The next “Frankenstorm” to hit New York will be financial.
The destructive whirlwind that hits New York in 2013 will be a financial Frankenstorm.
Four years of glorious central-planning “extend and pretend” have enriched the political and financial Aristocracies, and imbued them with a bubble-era hubris that they have indeed gotten away with murder: the $6 trillion the Federal government borrowed over the past four years, the Fed’s $2 trillion in fresh cash, the Fed’s $16 trillion bailout of the banking sector and various perception management manipulations have righted the storm-tossed ship. All those with power in 2008 remain in power and all those with outsized wealth in 2008 still hold their outsized wealth.
The global tsunami of borrowed and printed money lifted the water-logged dinghies of the debt-serfs enough to give them hope of better times; meanwhile, their adjusted income has declined 8%: they are poorer while the neofeudal Aristocracy is much wealthier: same as it ever was, right?
Except the financial tides and winds have shifted, and the linearity of central planning is about to be disrupted by nonlinear, positive-feedback storms. Let’s list a few of the major storms brewing:
1. Destabilization of the euro. I have covered the fundamentals many times here:
The European Model Is Also Doomed (February 7, 2009)
When Debt-Junkies Go Broke, So Do Mercantilist Pushers (March 1, 2010)
Why the Euro Might Devolve into Euro1 and Euro2 (March 2, 2010)
Why The European Union Is Doomed (March 28, 2011)
Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)
Three More Reasons the Eurozone Is Doomed (September 22, 2011)
Yet Another Reason Why the Euro Is Doomed (October 17, 2011)
EU Leaders Throw Europe a Plutonium Life Preserver (October 27, 2011)
What’s Lost With the Demise of the Euro? Only What Was Unsustainable (November 22, 2011)
A Crazy Idea That Might Just Work: Greece’s New Currency, the U.S. Dollar (May 14, 2012)
The Tiresome Eurozone Soap Opera Has Entered Re-Runs (June 18, 2012)
Sorry, Bucko, Europe Is Still in a Death Spiral (July 2, 2012)
2. The U.S. dollar will rise significantly, crushing overseas corporate profits that have lofted the U.S. stock market ever higher. I have covered the many positive feedbacks that will continue pushing the dollar higher. Dollar goes up, stocks go down.
What’s Hated Most May Be a Contrarian Buy (U.S. Dollar) (April 19, 2011)
About Those Permanently Rising Corporate Profits… (August 12, 2011)
Why the U.S. Dollar Is Not Going to Zero Anytime Soon (July 23, 2012)
What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)
3. The “China Story” runs off the rails. We are feeling the first stiff breezes from China’s tidal paradox: as it starts pushing its neighbors around, resuming its Imperial ambitions, it undermines the source of its wealth, its export machine.
China has placed an informal boycott on Japanese goods as a result of the Senkaku Island conflict, which by the way cannot be resolved in the current paradigm. China, Japan and the Senkaku Islands: The Roots of Conflict Go Back to 1274 (September 25, 2012)
China’s newfound wealth was always more fragile than true believers in the “China Story” could fathom. China had what it took to go from rural backwater to global industrial power, but it lacks the necessary foundation to move beyond that stage. Once the Eurozone and U.S. economies gather downward momentum, the export machine’s inefficiencies and malinvestments will catch up with it.
And once that happens, the real estate bubble’s inefficiencies and malinvestments will catch up with it.
China: Ascendant Superpower Or Just Another Nation with Structural Problems? (April 24, 2009)
China and the U.S.: Dysfunctional Real Estate Bubble Twins (January 21, 2010)
The Myth of “Decoupling” and the Chinese Consumer (September 14, 2010)
Why China’s Housing Bubble Is Unsustainable (September 16, 2010)
Why The Wheels Are Falling Off China’s Boom (June 15, 2011)
There are structural dynamics in play that supercede any national policy.
Neofeudalism, neocolonalism, financialization, centralization and consumerism have all reached the stagnation-decline phase on the S-curve.
Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)
The Master Narrative Nobody Dares Admit: Centralization Has Failed (June 21, 2012)
Financialization’s Self-Destruct Sequence (August 16, 2012)
Is Anybody Else Tired of Buying and Owning Stuff? (September 7, 2012)
When these financial storms arise and feed each other, Wall Street and New York will experience losses that will exceed the hurricane Sandy damage by an order of magnitude, for the Wall Street Status Quo will crumble under its own dead weight.
Images: Flickr (licence attribution)
About The Author
Charles Hugh Smith writes the Of Two Minds blog (www.oftwominds.com/blog.html) which covers an eclectic range of timely topics: finance, housing, Asia, energy, longterm trends, social issues, health/diet/fitness and sustainability. From its humble beginnings in May 2005, Of Two Minds now attracts some 200,000 visits a month. Charles also contributes to AOL’s Daily Finance site (www.dailyfinance.com) and has written eight books, most recently “Survival+: Structuring Prosperity for Yourself and the Nation” (2009) which is available in a free version on his blog.