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The Coming Economic Crisis And “Opportunity”

21st Century Wire says…

Most mainstream economists don’t seem to have heard of the second law of thermodynamics. Perhaps this isn’t really their fault, since it’s not in their textbooks. But it should be. It governs all life and all systems on Earth, including the economy. As our leaders in business and government race to implement misguided economic models that are not founded upon the laws of thermodynamics, and as nation after nation refuses to question the pursuit of never-ending economic growth, we draw closer to a fate that will end in tears for the human race. I worry that the tears have already begun falling…”

David A. Jones PhD – Southampton University, United Kingdom


Roy Morrison
GlobalResearch

The economic alarm bells are ringing nationally and globally if anyone’s listening. While the political struggles surrounding the Trump administration remain our focus, economic distress will come calling.

A soaring stock market and shrinking corporate profits combined with an M&A (merger and acquisition) frenzy to purchase profits, rising interest rates, an end to qualitative easing are all signs of forthcoming stock market correction, or, more ominously, a collapse. Stock price to earning ratio has soared to 26.38 as stock prices rise much faster than profits. Global M&A has exceeded $700 billion a year for the first time since pre-collapse 2007.

It’s not just that the stock market is overvalued. The global context is of a housing bubble in the EU, China, Australia, and of underwater or zombie banks whose bad debts, ‘non-performing loans”, as bankers delicately call them, far exceed their book value and their loss reserves. This is the so-called Texas Ratio of bad divided by good. For 114 of 500 Italian banks, the ratio of bad over good is well over 100 percent, meaning banks without massive bailouts have little or no chance to survive a sharp economic downturn. Monte dei Paschi di Siena, with €169 billion in assets has a Texas ratio of 269%.

In China, the state controlled banking system is similarly ensnared in real estate. There’s $12.58 trillion in U.S. consumer debt. The sub-prime auto loan has replaced the sub-prime mortgage with banks like Santander N.A. in trouble. Add crushing student loans, credit card debt, and zombie state governments staggering under debt, A stumble in one area can be the trigger for rapidly spreading financial collapse a la 2007-8. My guess is that Italian banks may be the trigger with European bankers keeping things afloat until after the French elections in April or the German elections in Sept.

But this time there won’t be the U.S. Fed providing trillions of dollars to make banks and speculators whole once again as in 2008. To take advantage of the collapse, and not get fooled once again, a few basic principles are in order to save the people, the economy, the planet, and not bankers and speculators.

First, write all bad debt, including home mortgages, down to market. This is usual practice for commercial real estate. Terms are renegotiated to reflect market reality or a bankruptcy judge will do this. The law must be changed to allow bankruptcy judges to mandate market terms and allow people to stay in their homes with manageable debt.

Second, the holders of unsecured financial instruments are wiped out as are stockholders of the insolvent banks. Bank executives lose their jobs, and go to jail if they have committed fraud. FDIC saves the depositors. The banks are recapitalized by Federal funds to make real business loans and run by competent trustees appointed by the Treasury with an elected community board to guide sustainable investment policies with full transparency.

Third, a new Glass-Steagall Act must separate commercial banking from investment banking, and the size and geographic scope of commercial banks limited.

Fourth, economic recovery can be driven by profitable sustainable infrastructure investments to create jobs and stable communities by building the efficient renewable energy infrastructure including solar and wind farms, energy storage, the electric vehicle charging infrastructure, high speed rail networks, high speed broad band networks, and zero-pollution and zero- waste factories.

We can create jobs, slash carbon dioxide pollution, and build a sustainable 21st century economy in the aftermath of the coming crisis. A world run by and for billionaires is nearing its expiration date.

The financial storm is coming, be prepared…

Continue this report at GlobalResearch

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