Wednesday, 13 October 2010

Sputter, Stall…Stop?

The other day I was in a Chapters bookstore, the great big box temple of knowledge on the fringes of our suburban enclaves where you can pay your homage to this benevolent corporation, who by being present in the superstore milieu ensures that a segment of the Canadian population, within the very large segment of it that spends much of its free time there, still reads. To help its success in this endeavour, it greases your gears with too-strong dark roasts and syrupy lattes from starbucks, while you ponder your sophistication staring at glossy bookcovers and serenading to 1950s jazz or 1990s ultrahip vintage. While I was in line there, it was confirmed to me, of all places, on the cover of The Economist. The world economy’s “recovery” from this “recession” is not being taken seriously by anybody who is seriously thinking. The awareness and the acknowledgement of the “global” economy’s vulnerability and dubiousness has officially left the blog-and-documentary sphere and landed on the cover of a magazine whose weekly publication is equivalent to the capitalism version of Sports Illustrated Swimsuit Edition. But I’m not trying to give the London-based publication ideological kicks with my Bolshevik Doc Martens out of anger. In fact, I enjoy it for what it does as a magazine, which is analyze economic data and provide rigourously researched commentary on current, medium, and long term trends in politics, media, war, and current events. I’m more asking myself why, with its sterling reputation of being a distinguished and informative source for business people and interested observers alike, the magazine put a headline that says (or should we say screams in frustration) “Grow, dammit, grow!” to the world economy on its front page, if not to tell me that several things must be seriously amiss. This magazine of almost religious significance to international businessmen and ambitious political science majors, not to mention its classified section entirely comprised of postings from 5-6 figure tuition-charging “international” business schools, must have had an epiphany to let its guard down this much. You would think it could throw something more vanilla on the cover, and restrict its analysis to the traditional prescription for success: “lower taxes, less regulation, less unions, and more consumption, please” as a cure to the ills causing the anemic or negative growth currently being experienced by economies around the world. Yes, these are challenging times in the press industry like in many others, and resorting to ever more sensational headlines to move copies may be a viable strategy for magazines to deploy in search of readers (see Macleans “F--- you Quebec!” cover last week). But this is a magazine whose covers grab your attention with their cleverness and sense of humour, not panic and hysteria.
The cover had a special significance to me because there is tendancy on blogs and in alternative media when discussing deep structural problems and severe fault lines in a system that, when you look just a bit more closely, is clearly broken, to talk about problems as being final and imminent. And yet they are not. Day after day, the highways are packed with traffic, payrolls are made, welfare, unemployment, and child tax benefits are delivered to recipients on time, shipments arrive, inventory is sold, concrete is poured, and poo goes down the sewer. Most of the developments in the core of Toronto and yes, even Waterloo have yet to become even holes in the ground but are surrounded by signs advertising “Five Exclusive Sumptuous Residences…from 2.75 million to 9.75 million” “Exclusive Sophisticated Community…starting from the low 500s” “Distinguished Living…from 1.5 million…Construction starts in Fall 2012.” If the Economist is right, nobody told the developers of Southern Ontario, a place where they are counting on silver haired, white wine sipping, handful of pearl necklace-wearing Yorkville residents shown on their billboards to come forward with real life wealth and buy the prestige of a particular street corner when their shining Versailles get off the ground at some future date. Because it is still a place where the economy still “sucks” in relative terms when you look at the data, as no commentator has been able to deny. This example is to contrast the two universes in which parallel segments of Western society seem to dwell these days: Those who marvel at society and the economy continuing to lurch forward, despite their awareness of artificially low interest rates, reduced demand, fiat currency wars, trade deficits, and structural unemployment, and those who never give a thought to anything related to the economy other than its unfailing obligation to serve them. We can definitely place the developers in the latter category, along with everyone else who expects cheap food, cheap gas, living wages, cheap energy for their homes, and taxes in the low-non existant range forever and ever.
It is easy to get fooled by the pronouncements of people who pretend they know what they are talking about and are predicting the future based on solid data. Example: The IMF, who typically over the last couple years has stated the Canadian economy shrunk 0.1% last quarter, grew 0.1% this quarter, but will return to (their favourite phrase) “robust” growth of 2.7-3.5% next quarter. How do they know? Well, they don’t. They are assuming that companies will start up, employ people, innovate, which will make them profitable, so they can pay their employees well, so these employees feel safe and secure about their long term prospects, and spend money like its going out of style. If only. If only, if only, if only.
What if people save their money in the bank? What if people only buy what they need? What if companies only hire the people they need, or have to reduce payrolls due to falling demand? What if more people realize that the government has been cheating at free market economics and keeping interest rates artificially low to fuel this elusive “growth”, which has as a result occurred entirely on the back of a real estate bubble that has made it more logical to rent? I know many people do that, but what if everyone did that These scenarios are just as, if not more likely to take place with increasing occurrence long term. After all, who will want to be held hostage to the tune of $1,500-5,000 a month for mortgage, maintenance, property taxes, and utilities (and these last two are only going to shoot up as cash-strapped municipalities and power monopolies squeeze their only remaining asset) when the illusion of “No dude, it only trends upward” finally comes back down to earth? Especially when you can pay a nominal sum to just live somewhere and not really notice much of a different in the substance of what you’re doing, which is sheltering yourself from the elements)
The confidence we’ve has up until now is due to the wide swaths of the world we’ve witnessed developing led by the BRIC (Brazil, Russia, India, China) but most of this growth on steroids was to meet the world’s largest economy’s growth on steroids, which, as we all know now, was fuelled entirely by speculation, fraud, and debt, as well as the assymetrical rules of international finance which dictate that its currency, the U.S. dollar is “gold standard” even though the nation has been technically insolvent for some time. The growth in the “BR” was in raw materials and in the “IC” in shitty outsourced jobs. Now that the U.S. Consumer is tapped out, there is no ostensible source of consistent demand to give the Economist, and economists, the sustained 2-3% growth they are clamouring for. People who don’t pay attention to the economic news of course will continue to max out at retail stores and lease brand new Chevy Tahoes, but a worsening environment will catch up with this behaviour before awareness does. This is because demand will undoubtedly sputter now as the endorphins from the brief makeup sex the North American population had with modern crony capitalism wear off.
We are going to hit a stall when the “stimulus” (fake money printed by the most debted governments of the world to “stimulate” confidence in the economy) wears off. Jim Flaherty for one has been very adamant that the “private sector must fuel the recovery” but what if the private sector is feeling as tight fisted as the consumer suddenly is? A market economy is based on confidence, which is why his and every other finance minister and central banker’s predictions and reassurances are pure hubris, because it is not something that can be “injected” or “manufactured”. This stall is literally going to be our “dammit” moment, because when there is a drop in confidence it is going to be a precipitous one.
Finally we will arrive at “Stop”. Overly pessimistic? Well, just look at how markets went up the other day when the prospect – the mere prospect of a second stimulus was evoked by the Federal Reserve-U.S. Treasury greenback printing factory. The markets and their greed (they operate on the same principles as a casino) now, because of the TARP precendent, hold governments hostage, permanently on the hook to “guarantee” and “backstop” the economy and every last devalued dollar in it. But when the government gets at the point of offering yet another transfer of fake wealth to financial institutions for them to speculate with for the second time in less than 3 years, we will really see some dominoes fall. Nothing will come back without confidence, and people will suddenly wonder when we tied up our whole fates in this bill of goods of rising inflation, new development, mass unemployment, and rewards for speculators. I can’t say if the U.S. government “stimulating” its way out of trouble every two years will work or not. But it’s not been long that it’s been living so dangerously, and history tells us that empires attempting to bleed their way out of financial crisis (in America, its to the tune of 2 trillion a year) end up insolvent. Were living in strange times and its impossible to predict what will happen with exactitude, but all I can say is it’s a long way from “grow, dammit grow”

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