Blogging the Apocalypse
By: Dr. Sam Vaknin
Also read Philosophical Fragments I and Philosophical Fragments II
6. Recession, False Recovery, Depression
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Written February 27, 2006
Incrementally, but noticeably, the United States is shedding its democracy. Hard-won civil liberties are willingly sacrificed for the sake of illusory added security. Institutions are stacked with political, partisan appointees who do their puppetmaster's bidding. Laws are openly broken and the Constitution flaunted with breathtaking callousness and an ease that would have been considered unthinkable on September 10, 2001. I wouldn't be surprised if the forthcoming presidential elections are suspended due to this perpetual "state of emergency".
Largely ignorant of history and thus devoid of any meaningful or helpful perspective, people shrug off this doomsday scenario. They forget that Rome - a four hundred years old republic with venerable institutions like the Roman Senate - gave in to tyranny in the space of four years. The same goes for ancient Athens, the first truly participatory democracy on earth, transformed by wars into a hideous dictatorship.
America's is a malignantly narcissistic culture. Its denizens believe counterfactually that it is the richest, most virtuous, freest, society on earth. Reasonably, they are convinced that everyone is destructively envious of them. This renders them paranoid and violent. An early and observant traveler, Alexis de Tocqueville, noted this siege mentality and warned that the United States is walking a thin line between freedom and authoritarianism.
It is this ingrained belief that the world is hostile and harsh that will likely undo the American experiment. Psychology teaches us about projective identification - a defense mechanism that forces people around you to behave the way you are accustomed and expect them to. Treating everyone as a potential enemy usually turns them into ones.
Politics, in all its forms, is bankrupt. The notion that we can safely and successfully hand over the management of our daily lives and the setting of priorities to a political class or elite is thoroughly discredited. Politicians cannot be trusted, regardless of the system in which they operate. No set of constraints, checks, and balances, is proved to work and mitigate their unconscionable acts and the pernicious effects these have on our welfare and longevity.
Ideologies - from the benign to the malign and from the divine to the pedestrian - have driven the gullible human race to the verge of annihilation and back. Participatory democracies have degenerated everywhere into venal plutocracies. Socialism and its poisoned fruits - Marxism-Leninism, Stalinism, Maoism - have wrought misery on a scale unprecedented even by medieval standards. Only Fascism and Nazism compare with them unfavorably. The idea of the nation-state culminated in the Yugoslav succession wars.
People are voting with their feet. Most elections draw to the ballot boxes and the polling stations less than half the electorate.
Three models seem to be emerging as the dominant forms of future politics:
I. Anarchism, both destructive (international terrorism, for example) and constructive (the Internet, for instance).
II. Participatory democracy, both destructive (mob rule and coups) and constructive (people power, especially in Asia and Latin America).
III. In certain countries, mainly in the West, a disenchanted and uninterested citizenry will relegate power and vest it in various oligarchies, forfeiting its decision-making prerogatives altogether and permanently in return for material welfare and personal safety.
In this nightmarish world of ours even the erstwhile comfortingly familiar has gone awry and menacing.
Birds, those soaring symbols of liberty and beauty now carry death and devastation in the form of avian flu.
Airplanes, the reification of overcoming gravity and attaining freedom, these harbingers of the global village, now wreak havoc by slamming into skyscrapers and bombing weddings.
The Internet, this eruption of joyous creativity and boundless interaction, is now a minefield of flame wars, malware, gambling, crime, spam, and child pornography.
The United States, once considered by many the beacon of democracy, the home of the liberal ideal exiled from Europe by wars and genocides - is now a thuggish, brutish, murderous threat to world peace and stability.
"The most scandalous charges were suppressed; the vicar of Christ was only accused of piracy, murder, rape, sodomy, and incest."
(English historian Edward Gibbon on Pope John XXIII)
The history of the Catholic Church reads like the annals of a global crime concern. It gave the world the inquisition, incestuous and murderous popes, religious warfare, pedophiliac sex scandals, idolatry, and the gnawing guilt that comes from embracing life-defying ideals. Its intentional lack of transparency, murky dealings, and refusal to be held accountable for the actions of its adherents and officials have rendered it complicit in the most horrendous events of the last two millennia.
With a modicum of justice it has been accused of anything and everything from collaborating with the Nazi regime (and helping war criminals flee justice) to instigating and perpetrating the more insidious forms of anti-Semitism. Its current head was a willing member of the Nazi youth movement and has reinstated patently anti-Semitic bishops, excommunicated by his predecessor (who, on his part, actively spread AIDS throughout the developing world by prohibiting the use of contraceptives).
Hence "The da Vinci Code" and a slew of other anti-Catholic tomes. This genre thrives on the widespread conviction that there is nothing the Catholic Church will refrain from doing or find too abhorrent to further its earthly wealth and might. Alas, history this time is on the side of the conspiracy theorists.
Written May 18, 2006 - Updated April 5, 2007
When I was growing up in a slum in Israel, I devoutly believed that knowledge and education will set me free and catapult me from my miserable circumstances into a glamorous world of happy learning. But now, as an adult, I find myself in an alien universe where functional literacy is non-existent even in developed countries, where "culture" means merely sports and music, where science is decried as evil and feared by increasingly hostile and aggressive masses, and where irrationality in all its forms (religiosity, the occult, conspiracy theories) flourishes.
The few real scholars and intellectuals left are on the retreat, back into the ivory towers of a century ago. Increasingly, their place is taken by self-taught "experts", narcissistic bloggers, wannabe "authors" and "auteurs", and partisan promoters of (often self-beneficial) "causes". The mob thus empowered and complimented feels vindicated and triumphant. But history cautions us that mobs have never produced enlightenment - only concentration camps and bloodied revolutions. The Internet can and will be used against us if we don't regulate it.
Dismal results ensue:
The Wikipedia "encyclopedia" - a repository of millions of factoids, interspersed with juvenile trivia, plagiarism, bigotry, and malice - is "edited" by anonymous users with unlimited access to its contents and absent or fake credentials.
Hoarding has replaced erudition everywhere. People hoard e-books, mp3 tracks, and photos. They memorize numerous fact and "facts" but can't tell the difference between them or connect the dots. The synoptic view of knowledge, the interconnectivity of data, the emergence of insight from treasure-troves of information are all lost arts.
In an interview in early 2007, the publisher of the New-York Times said that he wouldn't mourn the death of the print edition of the venerable paper and its replacement by a digital one. This nonchalant utterance betrays unfathomable ignorance. Online readers are vastly different to consumers of printed matter: they are younger, their attention span is far shorter, their interests far more restricted and frivolous. The New-York Times online will be forced into becoming a tabloid - or perish altogether.
Fads like environmentalism and alternative "medicine" spread malignantly and seek to silence dissidents, sometimes by violent means.
The fare served by the electronic media everywhere now consists largely of soap operas, interminable sports events, and reality TV shows. True, niche cable channels cater to the preferences of special audiences. But, as a result of this inauspicious fragmentation, far fewer viewers are exposed to programs and features on science, literature, arts, or international affairs.
Reading is on terminal decline. People spend far more in front of screens - both television's and computer - than leafing through pages. Granted, they read online: jokes, anecdotes, puzzles, porn, and e-mail or IM chit-chat. Those who try to tackle longer bits of text, tire soon and revert to images or sounds.
With few exceptions, the "new media" are a hodgepodge of sectarian views and fabricated "news". The few credible sources of reliable information have long been drowned in a cacophony of fakes and phonies or gone out of business.
It is a sad mockery of the idea of progress. The more texts we make available online, the more research is published, the more books are written - the less educated people are, the more they rely on visuals and soundbites rather than the written word, the more they seek to escape reality and be anesthetized rather than be challenged and provoked.
Even the ever-slimming minority who do wish to be enlightened are inundated by a suffocating and unmanageable avalanche of indiscriminate data, comprised of both real and pseudo-science. There is no way to tell the two apart, so a "democracy of knowledge" reigns where everyone is equally qualified and everything goes and is equally merited. This relativism is dooming the twenty-first century to become the beginning of a new "Dark Age", hopefully a mere interregnum between two periods of genuine enlightenment.
Written February 22, 2009
The Next 18 Months: Recession, False Recovery, Depression
The Obama stimulus package, worth some 800 billion USD, the 1.9 trillion USD in TARP funds and the endless Fed injections and auctions are bound to revive the moribund American economy by the third and fourth quarter of 2009. The Dow-Jones is likely to touch 10900, consumption will recover, as will housing starts and, in some markets, housing prices.
But this "recovery" will prove to be a false dawn. It will last 2 quarters at most and will be followed by a recession so deep and dangerous that it will truly qualify as a Depression. The current recession is merely a prelude to the depression of 2010-5.
Here are the reasons:
(i) The stimulus should have been more sizable, taking into account the dimensions of the crisis.
The fate of modern economies is determined by four types of
demand: the demand for consumer goods; the demand for investment goods; the
demand for money; and the demand for assets, which represent the expected
utility of money (deferred money).
Periods of economic boom are characterized by a heightened demand for goods,
both consumer and investment; a rising demand for assets; and low demand for
actual money (low savings, low capitalization, high leverage).
Investment booms foster excesses (for instance: excess capacity) that
invariably lead to investment busts. But, economy-wide recessions are not
triggered exclusively and merely by investment busts. They are the outcomes of a
shift in sentiment: a rising demand for money at the expense of the demand for
goods and assets.
In other words, a recession is brought about when people start to rid themselves
of assets (and, in the process, deleverage); when they consume and lend less and
save more; and when they invest less and hire fewer workers. A newfound
predilection for cash and cash-equivalents is a surefire sign of impending and
imminent economic collapse.
This etiology indicates the cure: reflation. Printing money and increasing the
money supply are bound to have inflationary effects. Inflation ought to reduce
the public's appetite for a depreciating currency and push individuals, firms,
and banks to invest in goods and assets and reboot the economy. Government funds
can also be used directly to consume and invest, although the impact of such
interventions is far from certain.
(ii) The US government should have nationalized the big banks, let other financial institutions that are not too big to fail do so, and force mergers and acquisitions on the rest. Half-hearted measures intended to provide balance-sheet relief are unlikely to restore trust in financial intermediaries. In the absence of such trust, banks will not resume their traditional roles of capital allocation and interbank lending. As it is, we are likely to see a run on some of the banks, including at least one major (probably Wells Fargo).
(iii) Europe's real economy as well as its financial sector are
a mess. France, in sliding officially into a recession, has joined Spain,
Ireland, and, now, the United Kingdom and Germany. Battered by a strong euro,
expensive energy, and mighty competition from China, the US, and India, European
exports have stagnated. As opposed to the USA (where exports constitute 18% of
GDP), Europe is dependent on foreign carbon fuels and foreign markets for its
goods and services. Exports constitute more than 40% of Eurozone GDP.
Moreover, Europe's commercial banks are in horrible shape - far worse than
America's. This year alone, European banks must pay 1.41 trillion US dollars in
principal and interest, mainly to bondholders. They don't have the money and
they cannot borrow it from other banks because interbank lending has all but
dried up. Many of them are already technically insolvent. They are also
over-exposed to emerging markets in Eastern Europe, Latin America, Africa, and
Asia.
Car repossessions are up 25% in Romania, as the members of a
newly-minted class of consumers are unable to meet their obligations. Austrian,
Greek, Swedish, and German banks are exposed to default risks throughout Central
and Eastern Europe. Consumers and businesses in Serbia, Ukraine, Hungary, and
other teetering economies owe Austrian financial institutions $290 billion -
almost the entire GDP of this country!
As local currencies depreciate, debts, denominated in foreign exchange, grow
more expensive to service. As the real economy contracts, in the first phase of
what appears to be a prolonged recession, bad loans mushroom and reserves are
exhausted. This requires cash-strapped governments to recapitalize major banks.
Faced with current account and budget deficits, some of these sovereigns are
scrambling for outside infusions from the likes of the IMF.
Europe's recession will be profound and protracted. Asia is likely to follow
suit: Singapore, Japan, South Korea, and Taiwan are already technically in
recession and China's growth rate is abating. A contraction of GDP in both India
and China is no longer inconceivable. It seems that yet again, the USA will be
faced with the daunting task of dragging the rest of the world back to growth
and profitability.
(iv) To finance enormous bailout packages for the financial
sector (and potentially the auto and mining industries) as well as fiscal
stimulus plans, governments will have to issue trillions of US dollars in new
bonds. Consequently, the prices of bonds are bound to come under pressure from
the supply side.
But the demand side is likely to drive the next global financial crisis: the
crash of the bond markets.
As the Fed takes US dollar interest rates below 1% (and with similar moves by
the ECB, the Bank of England, and other central banks), buyers are likely to
lose interest in government bonds and move to other high-quality, safe haven
assets. Risk-aversion, mitigated by the evident thawing of the credit markets
will cause investors to switch their portfolios from cash and cash-equivalents
to more hazardous assets.
Moreover, as countries that hold trillions in government bonds (mainly US
treasuries) begin to feel the pinch of the global crisis, they will be forced to
liquidate their bondholdings in order to finance their needs.
In other words, bond prices are poised to crash precipitously. In the last 50
years, bond prices have collapsed by more than 35% at least on three occasions.
This time around, though, such a turn of events will be nothing short of
cataclysmic: more than ever, governments are relying on functional primary and
secondary bond markets for their financing needs. There is no other way to raise
the massive amounts of capital needed to salvage the global economy.
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