If you have been watching the news right now, you might be scared.
Or even confused. You might be hearing about the constant losses in the Chinese
sharemarket and wondering why people are freaking out, and more importantly:
what it means for you. This might be further muddled with a bunch of talking
bobble-heads who are trotted out to repeat “don’t panic, everything is fine.
Keep your money in the bank. Go out and buy that new iPhone. Consume!”
So here’s what it means. It involves a little history lesson. We go
back to the end of the roaring twenties, specifically 1929. Throughout the
decade thousands of ‘investors’, through a series of fraudulent methods, been
inflating bubble after bubble of speculative enterprises that sucked the
savings of Americans and through their demand, people across the world into a
financial black hole (literally, because no information escaped about what was
actually going on). The exact details are excellently laid out by the famous
John K. Galbraith in his book “Great Crash 1929.” In fact while you’re waiting
to see what happens, you might want to search that book in your local library
and give it a read. It doesn’t take that long. If you want a dry synopsis, the
Wikipedia page does a relatively decent job of it as well.
By 1929 this façade of economic stability reached gargantuan
proportions. From 24th October to 29th October 1929, now
the infamous ‘Black Thursday’ and ‘Black Tuesday’, the stock market plunged repeatedly,
beginning at a drop of 11% of its value at the opening bell. That amounted to $30
billion dollars of perceived wealth, wiped out in 5 days. Repeated attempts to
close and re-open the market and confidence measures such as the Rockefellers
and other notable businessmen buying millions of shares failed, leading to the
Great Depression.
Does this sound familiar? Yes if you have been following the news. On
12th June the first shocks puncturing our most recent bubble appeared
on the Shanghai Stock exchange – one of the major financial centres of the
entire world, when it lost 5%. On the 7th and 9th January
of this year, the market fell 18%. The Chinese government repeatedly closed the
markets and most of the time, it has ended trading the day lower than it
started. World markets, including Dow Jones, are also sucked into this
quagmire, since most of the speculative finance heading into China is from
western investors. Add to that, the extreme deflation in oil prices (which
aren’t a good thing at all) and its mounting losses in the fracking industry
means that a major depression is now on the horizon.
There are many people who will insist that everything is alright and
that this is all normal. A good read of J.K. Galbraith’s book that I mentioned
earlier will remedy any thought of that. For the last 7 years, ever since the
recession of 2008, vast amounts of imaginary wealth (they call it quantitative
easing) has been pumped into the world economy, where again it mostly got
invested in speculative enterprises that inflated the value of investments to
over a thousand times their actual worth.
People will send Bloomberg articles saying ‘look, so-and-so bobble
head economist says everything is fine. You must be wrong!’ I answer: Nonsense.
Economists have the liberty of being constantly wrong and yet taken
legitimately to criminal levels. The so called fraudulent investors and
supporting government cronies have been lying to leech their profits and cover
their asses for decades – they lied about the massive delusion of America’s
housing market in 2008, they lied about the actual productivity of all the oil
bubbles since, and they’re still lying. If you want to take a person’s word
seriously, check the accuracy of their previous statements. Most of the
‘respected’ financial authorities will turn out to be complete charlatans.
I travelled arounds parts of China mid-last year, and saw the
effects of the bubble coming first-hand. Bridges half built and left derelict.
Flyovers where the foundations were the only things built. Bullet rail lines
that were only marked out. And to top it off, massive ghost cities where not a
single person lives, the houses of which were priced in hundreds of thousands
of Yuan.
The only difference is that instead of private market personalities
such as the Rockefellers, the desperate market-saving attempts are being made
by the Chinese government, itself heavily involved in the speculative frenzy.
Billions of dollars of investment money were gambled on China’s growth. There
were nowhere that imaginary money could have gone apart from into dead-end
malinvestments. The much-repeated fatal mistake of confusing money for actual
wealth and GDP as actual growth resulted in the massive ghost-cities and
hundreds of botched infrastructure projects that have marked Chinese growth
over the last decade.
So what does this mean? It could mean Great Depression II. Great-er,
I should say. In the previous great depression, massive infrastructure project
as part of Keynesian economic philosophy were a viable option. In a world where
we still had growing access to energy supplies and ample oil, putting people to
work through extracting energy and investing in capital was an option. That
won’t work this time, despite the almost religious chants of many of today’s
leftists that Keynesian economics is still the answer. We live in a world with
dwindling energy supplies, where shrinking economies is a matter of course, and
any large investment in capital runs up hard against the increasing costs of
extracting oil.
This depression is going to be a lot worse than the last one. I’m
sure that almost every half-baked conventional economic strategy, ranging from
insane Friedmanite fantasies to extreme Keynesian money printing (I mean,
screen money typing) and massive state-planning will be tried, and every single
idea will crash and burn, taking large chunks of the world economy with it.
They will fail because every single ideology is unequipped for the realities of
ecological overshoot and is blind to the reality that we have used up over half
of all the oil reserves in the world and production from here on is only going
down. You can bet that it will take decades for humanity to finally blunder
into a level of abstract wealth and allocation of resources (particularly
energy) that actually make a little more sense based on our actual balance.
In the meanwhile, there is plenty of pain for almost everyone who is
alive right now. The previous depression was marked with widespread
unemployment, starvation, destituteness, poverty and loss of hope. The
following decade is likely to bring the same bag of things, probably a lot
worse since today’s people aren’t as recently jaded from a world war like last
time, are far less equipped to live on a shoestring budget, and more importantly,
can’t cope with reality without cheap access to technology to sedate them.
Being a student looking at graduating soon, the coming years are set
to take a hard toll on me and my peers. A realistic dialogue is needed now,
before things start biting, to convince people to start making the tough
decisions needed to survive the coming years.