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THE WAY THINGS ARE: The meaning of life is to be found in thinking about what is reality and the beauty of reality is to be found in our DNA's memorization of all forms that have been successfully retained along the four billion years of evolution of the principle of life on Gaia our earth. In the end what I mean to say is that beauty is something objective and what we call ugliness is then simply our unconscientious feel of something evolution did not retain.
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"The next bubble: Priming the markets for tomorrows big crash" by Eric Janszen (Harpers Magazine)
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Mar 11, 10:47am
5 reviews
•http://www.harpers.org/archive/2008/0...
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The next bubble:
Priming the markets for tomorrow's big crash
in Harper's Magazine by Eric Janszen
Eric Janszen is the founder and president of iTulip, Inc. He formerly served as managing director of the venture firm Osborn Capital, CEO of AutoCell, Inc. and Bluesocket, Inc., and entrepreneur-in-residence for Trident Capital.
After 1975, the United States would never again post an annual merchandise trade surplus. Such high-value, finished-goods-producing industries as steel and automobiles were no longer dominant. The new economy belonged to finance, insurance, and real estate - FIRE.
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As FIRE rose in power, so did a new generation of politicians, bankers, economists, and journalists willing to invent creative justifications for the system, as well as for the projects - ranging from the housing bubble to the Iraq war - that it financed.
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In a bubble, fictitious value goes away when market participants lose faith in the religion - when their false beliefs are destroyed as quickly as they had been formed. Since the early 1980s, the free-market orthodoxy of the Chicago School has driven policy on the upward slope of an economic boom, but we're all Keynesians on the way down: rate cuts by the Federal Reserve, tax cuts by Congress, deficit spending, and dollar depreciation are deployed in heroic proportions.
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Even after the faith that supported a bubble recedes, false beliefs continue to obscure cause and effect as the crisis unfolds.
Consider the chemical industry of forty years ago, back when such pollutants as PCBs were dumped into the air and water with little or no regulation. For years, the mantra of the industry was "the solution to pollution is dilution." ... Many decades later, with our plagues of hermaphrodite frogs, poisoned ground water, and mysterious cancers, the mistake in that logic is plain. Modern bankers, however, have carried this mistake into the world of finance. As more and more loans with a high risk of default were made from the late 1990s to the summer of 2007, the shared level of credit risk increased throughout the global financial system.
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As more and more risk pollution rises to the surface, credit will continue to contract, and the FIRE economy - which depends on the free flow of credit - will experience its first near-death experience since the sector rose to power in the early 1980s. Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation. If the rate of decline stabilizes at between 6 and 7 percent each year, the correction has about six years to go before things stabilize, leaving the FIRE economy in need of $12 trillion. Where will that money be found?
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Now the Funds Rate is only 4.5 percent, the dollar is at multi-decade lows, the federal budget is in deficit, and tax cuts are still in effect. The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.
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... we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver "energy security."
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Given the current state of our economy, the only thing worse than a new bubble would be its absence.
 The next bubble: Priming the markets for tomorrow's big crash
Excellent article. If you are interested to understand what drives our economies and societies in early 21st century then you should absolutely read this extremely long article.
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