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To sum up the last 24 hours we’ve seen a fall of 2-4.5% around the globe in the world’s markets. After last week’s similar tumble, things are not looking good. As the European Markets are now opening and again falling, we’ll see how far this madness can go.

Viewing the longer-term trends of months and years, it looks fairly clear that we’ve entered a period of intense “volatility”. This may be a warning sign of a far worse crash to come, or it may signal the beginning of a slower, staggered fall. Where or when this might bottom out is anyone’s guess, but I highly doubt yesterday was it.

The risk now is that people are expecting a crash. Rest assured, plans are quietly being made to ‘liquidate’ fortunes at the first sign of serious trouble. Many doubtlessly already have been, and that’s likely a major driver behind these sudden drops. These plans can’t be shared (that would defeat the point), and “trouble” is highly debatable. As a result, nobody really knows where the “tipping point” lies which will drive the crowd off the cliff.

All of this might be thoroughly entertaining if the homes, incomes and livelihoods of billions of people weren’t at stake.

Although scouring the business press for angry anti-capitalist tirades is a bit of a hobby of mine, most aren’t worth posting here. This one is. It details (from a business perspective) what’s wrong with Mutual Funds – and it makes a couple very good points.

The Mutual Fund Industry Is A Huge Scam That Costs Investors Billions Of Dollars A Year

Mutual funds don’t work. In fact, on average, professionally managed funds actually perform worse than simple index funds (ie: a fund based on the S&P 500). And more expensive funds actually tend to perform worse than cheaper ones. Why? Because of the cost of professional fund managers.

The lower the cost of a fund, the more likely it is to do well in the future (relative to other funds). The higher the cost, meanwhile, the less likely the fund is to do well. This is one reason that index funds outperform “actively managed funds” (funds with managers paid to pick good stocks and sell bad ones) year after year: The manager’s salary is deducted from the fund’s returns, and most managers aren’t good enough to offset the cost of their salaries and their employer’s profits.

Refreshing, if brutally honest. So why in hell do we hire hordes of these “experts” for some of the highest wages around? And why would anybody choose to buy into these funds?

This is where having a little anticapitalist background comes in handy. Would the markets be better off if we fired all these managers? Of course – but that’s true of many kinds of managers – and none of that kind of firing is about to take place (for obvious reasons). Mutual funds and others like them exist as a way of giving us “ownership” of capital without any actual control.

A century or more ago, the old definition of “proletarian” (somebody without property) was usually literally true. People joined the industrial workforces because they had nothing but the clothes on their backs (and kids to feed). Today, many working-class people own homes, pension plans and retirement savings – all forms of capital. Unlike capitalists, however, this ownership conveys very little control. We don’t get to use our shares to vote in companies, or dump their stock when they’re misbehaving. We can’t lean on borrowers in the way big lenders can – even if it’s our money being lent.

Capital is quite literally control. More specifically, it’s control over productive resources – land, machines, patents etc. Capital is defined by this productivity and the ability to own and trade it. In the world of stocks and bonds, that means control over companies. Owners and investors have a tremendous amount of influence over those they entrust with “their” money, yet we see none of that when we fill our RRSPs with mutual funds. In essence we’re paying for the privilege to play capitalist, with none of the real benefits attached.

Why let us own capital at all? Because it’s far less threatening than simply handing us cash. In these neutered forms, we can lend massive sums of money at low interest rates – something capitalism desperately needs. It allows us to feel like we’re rich too – maintaining the illusion that we’re all part of one big happy middle class. It prevents us from building up enough cash to buy any meaningful form of capital (garden space, power tools etc). And of course, it cuts their losses severely if something goes wrong. With traditional arrangements, like bank accounts or wages, capitalists had to pay whether or not they were doing well. Now it’s reversed – they’re “working” (by investing our money), so they get paid no matter how their bets turn out.

The modern financial industry is filled with these kinds of million-dollar make-work schemes. The sheer number of people (to say nothing of their pay…) working to buy and sell money in the name of “creating efficiency” is mind-blowing, as is the power they command. We are quite literally paying people to own our money for us.

Doesn’t sound very “mutual” to me.

This week the world inched fatefully closer to economic apocalypse. All week, the world’s markets have been jumping up and down like a pile driver operated by a speed freak. Of course there’s no way of telling if or when a total cataclysmic crash might take place, but it’s clear that we can no longer discount the possibility. When markets crashed in 2008, much of the world was caught off guard as almost nobody (in the mainstream) dared predict it. If another crash comes now, it may well be (in part) because everyone is expecting it. Doom and gloom prophecies which were once limited to the “fringes” of anarchists, conspiracy theorists and peak-oilers, are now front and centre in much of the business press.

Many people are very angry, especially at Standard & Poor’s for sparking the sell-off by downgrading America’s credit rating. There’s even talk of official inquiries. And while I have no love for S&P, I have to say I’m not convinced. Obama may insist that America is “really” worthy of a AAA rating, but is it? The financial leaders of the US are now learning what it’s like for the rest of us. Credit ratings are set in arbitrary ways by unaccountable institutions, and aren’t always fair. They can destroy your ability to get out of a bad spot, and there’s rarely much you can do about it. Why is a downgrade such a frightening notion? Because for a few decades now, America has run a hefty trade deficit with the rest of the world, and their main export has been money. Their size, might and various post-war treaties granted their dollars special status as a de-facto global currency. If the value of US dollars or bonds comes into question, so does the global economy.

This notion has come up a few times in the last decade, with the most common “solution” involving replacing it with the Euro. This is no longer an option – America may have a bit of a debt crisis on its hands, but the EU now has half a dozen. Nor would Chinese money be a solution, given their current inflation crisis. The ugly truth is that we are now all too integrated for a purely regional crisis.

The other convenient demon for the recent sell-off would be the debt ceiling debate amongst America’s Government. There’s no doubting that this spectacle was shameful, childish and unbelievably irresponsible. Spending two weeks threatening a nation and the globe that you’ll default on your debts over petty policy disputes virtually guarantees that somebody’s going to declare you a “credit risk”. Some have gone so far as to call it a “the Tea Party Downgrade”, though there’s more than enough blame to go around. What the Tea Party did was prove their unparalleled ability as a vocal minority to push this brinksmanship even further to suit their own twisted beliefs. If the recent Wisconsin protests were a demonstration of how little popular support they actually have, the debt ceiling row was a show of how much influence they hold among policymakers.

With the G7 pledging to preserve ‘liquidity’ and the Fed promising not to raise ultra-low interest rates for at least another two years, there’s little doubt that bailouts are still on the agenda. Have we learned nothing from the last three years? Using public money to prop up private failures has only made the situation far worse, engendering “austerity” measures we clearly can’t afford, and generating no end of civil strife.

It’s time to be honest – there is no easy answer here. Speculators, hedge fund traders or irresponsible bankers might not have helped, but this crisis runs much deeper. The fact that the Tea Party or Greek Parliament can bring us this close to a meltdown only goes to show how much pressure is building.

What will come of all this? Consistent market failures demand a system change or face collapse. People have been predicting the collapse of capitalism since at least the time of Marx, and we haven’t seen it yet. Markets have imploded many times, but in the end there’s still governments to bail them out. After the last time, the word “socialism” was thrown around often, but no real spreading of wealth or sharing of resources took place. The largest corporations are now more profitable and consolidated than ever. What’s evolving in America is much like China – a wholesale breakdown of the (thin) boundaries between businesses and government – threatening rise of a more blatant type of technocratic rule. How far would those with power go to keep it? As far as they feel they need to.

If we can’t start talking seriously about alternatives now, then when?

As of this writing, the NYSE has fallen, in a week, nearly halfway from it’s high of the last year to the low, and there’s fears that it may not stop soon. Losses of 2-3% a day on the TSX, NYSE and S&P 500 are beginning to add up. This comes on the heels of Standard and Poors downgrading the American national debt from triple-A (the highest rating) to AA, as well as the ongoing European debt crisis.

Obama plans to go on the news at 1pm to talk about the economy and Afghanistan. The EU has already begun buying bonds to attempt to stave off crisis, and the G7 announced last night that it’s ready to “pump liquidity into markets” and do “whatever is necessary” to “maintain stability”. It’s beginning to look a lot like 2008 all over again, and though a cataclysmic crash may not come today or tomorrow, the past week’s chaos only goes to show how close one could be.

The emerging crisis is spurring more than a little bit of discord amongst the ruling classes. Many are attacking S&P for their downgrade of America’s credit rating (and now a wide range of others). Others, though, are pointing out the unbelievably embarrassing debt-ceiling debate the other week as evidence that it was justified. Some have even called it “the Tea Party downgrade”. European nations are turning on each other over the issue of bailing out poorer economies and putting Germany at odds with the poorer nations over debt repayment. Bank of America is sinking like a rock, and Obama’s on any time now. Can he turn this around? And if so, for how long?

Update: Obama finally came on, nearly an hour late (boosting markets slightly from their hour he was MIA). His speech could be defined, in precise economic terms, as “drivel”, making claims such as “the markets still believe we’re AAA” and “our problems are immediately solvable, and we know what we need to do to solve them”. Bold words for a man talking while the NASDAQ is down over a hundred points, and the NYSE well over three hundred down. The market has resumed dropping since.

Update 2: Markets are now closed, having suffered fairly steady losses through the day. Obama’s speech was widely received exactly like above, and did nothing to stop the crash. Markets dropped 4-7% in New York, Toronto and London, leaving many wondering how tomorrow will play out. Remember it’s only an hour or so now before Asian markets start opening, and after they close; Europe. By the time we wake up tomorrow morning, this situation may have gone a long way towards getting better – or worse.

Anyone who thinks the world economy isn’t going to crash again is living in a dreamland. And while dreamlands are nice, especially in such tough times, they don’t help us to deal with reality.
There are two ways to see the recent global economic meltdown. In one view, the economy was basically sound, but hit a “perfect storm” of high prices and unstable loans, which shattered confidence in world markets. In the other view, this crisis has been simply one of the first of many as a fundamentally unsound system begins to crumble.
If the marketplace were to fail tomorrow, would we be able to afford another bailout? What if it happened again, after that? And at what point does the debt load of our national governments become completely and totally unmanageable?
The global meltdown provided some much-needed relief from a lot of pressures which had been building up. The price of oil climbed from under $20 a little over a decade ago to nearly $150 days before the collapse. Other industries, too, are experiencing similar pressures. There’s now a war over mackerel between Scottish fishermen and the Faraoe Islands, a fish which barely had a market a few years ago. Declining global fish stocks, and multiple failing fisheries, have been pushing heavy competition into new markets.
The hope is that oil prices and the rest of the economy will keep each other in check. For the moment that seems to be working. But $70-80 per barrel oil is still putting a lot of pressure on the system, and it’s not like anyone expects that price to come down any time soon.
Signs are now coming in that things are not good. They’re turning for the worse. In America, job figures and home sales are taking a significant turn for the worse. And neither the European nor the Asian economy is doing any better.
Is this the beginning of another crash? I don’t know. Making predictions is a risky game. Analysis is not. These signs are yet another group of cracks in the facade of a fundamentally unsustainable system. I cannot tell you tell you when it will crash again, but I can tell you that it will.

It was silly to think that the economy could simply snap back like a rubber band considering that the excesses that led to the 2008-2009 crisis were years, if not decades, in the making.

This failure won’t just be a “Black Friday”. When systems on this scale fail, it’s never just a one day, or even a one-year process. In many ways, these types of things unfold without us even noticing.
You cannot solve debt problems by borrowing more money. You cannot solve problems with the overexploitation of oil, fish, timber or water resources by continually tracking down new green pastures to ruin. And you cannot solve problems with the concentration of wealth and power by concentrating more wealth and more power.
We need to pay attention to the signs. In a global economy which is as integrated as ours, depressions can ripple through like natural disasters. People have used up all their EI and exhausted their savings to survive the last collapse. It’s going to get a lot worse when it happens again. If we do not fix the underlying problems we’re only paving the road toward a truly awful “next time”.

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