The proof is in. We’re entering the first true recession of the Internet Age.
It’s true there was a technical recession early in 2001, six months of negative growth caused by the dot-bomb. But this was mainly a product of the Internet itself, a relatively small excess that was quickly squeezed out.
The current recession is something very, very different.
First understand what recessions are. They’re excess. They’re a process by which the economy squeezes some form of excess out of the system, the way you would wring a mop, before continuing on with the job.
Second, the Internet allows markets to re-adjust very quickly. Back in the day we had recessions every few years, due to an imbalance between inventory and sales. When you have bar codes in the cash registers which can interface with demand to the factories, that can’t happen.
The same sort of thing happens in other types of market speculation. The 24-hour market day means a panic in one place is seen as opportunity somewhere else, and the vacuum is filled as fast as a thunderclap.
Generally this is a good thing, just like airbags in a car are good things. But just as airbags cause gasbags to just drive faster, the recession prevention of the Internet causes bad policymakers to make things worse. And they have.
It took an enormous conspiracy to create this recession. The causation chain starts with Fannie Mae and Freddie Mac, which first collateralized groups of mortgages into salable instruments. But Wall Street sharpies took this one step further, creating other instruments based on that collateral, creating insurance of that collateral, and essentially creating the Big Shitpile we see today.
The construction of the Big Shitpile fueled housing speculation, which
got entirely out of control. All that excess must now be wrung-out. Not
just on your street but on Wall Street.
The new bankruptcy law makes
things worse, because housing debt is now classed below credit card
debt. You can foreclose on your house and walk away, the new law does
not let you walk away from credit cards, so people leave the key to the
house in the lock, pay off the credit cards with the loans they won’t
repay, and feel they’re even.
All that has to be cleaned out. We need new regulations to prevent the
creation of new Shitpiles. We need a housing crash to make homes
affordable again — on the basis they were affordable before this whole
mess started. We also need new bankruptcy laws to restore the primacy of housing debt.
Again, the Internet makes things worse. The 24 hour trading day
recognizes all this instantly, begins correcting immediately, before
the numbers proving the recession are even seen by policymakers. The
Federal Reserve cut interest rates nearly in half, over the course of a
week, before there was really any serious evidence that a recession was
taking place. This was all based on signals from the markets.
Here’s what makes things really bad.
Since the Shitpile was in dollars, and the government created its own
Shitpile to fund two Shitty wars, the dollar is tanking, and is going
to tank some more. Despite its present valuation there remains
tremendous excess in the price of the dollar, relative to other
currencies. This, too, must be wrung out of the system. Just as the
recessions of the 1980s caused Texas banking decisions to be made
elsewhere, in North Carolina and New York, so this recession may cause
U.S. regulatory decisions to be made elsewhere, in Beijing and in
Berlin. Tough shit if you don’t like that. You can’t blow up your
banker.
Now how do we get out?
This recession is driven by an excess of demand, and that can only be offset by supply. Specifically, by a War Against Oil.
If we’re to have a real recovery, and not stagflation, we need to get a
permanent handle on our energy costs. That means driving alternative
energy prices down below the level of hydrocarbon alternatives. And keeping them there.
Smart companies are
starting to take advantage of this opportunity, but we also need smart
policies which recognize the temptation of OPEC dropping oil prices and
the wisdom to resist. We must make certain that solar, water,
geothermal, wind, and other forms of alternative power can always come
to market, at a profit, and that less-reliable forms of energy supply
(oil) are squeezed out.
So we’ll have an alternative energy boom, then a drop in the oil price,
and only then does the real crisis of our time begin. Will we have
leaders who can resist cheaper oil? Or will we settle on a quick fix
and keep the noose around our necks? (Picture from BusinessWeek.)
That’s really what the current election is all about. Most of what’s
about to take place is baked-into the system. The excess must be wrung
out. There’s no easy way out. There will be suffering. There will be
blood.
But if someone offers a temporary surcease from the bloodletting in the
form of oil, if the pusher offers the needle for a quick cure to the
pain, will we take it?
Will you?
