Category Archives: International

Thus it Begins: The Great Stock Market Crash of 2016

What you’re reading is the introduction to a book I knew I was supposed about where the U.S. and the world is headed. I’ve know I had to write it since the fall and to say it scared me as an understatement. By December I was at least willing to start telling people around me, including my wife key elements of the book including that the US economy will crash and that Donald Trump will be President of the United States. Neither is a guess: this is what will happen.

On January 3rd, I told my wife the key elements again. The only thing that changed was that the order had reversed and finalized. I told her:

This year, the US Economy will crash and then Donald Trump will be elected President.

The next day, the U.S. markets opened and had their biggest initial drop on an opening day since 1932. That (1932) is the year the U.S. Great Depress began for real. And I finally went out on the line in public by tweeting the news with the hashtag #ThusItBegins.

Tomorrow morning, the markets will open for the third week of the year. The press will continue to fret, wave their hands and mostly say it’s psychological and things will stabilize soon. Unemployment is down. Fundamentals are solid. Blah. Blah. Blah. Just a few things to sort out. But things won’t. We’re past that point.

We’re at the beginning of the Great Stock Market Crash of 2016. The stock market crash is just the opening salvo of a brutal shift in the world that will be much larger, deeper and nastier than just another recession.

 

And I honestly don’t want to write this book. It’s not because I’m shy about writing about dark subjects or the darkness in subjects. It’s because I’m saying G*d has told me to write it. While I once had a reviewer call me a prophet, he merely meant as someone who warns. He certainly didn’t think G*d was around and sending people out to describe what’s happening.

Why in the world would I do such a crazy stunt? I wasn’t raised in any faith. In my Bachelors (Physics) and Graduate (Humanities) work, G*d was basically ignored other than the occasional ridicule from, usually, another student. The professors for the most part didn’t waste their time on the subject. They assumed the whole faith thing was a left-over from the pre-rational world.

To say that G*d told me to be a prophet is to immediately be regarded by most people I know as, at least, slightly unhinged. Even most of the American Christian world assumes that miracles and prophets stopped a long time ago.

But, here I am. Since this book got dropped in my life, I’ve waited again and again for confirmations because it still sounds crazy to me. And I’ve tested things I’ve gotten again and again and I’ve had confirmations that are unlikely in the extreme.

 

I’d describe my plans for this book but that assumes I’ve got one. Back to I’m supposed to have been writing this for a while. Beyond a few scribbled notes, this book will appear basically as I write it. This blog entry is the initial “Introduction” and will bundled up shortly as the initial release of the book via PDF on this website. Later I’ll make it available on Amazon.

 

This document has been saved as a pdf and can be downloaded: http://4til7.com/wp-content/uploads/2016/01/Introduction-v1.pdf

My first job (at a swim meet)

Paper Boy

I’m at a swim meet with my 12 year old daughter waiting for her first heat. In Twitter:

@Kelsye: In SIX WORDS, write a story about your first job http://kelsye.com/six-words-fewer-write-story-first-job/ #6words

I write

throw papers
avoid
creepy old man

I was a little younger than my daughter when I worked that job. The past shouldn’t echo but it does.

gazaWe’re still waiting so I listen to BBC news. The reporter is at a hospital in Gaza. An old lady moves slowly down the street …with her husband… holds a white flag as far over her head as she can maybe they …miles away they… won’t fire on her? Beyond the reporter …end of the block… artillery? mortars? explosions. The reporter …war reporter… keeps going through a voice that wavers her past experience not enough?  around the edges and shakes.

She won’t can’t? describe the body in front of her. Into my head pops Monty Python explosion… Time Bandits midget gone. She doesn’t say if the old lady makes it. More explosions disappear Python.

I think the reporter will make it. For me, BBC News has this weird quality that won’t countenance otherwise. It just wouldn’t be proper. What I don’t know is whether she’ll survive.

And I’m not sure which she I really mean.

ISIS | ISIL update

Editorial apologies: occasionally I have to post but I don’t have time to proof and edit. This is such a time. It’s days after I put this together and well past midnight here. The thoughts go out now; typo or no.

In the last three days, more news came out of Iraq. ISIL has taken the border crossings between “Iraq” and Syria, Lebanon, Saudi Arabia. What was lost in the cross-fire was what has happened with Kurdistan. They control the border crossings into Northern Iraq —including those into Syria. They’ve moved south to take cities they were disputing with Baghdad as well as to secure territory. They know control, based on what I’ve seen, an area fifty to one-hundred percent larger than they used to. ISIL controls much of the territory west of Baghdad. And Baghdad controls a wedge between Kurdistan, ISIL and Iran. The partition of Iraq continues.

Much of the media calls them ISIS. At one level, they’re just one faction in a Suni coallition that’s fed up with Baghdad’s Shia exclusivity. They’re shut out. Malikhi is ensuring his people are no longer oppressed by arresting and excluding everyone else. And he’s opened a huge door for ISIS, a group that even Al Queda thinks is too extreme. But, that ISIS acronym is not a good translation. If I read it correctly, the Arabic is not the Islamic State of Iraq and Syria but the Islamic State of Iraq and the Levant. The Levant is not Syria. It is a swath of territory that runs down into, and covers much of, Israel. So far, they’ve played this in Lebanon. What’s to be seen is how they play this in the portion of the Levant known as Israel.

ISIS takes control of major portion of Iraq. Becomes country?

ISIS (the Islamic state of Iraq and the Levant) has taken control of Ninevah province which includes Mosul. Confirmed by Iraqi top official. Happened in a very short period (sounds like three days). Iraqi army resistance collapsed pretty rapidly. Lots of refugees fleeing Ninevah, etc.,

Now… what’s important?

ISIS Effectively controls a country

I found a map that purports to show ISIS territory (before new events):

http://upload.wikimedia.org/wikipedia/commons/thumb/d/de/Territorial_control_of_the_ISIS.svg/1654px-Territorial_control_of_the_ISIS.svg.png
Yellow: Syria, Iraq
Red:ISIS territory

Ninevah is the Iraqi province that controls most of the “Syrian” border northeast of the red. It’s more clearly shown in link in third section

The combined area (existing red plus Ninevah) seems comparable in size to Jordan. And it straddles about half of the old Iraq/Syria border.

ISIS

ISIS is (of course) a former Al Quieda affiliate. If memory serves, they’ve been the perpetrators of some of the worst crimes by any of the anti-government forces in the Syrian Civil War. Wikpedia: http://en.wikipedia.org/wiki/Islamic_State_of_Iraq_and_the_Levant.

Partition

There was already, effectively, an independent Kurdish state (The Kurdistan “regional” government) in “Iraq” north and east of ISIS territory. They have their own army, the iraq flag doesn’t fly on their territory, etc., Seemingly Independent in all but explicit name. Wikipedia has a map of their territory (that also happens to clearly show Ninevah) about 1/3rd way down their page on Iraqi Kurdistan http://en.wikipedia.org/wiki/Iraqi_Kurdistan I would suspect it’s going to difficult for Baghdad to keep control of significant chunks of the areas that are in dispute between Kurdistan and the Baghdad. And it’s going to be in Kurdistan’s interest to ensure that they effective control of a defensible area vis-a-vis possible conflict with ISIS.

There’s been a lot of chatter (including advocacy of it by big name think tanks) going back to at least ’06 advocating some version of Iraqi partition, soft or otherwise. It seems to be happening explicitly now. Whether any of the think tanks anticipated it would be paralleled by the partition of Syria is a whole ‘nother question.

Wild Cards

Some thought churners vis-a-vis neighboring states

  • Turkey has been building bridges with Kurdistan.
  • Turkey has no love of ISIS and probably sees ISIS as a significant threat
  • Iran’s reaction will be interesting to say the least. Do they support ISIS, Baghdad or pragmatic-ish-ly using both?
  • Badhad is willing to strike ISIS in Syria (at least one known attack in last six months)
  • Other anti-government forces in Syria have a lot of motivation to unify/consolidate (well… or die)

Whither Europe

The Never Ending Story of Europe’s Crisis, the Great Recession in the States and, before that, the Great Depression, all remind us of a basic fact: Capitalism is dependent first and foremost on the availability of Capital.

In 1933, with massive bank runs across the country, FDR declared a national bank holiday and the Federal Reserve committed to supply unlimited amounts of currency to banks. There was what amounted to a 100% backing of banks. When the banks, reopened, people stood in line redeposit their money and the bank runs were over. 2

During our most recent crisis, the coverage was of CDO’s, MBS’s, massive bubbles and greed, corruption and foolishness by lenders, borrowers and politicians. But, the moment that we came closest to turning a massive recession into a Depression to rival that in the ’30s was when overnight lending markets froze up. A long list of businesses are dependent on overnight lending markets. It’s the mechanism that many capital-intensive businesses use to finance operations. As an example, when a car dealer needs to buy inventory, they often use overnight lending to purchase inventory and then role those loans over for short periods as they sell that inventory. You can round up examples throughout the economy.

As the crisis deepened in late ’07, the key index on this type of lending (the Libor-OIS spread) went from single digits to 90 basis points. Borrowing costs went up ten fold. But, in the Fall of ’08, the situation went from bad to worse and credit markets freaked out and the Libor-OIS spread past 350 basis points.1

Lenders had no faith they’d be repaid. If you could borrow money, it cost you 35 times as much as before. It was so expensive that, by the time a car dealer sold the cars they’d financed, they didn’t make enough to cover what they paid for that car and the money they borrowed.

If you missed it, the basic common element is a kind of faith. If the people with money don’t think they’re going to get their money back, why should they let someone else use it? Those people want to know their money isn’t going to disappear. They lend their money to make money. Greed may or may not be good but it’s what motivates Investors to let other people use their money.

Available Capital for businesses doesn’t magically create economic growth or jobs. It’s just a necessary prerequisite. Joe’s New and Used Cars isn’t going to have cars to sell if he isn’t either already very very rich or can use someone else’s money, and do so cheaply enough that he can still make money on those cars after he pays for the money, his employees, building and so on.

Which brings us around to Europe. A big part of the problem in Europe is in their banking system. Countries in Europe, experienced a housing bubble that popped. High unemployment in certain Euro-zone countries, like Spain, added even more bad private sector debt to the books of European banks, cutting the amount of capital banks have available to loan.

Many of these banks have also been financing the debt of Europe countries. It’s become clear that Greece won’t collect the taxes that are owed, provides services completely out of line with its resources and keeps cooking the books to hide the mess. Other countries in Southern Europe had debt loads that were sustainable before the crash caused large drops in their tax revenues.

So now, the same European banking system is loaded with both bad private sector debt and bad public sector debt and the public knows it. The countries with the biggest banking problem are precisely those countries that are having problems borrowing the money. They are in no position to help their own banks. Europe as a whole has already funneled more funds to the banks. But, the banks have sat on the funds. Instead of being available, it sits.

Combine a banking system that’s broke with a Greek government that many people believe will pull out of the Euro and the public in Greece has lost all confidence in their banks. Money is pouring out of Greek banks.

But, whether Greece pulls out of the Euro in the short term or not, there’s a fundamental disconnect in Europe. Europe’s banks and markets are tied together by one currency but there’s no comparable structure in place to guarantee those banks. Next to that is a related issue: why should Germany in particular get on board with guaranteeing banks that are caught in the mess of structural problems that are Greece, Spain and Italy? Thus the demand for outside oversight of the Greek budget.

More and more, there only seem to be two scenarios on the table. The first is the collapse in part or in full of the common currency. That way lies decades of cleanup and (at least) a massive recession that will spread world-wide. The other path being discussed is a form of European Federalism. This would (at least short term) be a step or two short of the so-called United State of Europe but it would still centralize much of the authority on taxing, budgets and managing the European capital system in Brussels. European voters have repeatedly rejected the so called United States of Europe. They fear loosing their individual identities. Do they fear the dissolution of the common currency enough to develop the political will to move to Federalism?

And, if Europe does move that way, it does so by accepting joining the Americans in what we’ve been doing since 1970: socializing risk. You can’t have a single economic entity with hundreds of millions of people under free market capitalism and not socialize the risks in the financial systems, because the alternative is to watch that system and your economy collapse every recession or so.

Socializing risk has a cost. Some have calculated that the average systemic banking crisis cost 13% of GDP to clean up and resulted in a loss of 20% of GDP.3 But, there’s a little more to this puzzle. As one participant in a discussion on CBC’s ideas program a few days ago noted, European economic growth has steadily dropped over the course of the European Project. The current world economic model that marries capitalism to free markets has been working better in most people’s eyes than the long-gone Soviet-style command and control economic system. But issues like socialized risk, the requirement for indefinite growth and the problems we are seeing –the crisis in Europe, the systemic the stagnation in the U.S. and the developing strains in China– beg two questions: can the current model be fixed and is a better model possible?

1 Emergency Banking Act
2 Interbank Lending. Many people blame the spike directly on the US Government refusal to bail out Lehman brothers. There are other arguments. Why the credit markets blew up doesn’t matter for the basic point.
3 Bank runs

Note: all of the linked sources are Wikipedia. While I drew on many additional sources putting together this piece, Wikipedia’s articles in this are solid pieces that provide further links back to various sources. The fact that any group of three economists will have four opinions on a subject pretty much guarantees that, if you want to get a reasonably complete range of opinions that deeply covers the problems in Europe, you’re going to need to read more than a few pages.

Update: The story in Europe is changing so fast that this piece was drafted Saturday, went through a major rewrite (instead of a simple edit) before I posted it Sunday and the, this morning, news hit of the 100B Euro Rescue of Spanish Banks. Stock markets around the world spent the day going south. A few hours ago, the Wall Street Journal published an editorial by Chris Noyer (Governor of the Banque de France) advocating a milder version of the Fiscal Federalism I describe above.