Home > General Comment, political-economy > What just happened… (2)

What just happened… (2)

September 30, 2008 Leave a comment Go to comments

The financial crisis which has roiled world financial markets since last year, has now boiled over into a political crisis. The revolt of the extremes against the middle consensus, we have asserted, is the opening salvo of an authentic 21st Century revolution against the existing order.

And, we are not alone in this view. According to one observer we found today:

[L]ast night’s vote was a Fort Sumter-esque shot in a modern class war. Macro Man has long thought the the negative aspects of globalization would eventually manifest themselves; however, he suspected that the primary mechanism would be protectionism. While there’s nothing to say that that still won’t be the case, he nevertheless views last night’s failed vote through the prism of Joe Sixpack desiring to claw back some living standard away from modern plutocrats.

Million of ordinary American families, suffering miserably under stagnant wages and income (as Wall Street and Washington gorged themselves on a rich diet of international credit inflows from China, Japan, Russia and the oil dependencies) have finally sunk beneath the waters of consumer debt.

It is important to remember this crisis is being driven by the saturation of the consumer market for debt – given their stagnant wages, working families cannot absorb more debt no matter how lavishly the credit markets of Wall Street are provisioned with cash by Washington bailouts.

Of course, we don’t have to tell you this if you are a typical working family carrying the average $9000 of credit card debt – on top of your home mortgage, and auto loan(s).

Only to Washington and Wall Street does this have to be explained.

Even for CNBC talking heads, who have shilled this bailout for about 15 hours a day, every day, this past week, the calamitous logic of onrushing events is finally seeping into their lizard consciousness:

Mark Haines: Ken (Goldstein, Senior Economist, The Conference Board), how can the consumer keep going? [They have] been financed by debt for years now, and you’re just not going to be able to do that anymore.

Ken Goldstein: Well, that’s a longer term situation, but right now that credit situation, especially with those credit spreads so wide, there is even the possibility companies won’t be able to get the money to make their payroll. That is how dire this [financial crisis] is.

MH: So, the consumer gets caught both ways? They’re not going to able to borrow, and they’re not going to get paid? This is really bad.

KG: This is about as bad as it gets.

Working families have seen their wages stagnate, and, their home equity shrink, or even go negative, as economic conditions worsen – leading to rising rates of home mortgage defaults and foreclosures.

The Washington ponzi scheme built on this shifting sand of class civil warfare – the likes of which has not been seen in modern American history – so clearly represents the unquestioned dominance of Wall Street over Main Street, that were it not for the glaring contradiction of its very constitution all would be lost.

The writer continues:

If the rationale for the TARP’s failure could be distilled in one chart, it would be the one below, which shows a surge in corporate profits (at the apparent expense of wages) as a share of national income. It is the divergent fortunes of these two series that has fueled Main Street anger and turned “no” voting Congressmen into class warriors.

Here above, in graphic form, is the engine of this particular revolution: the growing desperation of millions of working families who have watch their share of national income decline to dangerous and unsustainably low levels.

Equally to be noted, the slide of these same families into their present status as post-industrial era sharecroppers who find at the end of their day’s labor that they are deeper in debt than at the beginning:

The US savings rate [shown below] has been steadily declining since long before the invention of CDOs, SIVs, and subprime.

States the writer, this fall has to be reversed:

A large part of the rationale for government intervention in the current crisis is to ensure that this occurs in a gradual, orderly fashion, rather than abruptly via the wholesale withdrawal of credit throughout the economy.

Why suddenly the country is threatened with the “wholesale withdrawal of credit,” and, what that withdrawal means to you is the topic of our next section.

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