Generational Dynamics: Forecasting America's Destiny Generational
 Forecasting America's Destiny ... and the World's


Generational Dynamics Web Log for 14-Oct-2008
We're all Icelanders now, as markets rocket 10% around the world

Web Log - October, 2008

We're all Icelanders now, as markets rocket 10% around the world

The world is a much more dangerous place today than yesterday.

Unfortunately I used up the phrase "Bailout of the World" to describe the last major bailout announcement -- the one that preceded last week's bloodbath. So what should I call this one? Bailout of the Universe?

Countries around the world have been moving to guarantee all bank deposits of whatever size. What's new this time is that countries around the world are moving to guarantee all bank obligations.

So now every investment by every bank is backed by some country's taxpayers. Essentially, the concepts of "bank" and "country" and "hedge fund" have merged. Last week it was just Iceland. But now, every country is also a bank and a hedge fund. In fact, the world (or at least most Western countries) are one large investment bank / hedge fund. So let's call this bailout plan the World Hedge Fund bailout.

We don't have enough money to bail out all the foreclosed real estate, but somehow we do have enough money to bail out all the securities backed by foreclosed real estate. And any bank failure immediately becomes a country failure.

These CDOs and CDSs that I've been writing about for years are much huger than a government can handle. The US government perhaps has one or two trillion dollars of resources, but the CDOs and CDSs are exposures of tens or perhaps hundreds of trillions of dollars.

It was one thing when those obligations were on the books of banks and other financial institutions, as well as investors. But now, all those obligations are on the books of the US and other nations.

This has got to be the stupidest, most disastrous move in the history of mankind.

You know, Dear Reader, I've been saying for years how astounded and amazed I am at what's going on in the world, and what people are doing, out of sheer stupidity.

But I've completely run out of superlatives. This can't possibly be happening. Surely I'm dreaming this, or perhaps fallen asleep in a very bad movie. This is a fucking disaster.

Market summary, 13-Oct-2008
Market summary, 13-Oct-2008

And just to show what a disaster it is, the European and New York markets surged over 10% today on panic buying. As I'm writing this, on Monday evening, the Nikkei is up 12.5%. I just saw some giddy idiot on CNN, grinning from ear to ear, saying that the worst was over, and people should start buying stocks now.

I actually heard someone describe this as "they've finally managed to restore investor confidence." This emotional outburst of panic buying is supposed to represent "investor confidence"? What superlative can I use to respond to that?

Sure, go ahead folks. It's time to buy. Raid your kids' piggy banks and your parents' retirement funds and get into the market. That's what the "smart money" is doing. Why shouldn't you?

And then to add to the surreal and phantasmagoric quality of the day, Paul Krugman got the Nobel Prize in Economics.

A web site reader wrote this to me today:

"Headline: Nobel prize committee disses John Xenakis on economic prize.

In a surprise announcement the Nobel committee decided NOT to give John Xenakis the Nobel prize for economics. “While we do believe his work has merit, it is far too simplistic and easily understood by 90% of the world population. We prefer intricate and complex analysis using arcane and irrelevant factoids that are overblown and dissected ad nauseum, the covert purpose of which is to seduce 17 year olds to mortgage their future to overpriced universities with the hope that they too can achieve academic stardom."(600,000 to one chance).

We have awarded the prize to Paul Krugman who retread a 19th century principle, which is not the reason he got the prize. The real reason is he hates George Bush and so do we. (ha ha)"

I got a big chuckle out of this. Thank you, Mary.

As I wrote last week, at least Nouriel Roubini has done some brilliant work, and has at least foreseen some of the current crisis before it happened. But Krugman has done nothing. The guy's a macroeconomics idiot.

Ironically, the Nobel committee was too clever by half. They wanted to stick it to President Bush, so they gave the prize to Krugman, saying it was for some obscure work he did years ago. The result is that they've damaged their own credibility, as well as Krugman's (both of which were already pretty low anyway). All of the accounts of the award mention Krugman's war against the Bush administration, and that he's a Barack Obama supporter and adviser, and one article accuses Krugman of having "pandered" to politics in his economics. So even in the remote possibility that the Nobel committee thought they were being politically neutral, nobody believes it.

However, there's a very interesting by-product of the Krugman selection: Krugman fully endorses the World Hedge Fund bailout plan.

Here's what he wrote on his blog last night, before learning of his award:

"Worthwhile British initiative

Ask, and you shall receive. I asked plaintively for policy makers, at least once, to exceed expectations in this crisis instead of falling short — and it seems that the eurozone governments have delivered, more or less adopting the British plan.

And I should have given props to the British government, which vastly exceeded expectations last week — and has effectively shown the world the way forward."

What he means to imply by this is the following: Led by the UK, the Europeans have taken steps that "exceed expectations," steps that the US didn't take. On a BBC interview today, he indicated that the reason that the US didn't take these steps earlier is because of "ideology." He loves the fact that these governments are all going to become banks (and hedge funds), and thinks that will save the world.

On the BBC interview, he compared today to 1931, saying that things could easily slide into another Great Depression if the markets were left to themselves, but now the governments have done exactly what they need to do to prevent that.

He apparently doesn't have any idea that today is more comparable to the time just before the 1929 crash.

Actually, Dear Reader, I suppose we have a little contest here. Krugman and other economists think that this new plan will save the world from the worst, leading to at most a recession.

I say that World Hedge Fund plan is a total, utter, fucking disaster, and will make things much worse than they would have been otherwise. I guess we'll have to see who's right. Actually, I'd be only too happy if Krugman were right. But Generational Dynamics and generational theory haven't been wrong yet, and I don't expect them to be wrong this time.

And I haven't said this recently, but receiving Mary's message, quoted earlier, has reminded me.

I don't get paid to write for this web site. I do it because (*) it's an obsession; (*) I want to prove that Generational Dynamics is a viable scholarly subject; (*) I'm saving people's lives.

When people write to me and I respond, or when I post something in the new Generational Dynamics forum, which I usually do several times a day, I never forget the fact that I have an enormous obligation to my readers. Something that I write could literally mean life or death in some cases. People who have been long-time web site readers have prepared themselves for what's coming, and many of them will survive because of me. I never forget this obligation for a second.

As usual, you can write to me using the "Comment" link at the top of every page. Or you can write to me by using the "Forum" link at the top of every page, and taking part in the forum discussion. I can't always respond quickly, but I have still been keeping up with the e-mail messages, and usually get back within a couple of weeks. (14-Oct-2008) Permanent Link
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