result the Western ship will surely sink. Little by little the ship begins to creak and shift signaling to the passengers below sea level that something is amiss. Rumors begin to fly as some wealthy, first class passengers scurry to lifeboats ahead of the crowd knowing that not enough seats are available for all to survive a sinking. Others transfer their life savings and gold into the safe located at the very tip of the bow in the ship, hoping to somehow retrieve it when all danger has passed.

As the Western ship begins to list, panic sets in and passengers wildly run to what they think is the relative safety of the U.S. deck above. The crew that was hired to govern the ship on behalf of the people instead struggle to eke out their own survival, leaving passengers to fend for themselves.

Knowing that the two ships have travelled in tandem down this commercial corridor, the Western ship’s captain now desperately signals May Day to the Eastern ship hoping that it will come to the rescue of all aboard. Taking on all the passengers of the fallen vessel might prove too much so the captain of the Eastern ship chooses cautiously to keep distance knowing that bringing on passengers from a sinking ship of the West would only cause his forward progress to stall.

From a far off distance, the Western ship seems to be travelling peacefully at full steam ahead. Yet a closer look reveals that the countries of Europe have scampered from the lower berths grasping their wealth to reach the upper deck of America to put as much separation as possible between Europe’s fate with the icy arctic waters and theirs. If one were to peer onto the open decks from above that night, they would not show much signs of the impending doom for the decks would be full of people clinging to the rails of the United States as berths below gasped their last breaths of air.

But the same fate of rushing waters that flooded Europe below now began to reach the upper berths. Many of the first class passengers had taken their personal belongings with them and were lowered in lifeboats to the relative safety of the quiet, dark, glassy northern seas in hopes of rescue. Yet behind them were heard the shrieks of those left behind as the ship’s stern creaked lower into the sea.

For the longest time, America’s deck was full for it seemed the safest haven relative to the sea but as the back of the ship plunged lower, the deck became a torrent of falling debris. Interestingly to voyeurs of the macabre, the gold that was stashed in the bow now began to rise quickly out to the sea, making it appear briefly as a harbor of value and the safest place on the ship. But alas, as the ship stood upright and drifted deep into the waters below, even the safe that had kept the precious metals secure in the bow now was consumed into the icy blackness.

Certainly, the Ship from the East with a change of heart now came for the few elites that had made their way with gold in hand to life rafts, skimming them into the relative comfort and safety of lower berths of the Eastern ship. For it was but a momentary delay in their dominance of the sea lanes to secure the added pittance of gold from Western elites that were lifted from what surely would have otherwise been their tragic meeting with the ocean floor.

Leave a comment

Filed under American Politics, China, Foreign Policy