Last week, the economy seemed to be looking up after all. No recession. No bear market. No muss. No fuss.
But this week started out on the wrong foot. All of a sudden, there was muss and fuss again. Stocks sold off yesterday…with the Dow down 246 points. Oil slipped a little. Gold too.
No surprise to us, is it dear reader? After all, we’re in a Great Correction that could be tipping into a worldwide depression. Here’s David Rosenberg with more explanation:
The reality is that the United States is still grappling with the excesses created by each of the last two bubbles of 1999-2000 and 2005-06. This is why employment is no higher today than it was at the height of the tech mania 12-years ago. Only 2.1 million jobs of the 8.75 million that were lost in the 2007-09 recession have been recouped. There are more than 20 million people in the total pool of available labor competing for three million job openings — a seven- to-one ratio, which is more than double the historical norm, and far above what would be considered normal even in a garden-variety recession and supposedly we are (were?) in some sort of expansion.
A report published by two former Census officials found that given this grotesque amount of excess capacity in the labor market, real median income since December 2007 [has] contracted by nearly 10%.
Is it any wonder that confidence surveys are so depressed? And it’s not just the University of Michigan or the Conference Board measures, either. A just-released WSJ/NBC News poll found that more than 70% of the nation believes the US is “on the wrong track” (74% to be exact, versus 17% who think otherwise). In October 2008, at the height of the crisis, that number was 78%. Nice to see we’ve made progress (and remember that the bear market then still had five months to go and the recession lasted another eight months for those who may be lulled into thinking that this is some sort of great contrary indicator).
And is it any wonder that the revolt of the popolo minuto continues? As we explained yesterday, the masses are getting restless. They know something is very wrong. Of course, they don’t know what. Or what to do about it. But they know they don’t like it. Bloomberg is on the story:
New Yorkers Back Occupy Wall Street Protesters, Poll Shows
Occupy Wall Street, the protest that has spread from Lower Manhattan to as far as Rome and Hong Kong, is supported by most New Yorkers, according to a Quinnipiac University survey.
Sixty-seven percent of New York City voters said they agree with the protesters’ views, while 23 percent don’t, the school’s Polling Institute said today. Support ranged from 81 percent among registered Democrats to 58 percent among independents and 35 percent from Republicans. By 72 percent to 24 percent, voters said law- abiding demonstrators can stay as long as they want.
The protests that began on Sept. 17 have inspired thousands to take to the streets in 100 US cities and on four continents worldwide, according to organizers. Participants say they represent “the 99 percent,” a reference to Nobel Prize-winning economist Joseph Stiglitz’s study showing the richest 1 percent of Americans control 40 percent of US wealth.
“Critics complain that no one can figure out what the protesters are protesting,” said Maurice Carroll, director of the Hamden, Connecticut-based institute. “But seven out of 10 New Yorkers say they understand and most agree with the anti- Wall Street views…”
The nice thing about revolution is that you don’t have to understand it. It doesn’t have to “make sense.” People don’t need reasonable goals or realistic proposals. Revolutions are like tech stocks. They allow people to believe whatever they want. They can imagine that the revolution will make them all rich…and powerful, too. They imagine themselves retired in Florida…or as the ambassador to the Court of St. James in London. They can imagine that the revolution will make their hair grow and add inches to their most private part. They can believe whatever they want.
But beneath the fantasies is a hard truth: the current system no longer works for them.
“In France, before the revolution, everybody was trying to get some special privilege,” explained our historian wife. “The rich and powerful always found some way to get ahead. I guess they always do. One had a monopoly on selling tobacco. Another had the right to collect taxes from some area in France. Still another got to sell fine fabrics or import china. Almost the entire aristocracy had been turned into zombies.
“The government was broke. It desperately needed money. So it began to squeeze everyone it could. This just made the situation worse.”
Meanwhile, the underlying economy was changing fast. While the zombies still controlled most of the land and the government, a new class of merchants and entrepreneurs was creating real wealth. This new dynamic bourgeoisie needed to get the zombies off its back.
And more thoughts…
The French Revolution began sensibly, with petitions and peaceful movements. The Estates General was convened. Grievances were heard. Change was promised. A great reform was proposed. And for a while, it looked as though France was on its way to becoming a constitutional democracy, like England, with its monarch and aristocracy still with heads on their shoulders, but with reduced powers. It looked like it might work…a peaceful revolution…an evolution towards a better system, one better suited to the needs of the new capitalistic era, with fewer zombies.
But it was not to be…the zombies dug in their heels. They resisted change…just like the elite always does. They could no more agree to give up their privileges than the elite in Washington today can agree to give up its revenues.
But the show must go on. Entrenched elites do no readily evolve; but history cannot be stopped. The unstoppable force of the Industrial Revolution and the Enlightenment ran right into the immoveable object of the monarchy and the privileged classes. The result? A huge, violent crash. The Committee of Public Safety…the Reign of Terror…and the Napoleonic Wars.
*** What’s ahead for the US and other developed countries? We don’t know. But the tax-spend-and-borrow model no longer works. Because these economies aren’t growing fast enough to keep up with the rising debt. Soon, they will be overwhelmed.
What then? Will they be able to reform themselves? Will “change” be more than a campaign slogan?
What Bastille will be stormed by the mobs? Whose head will roll?
We will have to wait to find out.
*** Finally, we include a special word of support for Baltimore radio host Ron Smith, who has been a long-suffering reader of these Daily Reckonings for many years. The other day, Ron announced on the air that he is suffering from pancreatic cancer. We wish him well in his fight; we hope to have him as a Dear Reader for many more years.
for The Daily Reckoning Australia