10 explosive bubbles that will kill capitalism

Commentary: Slow-motion train wreck in store for U.S.

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — In mid-2005, three years before Wall Street’s credit meltdown, the Economist warned of the “Biggest Bubble in History.” In five short years after the 2000 dot-com crash property prices across the world had risen an unprecedented 75%. Real estate had become the new dot-com.

In his April 2007 quarterly newsletter, Jeremy Grantham, founder of the $95 billion GMO firm, reinforced the warning: “First Truly Global Bubble, impacting all countries, all assets worldwide.”

By midyear 2007, a deeply concerned Grantham was “watching a very slow motion train wreck.” By October, the “train hits end of track at full speed.” A year later, on schedule, Wall Street’s credit train did crash.

Flash forward: in Grantham’s early 2012 newsletter he saw a bigger train accelerating: When he focused on the “common good, it became quickly apparent that capitalism in general has no sense of ethics or conscience. And probably its greatest weakness is its absolute inability to process the finiteness of resources and the mathematical impossibility of maintaining rapid growth in physical output.”

This we call the Myth of Perpetual Growth, the pseudo-scientific justification for modern capitalism.

Grantham concludes that capitalism’s flaws are so deadly that while it does “a thousand things better than other systems,” it fails in those three crucial areas. And “unfortunately for us all, even a single one of these failings may bring capitalism down and us with it.”

Get it? Capitalism is committing suicide and destroying America too. Here are 10 explosive bubbles that warn of this trend’s accelerating trajectory:

1. Health-care Bubble: Forget court, elections — health care will implode

Dr. Marcia Angell, of the Harvard Medical School, writes in HuffingtonPost: “Why the Court’s Ruling Is Bad for Obama and Bad for American Health Care.”

“The Supreme Court’s decision to uphold Obamacare puts me in mind of the old proverb: Be careful what you wish for.” Why? Angell warns that “with or without Obamacare, the American health system will continue to unravel, quickly if Romney is elected, slowly if Obama is re-elected.”

At 15% of GDP, the highest of all developed nations and destined to go higher, heath-care costs will remain a drag on the economy, especially with 3,300 lobbyists fighting to keep the cost rising.

2. Government Bubble isolates Washington from real America

When will this bubble explode? In a Time feature the “Bubble on the Potomac,” Andrew Ferguson warns, America’s massive debt has created “new affluence flooding the nation’s capital” making Washington society “a world apart from the country it governs,” adding that “this insularity has consequences for the rest of the country.”

The average American may be struggling, but government is “for sale,” in this center of the trillion-dollar government-contracting business, where the federal budget is sold off to the highest bidders. Lobbying is the city’s “biggest business,” with more than 20 lobbyists for every elected official, all publicly advertising the huge benefits they generate, often hundreds of times over an “investment” in their lobbying fees.

3. CEO Pay Bubble up 20% while bank stocks sink as much as 61%

That same mind-set isolates Wall Street. While the average American flat-lines, bank CEOs are doing great. Bloomberg Markets reports that bank “CEO compensation jumped 20.4% in 2011” while “most bank stocks declined.”

Biggest loser? Citibank’s shareholders. Their stock has dropped 61% in three years while CEO Vikram Pandit was paid $14.9 million.

More evidence of America’s growing inequality gap: The Fed says that in the past three years the top 1% gained 2% while our vast middle class lost 39%. In fact, family net worth in 2010 was about the same as 1992.

4. Inequality Bubble now at 1929 level, warning of end of capitalism

Nobel economist Joseph Stiglitz shines in his new book “The Price of Inequality:” “America likes to think of itself as a land of opportunity,” he writes in Project Syndicate. But while we all have individual examples “what really matters are the statistics: to what extent do an individual’s life chances depend on the income and education of his or her parents?”

And unfortunately, today the “numbers show that the American dream is a myth … the gap’s widening.” Since 2008 “the top 1% of U.S. income earners captured 93% of the income growth. … The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.”

5. Debt Bubble: Debt-ridden college grads selling burgers, lattes

For more evidence of the gap see the amazing cover on Utne, a cartoonish Albert Einstein serving a McDonald’s hamburger special: “Fries with that? What’s a college degree worth these days?” Not much.

And in Good magazine’s “Minimum Rage,” many stories about grads handicapped by college debt. We’re killing our competitive future: 27-year-old NYU grad “Emily Sanders has been a waitress or bartender, on and off, for almost a decade. … She has no health insurance, no 401(k), and a pathetic savings account. Most days, she gets to her first job at noon and leaves her second after midnight. If she’s sick but a little short on cash, she downs some DayQuil and goes into work anyway.”

6. Global Jobless Bubble: Governments warned, revolutions coming

In “The Fallen,” Rolling Stone’s Jeff Tietz gives us another snapshot of capitalism’s accelerating train wreck: A “sharp, sudden decline of America’s middle class … They had good stable jobs, until the recession hit. Now they’re living out of their cars in parking lots.”

Time used a wider-angle lens on the new global “Jobless Generation” where “tens of millions of young people are unemployed.” This is bigger than Arab Spring and OWS. Governments are warned: Figure out “how to get them jobs before they become unemployable — and erupt in fury.”

But if Grantham’s right, governments won’t act till it’s too late, and anticapitalism revolutions sweep the planet.

7. Oil Bubble: New oil crisis will trigger new Arab Springs

Financial advisers say invest in emerging markets, the “new normal” for U.S. stock returns is too low. Maybe not: Foreign Policy’s Steve Levine warns that petro-rulers worldwide are watching the price of oil “plunge at a rate they have not experienced since the dreaded year 2008. Industry analysts are using phrases such as ‘devastation’ and ‘severe strain’ to describe what’s next,” possibly a “fresh round of Arab Spring-like” revolutions, “the nightmare scenario” for oil dictators.

8. Risk Bubble: U.S. recovery threatened by global economic risks Writing in Project Syndicate, Stephen Roach, former Morgan Stanley chairman, warns that since 2008 “the U.S. economy has been on a weak recovery trajectory.” Why? The American consumer went cold “in the aftermath of the biggest consumption binge in history.”

Since then “exports have accounted for 41%” of America’s rebound, with a whopping 83% of our export growth from Asia, Latin America and Europe. But since all three are now “in trouble, the U.S. could be quick to follow.”

9. Slow-Growth Bubble: New normal is anemic returns, austerity Listen closely: Over 200,000 financial advisers across America already heard this report. Advisers have been warned to start “preparing clients for a low-return reality,” code for a new normal and austerity: “Slow economic growth, modest and selective improvements in equities, and interest rates remaining low.”

Get it? “Anemic growth in the second half,” with huge risks ahead. In fact, individual investors and American capitalism alike will face three doomsday scenarios in the near term: The Euroland crises, America’s post-election “fiscal cliff” and the risk of global recessions in emerging markets.

10. Capitalism Bubble: selfishness weakens our role as a leader “The world is in a state of drift, transition or even increasing chaos,” writes Brent Scowcroft in the recent National Interest. Scowcroft’s a retired Air Force General and Bush-41 National Security Adviser.

In an update to his 1998 book, “A World Transformed,” Scowcroft says, “once we were viewed as trying to do our best for everyone: now we are seen a being preoccupied with our own special interests,” a myopic vision that reflects the trend among many politicians to govern using Ayn Rand’s extreme capitalism.

Now you know why Grantham warns of capitalism’s total lack of “ethics or conscience” and “its absolute inability to process the finiteness of resources and the mathematical impossibility of maintaining rapid growth in physical output.”

No moral compass. No vision of the future. No grasp of the consequences of their short-term thinking. These three threats are merging into a critical mass that will trigger a scenario that will “bring capitalism down and America with it.”

Bottom line: America’s new Ayn Rand style of extreme capitalism is self-destructive.

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