I know the news seems pretty dark at the moment. There are massive protests in many parts of the world as working people rise up and push back on further download of bank manufactured debt on to the proletariat. But I think things may finally be moving in the right direction here.
The UK who is leading in budget cuts and austerity is now saying they are looking at ways to separate the retail banking sector from investment banking, shades of Glass Steagall. Good. Irish leaders are saying the senior bond holders are going to have to share in losses. Good. Greece is saying the same thing. Quite right. In the US there are movements to cut spending, reduce deficits, increase capital requirements for banks, hike margin requirements for commodity traders and curtail high frequency trading. All good and necessary steps towards solution and genuine recovery from the train wreck of the past several years.
The message building around the world is that politicians who continue voting in favour of the bank lobbyists will lose their power as the people revolt and toss them out repeatedly.
The consumer has been forced to see the light, and now they have. They are not coming back to gluttonous conspicuous consumption on credit any time soon. We must face facts. The changes we need to make to the financial system today will retard growth. It is crucial to accept this as part of the necessary treatment for the credit plague. We must cut out the credit cancer in order to recover and this will necessarily leave a hole in the economy which was running on credit-juiced artifice the last several years. Real sustainable demand is lower; we must deal with facts and not keep hoping for the excess of yesterday.
Acceptance is key to recovery, because then we stop fighting the inevitable and get on with the solutions. We will clear excess supply of homes by selling them cheaper. We will clear out the packed storage units all over the world by auctioning the contents off for pennies on the dollar. We will clear the backlog of foreclosures, as we did in the Savings and Loan crisis, by people with cash bidding on piles of envelopes of mortgages presently mounded on the desks of overwhelmed lenders. Investors will find value again in stocks once they are marked down to reasonable valuations. All of this is inevitable and healthy. The world is hung over from a massive credit party, it is time to sober up and clean up the mess.
This clip of Robert Schiller offers some important insight on where we are and how to move forward.
;
