Friday, September 5, 2014
Go To Original
Speaking before a trade union-organized “Laborfest” in Milwaukee, Wisconsin, in the middle of a speech filled with pseudo-populist rhetoric about “helping the middle class,” US President Barack Obama let slip the essence of his administration’s economic policy and the basic character of the capitalist system in the United States.
“It’s a good thing that corporate profits are high,” he said. “I want American businesses to succeed. It’s a good thing that the stock market is booming.”
What Obama did not say, and what is obvious to an ever-growing section of the population, is that the endless rise of the stock market and record corporate profits are a measure of the economic disaster for the majority of the population. What Obama in fact means, but does not say, is that it is a “good thing” that corporate executives and financial speculators are seeing their wealth soar as a direct result of a wholesale assault on jobs, wages and social programs, combined with trillions of dollars in free cash from the US Federal Reserve.
It is instructive to compare Obama’s words to those of another representative of the American ruling elite, President Franklin Roosevelt, who used the occasion of his first inaugural address in 1933 to denounce the “practices of the unscrupulous money changers” who “stand indicted in the court of public opinion.” Roosevelt declared that his election announced the fact that “the money changers have fled from their high seats in the temple of our civilization.”
Roosevelt insisted on “two safeguards against a return of the evils of the old order: there must be an end to speculation with other people’s money, there must be a strict supervision of all banking and credits and investments.”
Roosevelt was speaking at a time when the United States was emerging as the world’s leading economic powerhouse. Under these circumstances, the US ruling elite responded to the economic crisis and revolutionary upheavals of the time with social reforms and attempts to place restrictions, however limited, on the operations of finance capital.
Today, Obama’s comment that a soaring stock market is a “good thing” reflects the universal consensus within the US political establishment. The “unscrupulous money changers”—that is, Wall Street speculators—dictate policy, in naked fashion. Every significant action undertaken by the government has the direct aim of enriching the financial oligarchy at the expense of the working population.
Obama made his remarks just days after the S&P 500 breached 2,000 for the first time. To put this figure in context, the stock index never surpassed 1,600 in either the midst of the dot.com bubble or the financial mania that led up to the 2008 crash.
Among those who make it their business to follow the markets, there are increasing warnings that the riotous growth in share values is fueling what could be the biggest US stock market bubble of all time. Brett Arends, writing in MarketWatch, observed that, by some measures, the present stock market rally is already the largest in modern history. He noted, “The median stock today is 20 times earnings. In January 2000 [at the peak of the dot.com bubble], it was 16 times.” Arends added, “The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.”
The difference, Arends notes, is that while the dot.com bubble was driven by speculation in a handful of technology firms, the present bubble involves the whole market. In July, Neil Irwin, writing in the New York Times, warned of an “Everything Bubble” in which “there are very few unambiguously cheap assets,” amid a torrent of money pumped into global financial system by the world’s central banks.
This state of affairs is the direct result of the policies carried out by the Obama administration. As former Treasury Secretary Timothy Geithner recently acknowledged, during the bank bailout the government loaned nearly $7 trillion to the financial system, which was used to prop up over $30 trillion in financial assets—more than twice the yearly output of the United States. Since then, the Federal Reserve has created more than $3 trillion in additional cash through its quantitative easing program, while leaving interest rates at essentially zero for nearly six whole years.
Faced with a systemic and existential crisis in 2008, the US ruling elite responded with a ruthless class policy. First, financial assets, whose wildly inflated values had collapsed during the crash, would be hooked up to the cash spigots of the Federal Reserve and reflated. Secondly, these fictitious asset values would be guaranteed through the impoverishment of the population: pay and benefit cuts, speed-ups and cuts to vital social services, with the proceeds funneled into corporate profits, dividend payments and CEO bonuses.
This policy, while securing the enormous enrichment of the ruling elite in the near term, sets the stage for yet another enormous financial crisis, perhaps the largest in human history.
The brinksmanship of the US ruling class in economic life is mirrored in its foreign policy. The same criminality, the same parasitism, finds expression in both. The US and its imperialist allies are working tirelessly to provoke war. NATO this week is plotting new economic sanctions against Russia, while moving to directly arm the right-wing government it set up in Ukraine. Extreme right-wing governments in Eastern Europe have been given a blank check by the Obama administration, backed by NATO’s Article 5 war clause, to engage in endless provocations.
It is impossible to understand the extraordinary recklessness with which the United States proceeds in foreign policy—raising, in a very immediate sense, the prospect of war between nuclear-armed powers—outside of an understanding of both the extreme crisis of the capitalist system and the social character of the ruling class that stands atop this system.
Though it is nowhere acknowledged in official pronouncements of political officials or media commentators, the American ruling class is well aware that it presides over a social and economic powder keg. The US ruling elite sees war as an effort both to direct outwards the immense tensions building up within the United States, as well as a means, through a policy of global conquest, to somehow counteract the consequences of the long-term decline and crisis of American capitalism.
The murderous and socially destructive policies of the ruling class, both at home and abroad, are deeply discrediting the capitalist system in the eyes of millions of people in the US and throughout the world. Every great social question—from securing the basic social rights of the working class, to opposing the drive to dictatorship, to opposing the catastrophe of world war—raises the same political question: the need to put an end to the capitalist system.
Go To Original
People have such short memories. Even though we are repeating so many of the same patterns that we witnessed in 2000-2001 and 2007-2008, most people do not think that another financial crash is coming. In fact, with the stock market setting record high after record high lately, I have been taking quite a bit of criticism for my relentless warnings about the coming financial storm. Many of the comments go something like this: "Snyder you are a moron! Nothing you say ever comes true. The stock market is going to keep on rocking and Obama is going to lead this country back to greatness. I hope that you choke on all of your doom and gloom." Of course these critics never offer any hard evidence that I have been wrong about anything. They just assume that since the stock market has soared to unprecedented heights that all of us "bears" must have been wrong.
But the truth is that what we are observing right now is classic bubble behavior. The stock market crashes of 1929, 1987 and 2008 were all preceded by irrational market rallies in the spring or summer. The financial markets have become completely divorced from economic reality, and such a state of affairs never lasts forever. It is just a matter of time before a correction comes.
But every time there is a bubble, most people end up getting caught up in all of the euphoria. And it is happening again. In fact, CNBC has just reported that bearishness among market newsletter writers is the lowest that it has been since 1987. But of course we all remember what happened back in 1987...
Professional investors haven't had this little fear about stocks since Ronald Reagan was president.It was the same year Michael Jackson told us in a song he was "Bad." The New York Giants won the Super Bowl.And oh yeah ... by the way ... the stock market crashed.As gauged by the weekly Investors Intelligence report, bearishness among market newsletter writers has fallen to 13.3 percent, a level it has not seen since 1987 as the market continues to set new highs despite a seemingly endless call for a long-overdue correction.
People need to understand that just because something has not happened yet does not mean that it is not going to happen.
In this day and age, we have extremely short attention spans and we do not have the patience to wait for much of anything. But the financial world is not a game of checkers. It is a game of chess where things can take an extended period of time to play out.
Those that are mocking those of us that are bearish should consider where we stand financially in comparison to previous crash cycles. For example, the derivatives bubble is 20 percent larger than it was back in 2008, the "too big to fail banks" are 37 percent larger than they were back in 2008 and global debt levels are 40 percent larger than they were back in 2008.
In other words, many of our long-term economic problems are a lot worse than they were just prior to the last major financial meltdown.
But most people pay such little attention to the fundamentals these days. All they can see is that little stock market ticker going up and up and up.
Other analysts with much stronger credentials than I are issuing similar ominous warnings about what is ahead for the financial markets.
For example, Nobel Prize-winning economist Robert Shiller is warning that market valuations are tremendously bloated right now...
Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s.
But it doesn't take a genius to see this.
Just look at the chart of the NASDAQ that I have posted below. The "dotcom bubble" in 2000 is really easy to see. So why can't more people recognize the bubble that is happening now?...
In so many ways this bubble is reminiscent of the "dotcom bubble" of 14 years ago. Consider the following numbers from a recent article by Brett Arends...
When you look at medians, or in other words the typical stock, valuations are higher today than they were at the peak in 1999-2000.For example, the median stock today is 20 times earnings. In January 2000, it was 16 times.The median stock today trades at 2.5 times “book” or net asset value. At the start of 2000 it was just 2.2 times.The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.
What we are experiencing is not normal.
And this is especially true considering the fact that our overall economic performance is tepid at best.
A stock market correction is coming.
But you don't have to take my word for it. Some of the most prominent names in the financial world are warning about the coming correction. Two of them were recently interviewed by CNBC...
A jolt to international confidence in central banks will lead to a 30 to 60 percent market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC's "Power Lunch." When this happens, he said, markets will face a "period of extreme turmoil."This crash will be precipitated, he said, by a disillusionment with the Federal Reserve's "confidence game," which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, "the Fed starts to lose control."Another market watcher also called for an impending fall.The Fed's low interest rates could bring a "scary" 50-60 percent market correction, said technical analyst Abigail Doolittle."Unfortunately, I think it could come on a crash similar to what happened in 2007," Doolittle, the founder of Peak Theories Research, said on "Squawk Box" a day after the S&P 500 closed above the 2,000 level for the first time ever. "It's tough to know what the exact catalyst will be. But that's the very nature of that kind of selloff. They start slowly and then happen very suddenly."
And as Zero Hedge has pointed out, billionaires such as Sam Zell, George Soros, Stan Druckenmiller and Carl Icahn all seem to be "quietly preparing" for the next crash.
Yes, the next financial crash has taken longer to come to fruition than many had anticipated. But as I have discussed so many times before, this is a very good thing. We should want this period of relative stability to last for as long as possible. The longer that things remain relatively stable, the longer that all of us have to prepare and to position ourselves for the financial chaos that is coming.
At this point, the fact that we are in the midst of a massive financial bubble has become so obvious that even the Bank for International Settlements is publicly talking about it...
Financial markets have been exuberant over the past year, [...] dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows.Obviously, market participants are pricing in hardly any risks.
Many have expected me to "change my tune" about the coming collapse because of how well the stock market has been performing.
Well, that simply is not going to happen.
Our economic fundamentals have continued to deteriorate, and our financial system is in far worse shape than it was just prior to the financial crash of 2008.
The truth is that we are right on schedule for the next great financial crash.
You can choose to ignore the warnings if you would like, but ultimately time will reveal who was right and who was wrong.