this is a great what if read. lets just hope it does not turn out this way. July 10 (Bloomberg) -- ``Granddad Benny, is it true that capitalism committed suicide?'' Granddad looked up from the fire he was stoking with bundles of 2006 and 2007 vintage mortgage-backed bonds. ``In a way, Joel, yes. In developed countries, people got too greedy, especially bankers, and everyone borrowed too much. In less developed countries, people racing to improve their living standards reawakened the slumbering inflation monster.'' Joel put down the stick he was using to scratch the dirt. ``Why did the Gigantic Global Bubble Burst of 2008 catch people unawares? Weren't there any warning signs, Granddad?'' ``With hindsight, Joel, water should have set alarm bells ringing. Before the Giglobubu, wealthy people paid $15 per liter for Cape Grim bottled water from Tasmania, at a time when the Asian Development Bank estimated that 700 million people in Asia lacked access to clean water. Investment banks even started to invent securities betting that water shortages would arise. Even so, when the Water Wars started, the world wasn't prepared. ``Cyprus started buying water from its neighbor, Greece, because its dams were down to 7.5 percent of capacity and its desalination plants couldn't meet demand. Spain drew up plans to build a pipeline to funnel water from the Ebro River to Barcelona, the nation's second-largest city, amid the worst drought in half a century.'' Smell the Cappuccino ``Did people collect rainwater for drinking, like we do, Granddad?'' Joel asked. ``I've noticed how grumpy you get if there's not enough for you to make coffee in the morning.'' ``Some did, Joel. Rich people, though, bought their coffee from shops, paying stupid money for buckets of flavored water with a dash of milk. It took Starbucks Corp. just four years to double in size, so when the company said in 2008 it planned to shut 600 U.S. cafes and chop 12,000 jobs, 7 percent of its global workforce, some clever people started to worry. ``Speaking of milk, that was another clue. All across China, millions of people earned enough to buy refrigerators for the first time. Then they rushed to the shops, buying pints of milk to put in their shiny new fridges. So energy prices surged to keep the fridges humming, and milk prices went through the roof along with other foodstuffs. Inflation climbed out of its coffin and started to terrorize the bond market all over again.'' Independent, Unelected ``What did the central banks do, Granddad? Weren't they the ones in charge of the economy?'' ``Well, the most important parts of the global economy were certainly ruled by independent, inflation-targeting central banks. While their system worked fine in good times, it turned out to be a disaster when the going got tough. Governments were quick to grab back the reins of monetary policy from their unelected proxies, but with inflation spiraling higher and growth slumping, they only made things worse.'' ``Did inflation kill capitalism, Granddad?'' ``Capitalism sowed the seeds of its own demise because the benefits of a decade-long boom accrued to capital, with nothing flowing to labor. Telling workers who hadn't had a decent pay raise for years to tighten their belts once the good times ended proved disastrous. ``People started to realize that just because communism had lost, that didn't mean capitalism had won. Cracks started to appear. In New Zealand, the government nationalized the country's rail and ferry services, deciding it could do a better job of running the transport network than private industry. Unraveling the Euro ``Then the euro, one of capitalism's crowning achievements, began to unravel. After Ireland rejected the Lisbon treaty in three consecutive referendums, its fellow single-currency members decided to kick the country out of the project. Once Germany and France realized how easy it was to thin the ranks back to the core gang of euro countries that they'd wanted in the first place, they started finding excuses to bar more nations, starting with Italy. ``With banks and mortgage lenders going bust faster than the government could arrange bailouts, every nut job with an Internet connection started demanding a return to something called the gold standard. When a bunch of academics joined in by denouncing fiat currencies, the general public lost all trust in money.'' ``Didn't something bad happen to the animals, Granddad?'' ``A locust storm forced China to cancel the 2008 Beijing Olympics. The honeybees started to die, followed by the penguins, then dolphins began to commit mass suicide on beaches all around the world. Pine beetles munched their way through the forests of North America. It got harder and harder to deny that the environment had been ruined. Apocalypse Now ``So when a film came out called `The Road' about a post- apocalyptic world, people were already scared and angry. They started to form cults worshipping the author of the tale, a reclusive writer called Cormac McCarthy who never gave interviews and never did publicity, and had won a Pulitzer Prize in 2007. They decided he was some sort of prophet of doom.'' By the flickering firelight, Granddad could see Joel's eyelids beginning to droop. ``That's enough storytelling for one night, Master Bernanke. Go and make yourself warm under the blankets. We'll be safe in this cave until morning, then we'll press on toward the coast.'' (Mark Gilbert is a Bloomberg News columnist. The opinions expressed are his own.) http://www.bloomberg.com/apps/news?pid=20601039&sid=a11PeBn6TV8A&refer=columnist_gilbert
I'm super tired this morning, so I may not be at my best, but - Is the author being tongue-in-cheek here? Is he really stating that psychology is worse than reality? I see that string of thought running through the piece, even though I think he's serving notice that the problems we face are real, as they always are during downturns. Is he saying this one will be worse or longer than most?
yes to me capitalism as we know it looks doomed. Beyond the excesses of the fiat money system, globalisation and so called pro-growth policies haven't lived up to expectations , actually they are creating a number of adverse effects on the environment and the prices of commodities which by definition are not in unlimited supply. What's happening is that we are destroying the planet in China and other emerging economies to afford all the gizmos we want under the dictatorship of advertising-based medias so the elite can continue to pile up huge profits . Growth cannot continue forever that's for sure, at some point a backlash will occur and a sustainable economic system with less disparity between the elite and the average will be implemented, and maybe we should wonder what the implications for long term prices of equities are.
Kicking, You summed it up perfectly. We must begin realizing the consequences of our actions, decisions, purchases, etc. What was wasted/destroyed when I purchased that 5 carat diamond for me honey? More drilling is not the answer, less is more and more is less or there won't be anything left.
Capitalism is alive and well, and thriving. What we see occurring is real capitalism. Export all the jobs to the cheapest labor, no matter where it is. What needs to change is the realization that companies like Microsoft, CAT, GE, etc. are global corporations that don't give a flying fuck about this country. America will become like Mexico/Brazil, very rich and poor, no middle class. China and India will end up like that too. The robber barons would be proud.
YAAAWWWWWWWWWWWWWNNNNNNNNNNNNnnnnnnnn you kids crack me up.....while being very bearish for quite some time...if you live long enough you realize there is always a cylce...we are in one now...the problem is that nearly two generations of people had no idea what a real recession and inflation was....I use to laugh as the market and Greenspan went crazy in the 90's at the slightest hint of inflation or recession... no need to jump off buildings kids...its all going to be all right...I remember the early 80's when the US was doomed and Japan was the model economy
Disagree... Historically we've had economic cycles as the fed at one time stepped on the gas, and at another stepped on the brake. Likely different this time. Rather than stepping on the brake, the Fed continued to "mash the gas", then lied about the consequences... And the reason the economy is slowing this time is CREDIT EXHAUSTION... that's waaayyyy different than any in our experience since the creation of the Fed. Likely VERY different this time... not a typical "cycle' in any sense... JMO