Economic Turmoils

The spiral took another turn and then the banks were hit: their balance sheets - loaded with real estate assets - were wiped out. Construction companies were obviously also hit: another sector brought to its knees.

The spiral continued and knocked out the mortgage giants and from there major Wallstreet players. This triggered another tsunami: the stock market lost 30-50% of its value. Every sector in the economy was affected causing the next round: lay offs of employees, reducing further demand for product and services due to dropping consumer confidence.

Countries have become interdependent more and more in the previous decades, which has facilitated the export of the US disease and infect other countries with the same strain. Those whose economy depended on export to the US - to feed reckless consumption here - were hit immediately. Turbulence spread from there further.

But that is not the end of it. The spiral went another turn and thereby it affected another, again larger level: governments in trouble. Now it is getting really interesting!

The public sector in welfare states plays a disproportionate, somewhat hidden role in a country's economy. It is not the size of the government that is the problem (which was Reagan's hobby horse). Instead it is its redistribution function. A great majority in welfare states (estimates run up to 80%) consume more in social services than they pay in taxes. Governments have been able to finance these services by taxing the top 20%, which produce now 70-80% of the government's revenues. A hit in the economy, as we witness now, shrinks the incomes disproportionally of the top 20% and thereby of the government's revenues.

This explains the panic behavior of the governments we see now all around us. Increasing taxes, as done by US states, chokes the economy further. The Federal government desperately tries to jump start a dead car-nation with deficite spending, which future generations will inherit.

There is more trouble on the horizon. Here some quotes from UN chief Ban Ki-moon:
-- ... failing to act to halt the global economic crisis could lead to widespread social unrest and failed states
-- ... the global economic downturn affected the poorest countries the most, and noted that in these countries things fall apart alarmingly fast

Everyone has his pet villain in this Greek tragedy of now mondial proportions. We all agree at what happened at the lower levels of the spiral:
- Greed in varying degrees
- Deregulation was really stupid when exploited by the bad, big boys
- Bush was deluded when he boasted that home ownership was raised to 70%, while the bottom 40% does not pay Federal income taxes
- Loosening up mortgage requirements was great when we were applying for it, but was actually moronic
- The smartest quants on the planet cooking up insurances for mortgage packages were idiots after all
- Our politicians were, of course, clowns too. They saw it all happening, did nothing and when it was too late they were accusing each other. Plus: they had created a system of well intended entitlements that after a century have produced economically dysfunctional populations, which now blocks deep restructuring options

We are missing one party of idiots: WE THE PEOPLE.
-- We refinanced repeatedly to support unsustainable consumptions and thereby engaged in reckless plundering of planet Earth
-- We elected the policitians who promissed us a Disneyland reality
-- We procreated at the expense of the society and created the majorities that need now to be propped up by desperate governments

Linking the trouble of the poorest countries to the current economic turmoil - as done by Ban Ki-moon - is disingenuous. They have their own brand of destructive forces: out of control fertility with as poster-child examples:
Afghanistan: 6.53 children born/woman
Gaza Strip: 5.05
Niger: 7.75
Nigeria: 4.91
Uganda: 6.77

The solution of this mess?
- Developing solar and wind energy is nice but the magnitude of this effort will not get the car out of the ditch
- Universal healthcare increases the size of social services, while we need to make the citizens more self-reliant instead
- Squeezing the fat out of US healthcare (16% of GDP instead of 8% in Japan) is not on the table
- Fixing the delapitated infrastructure is great, but who is going to do it? We have now a surplus of administrators, paper pushers, eligibility deciders, social service deliverers who can talk, schedule, reschedule and produce more assistance programmes for a more and more needy population

Instead, we need to rethink what we have been doing during the 20th century before dealing again and again with symptoms instead of root causes.