On July 20, the Broad Group broke ground on Sky City on the outskirts of the south-central city of Changsha. The skyscraper will rise 838 meters (2,749 feet) into the heavens to become the world’s tallest building. If that weren’t feat enough, the project aims to wrap up construction in 90 days and at almost half the cost of Dubai’s Burj Khalifa, which it would top.
Yet the experiences of Japan, Malaysia, the United Arab Emirates and the U.S. show an uncanny correlation between architectural one-upmanship and economic doom. In the 1920s, for example, New York’s Chrysler and Empire State buildings opened amid the Great Depression. Later, New York’s World Trade Center and Chicago’s Sears Tower presaged fiscal crises and the breakdown of the Bretton Woods system.
In the late 1990s, Kuala Lumpur’s Petronas Towers opened at the height of the Asian crisis. A decade later, Dubai’s economy hit a wall right on cue as the 828-meter Burj Khalifa was getting its Guinness World Records mention.
This fall will mark the five-year anniversary of Lehman Brothers filing for bankruptcy, sparking the biggest financial crisis since the Great Depression. When the anniversary hits, many legal experts agree, any chance federal prosecutors will have had to hold Wall Street accountable will have come and gone with the passing of the statute of limitations.
So is Wall Street breathing a sigh of relief?
In The Untouchables, which re-airs tonight on FRONTLINE (check local listings), correspondent Martin Smith examines why not one major Wall Street executive has been prosecuted for fraud tied to the sale of bad mortgages.
Many of the same issues examined in the film will take center stage tomorrow during a hearing of a House Financial Services Subcommittee. Among the questions expected to come up is which outside experts the Justice Department consults with when considering whether to prosecute large financial institutions.
That question first drew the attention of lawmakers shortly after the The Untouchables premiered. A week after the film, Senators Sherrod Brown (D-Ohio) and Chuck Grassley (R-Iowa) sent a letter to Attorney General Eric Holder asking whether the “too big to fail” status of some banks undermines the government’s ability to prosecute wrongdoing.
The letter cited remarks made in the above excerpt from the film by Lanny Breuer, the former head of the Justice Department’s criminal division. Breuer told FRONTLINE:
Peter Lee: We are about to enter this convergence period, and we suspect in the second half of this year and into 2014 we will see a great deal of major movements in these financial markets. The charts below go back to the Great Depression when we had an 85% drop in the S&P.
The most recent test was the March 2009 low at 666 on the S&P. At that time the trendline was up into the low 600s, at 620, 630. So we were within striking distance during that panic. This 1942 trendline should be somewhere in the 850 area or above by 2014 (this would represent a horrendous drop of roughly 42% on the S&P).
Eric King: “Either way we are in for one hell of a rough ride for equities.”
Lee: “We’re not done yet. Everyone thinks that we’re nearing the end of the bear market, or structural sideways trading market. We suspect we probably have another 5 to 8 years of this. No one wants to hear this call because investors have already been frustrated by the last 13 years.
We have run a number of internal studies dating back to 1800, and the track record has been 100% accurate. Every single time we have overextended market to the upside, we see a ‘mean reversion’ back to normal levels. Again, this is 100% accurate going back to the 1800s.”
The author notes a 76-year repeating cycle in America with the most current cycle nearing an end. Generally, there is a build up of tension that gets released after 76 years, and the cycle starts all over again after a crash. So there are real reasons for these cycles – not just an alignment of the stars.
1. The American Revolution
2. Civil War
3. Great Depression plus World War II
Notice how these cycles always seem to end in war.
Two historians in the Fourth Turning noted an 80 to 100 year repeating cycle. Each phase lasts 20 years. The last phase is called the crisis phase. According to the two historians who wrote the Fourth Turning in 1997, we would enter a crisis phase in 2005. It would last until 2025.
The original arrangements in each 76-year period became unworkable and unraveled toward its end. Eighteenth-century Americans rejected the Colonial status quo and launched a revolution, then established a constitutional republic.
Nineteenth-century Americans went to war over expansion of slavery. Early-20th-century Americans grappled with the collapse of the private-sector economy in the Depression of the 1930s.
We are seeing something like this again today. The welfare state arrangements that once seemed solid are on the path to unsustainability.
Entitlement programs — Social Security, Medicare, Medicaid — are threatening to gobble up the whole government and much of the private sector, as well.
Lifetime employment by one big company represented by one big union is a thing of the past. People who counted on corporate or public-sector pensions are seeing them default.
Looking back, we are as far away in time today from victory in World War II in 1945 as Americans were at the time of the Dred Scott decision from the First Inaugural.
We are as far away in time today from passage of the Social Security in 1935 as Americans then were from the launching of post-Civil War Reconstruction.
Nevertheless our current president and most politicians of his party seem determined to continue the current welfare state arrangements — historian Walter Russell Mead calls this the blue-state model — into the indefinite future.
Some leaders of the other party are advancing ideas for adapting a system that worked reasonably well in an industrial age dominated by seemingly eternal big units into something that can prove workable in an information age experiencing continual change and upheaval wrought by innovations in the market economy.
The current 76-year period is nearing its end. What will come next?
The greatest lesson of Pearl Harbor is that the unthinkable can suddenly become thinkable. Better to be prepared than sorry. 9/11 reminds us of this lesson.
From the article:
Perhaps the greatest lesson of Pearl Harbor is that nothing is impossible for the American people.
The most amazing transformation in American history may be the 1,366 days between December 7, 1941, and September 2, 1945—and the speed with which the Axis powers were reduced to ruin once the United States entered the Second World War. During this time, the tremendous outpouring of America’s industrial strength in ships, planes, tanks, and other armaments was exceeded only by the bravery and determination of the nation’s men and women.
They were a “can-do” generation who did not take “no” for an answer. They did not put off until tomorrow what needed to be done today. We should remember their resolve, honor their commitment, and seek to emulate their example. They truly were the greatest generation.
Why did Pearl Harbor happen?
The attack on Pearl Harbor was a preventive or pre-emptive strike to keep the U.S. Pacific Fleet from influencing the war the Empire of Japan was planning to wage in Southeast Asia. The American empire was perceived to be in decline by the Japanese because of the Great Depression. Japan itself was rising rapidly. An attack was thought to keep out the US.
Do you notice the similarity between China today and the Japan that attacked Pearl Harbor?
The Attack on Pearl Harbor
The attack on Pearl Harbor (or Hawaii Operation, Operation Z, as it was called by the Japanese Imperial General Headquarters) was an unannounced military strike conducted by the Japanese navy against the United States’ naval base at Pearl Harbor, Hawaii, on the morning of Sunday, December 7, 1941 (Hawaiian time, December 8 by Japan Standard Time), later resulting in the United States becoming militarily involved in World War II. It was intended as a preventive action to keep the U.S. Pacific Fleet from influencing the war the Empire of Japan was planning to wage in Southeast Asia against Britain, the Netherlands, and the United States. The attack consisted of two aerial attack waves totaling 353 aircraft, launched from six Japanese aircraft carriers.
“The impact of the global financial crisis and the European sovereign debt crisis on the world is continuously deepening,” Wen said during a meeting with Merkel.
“As important economies and strategic partners, China and Germany should make consistent efforts on promoting the confidence of the international community, joining together in dealing with challenges and creating a better tomorrow.”
And the crisis will continue to deepen. And it will continue to get worse. And it will not be solved. And this is what happens when a system wants to collapse, but you don’t let it.
Bad thinking, bad decisions and corruption permeate all throughout the world. So it is not a financial matter. It is not a matter of bad economics. It is a matter of bad everything. And the only way to clean up this mess is just to let the collapse happen. Yes, there will be the gnashing of teeth, but when the dust settles the sky will be clear and the way forward will be up.
Welcome to the Great Depression redux.
The 2008 Financial Crisis nearly destroyed the world financial system and consequently the global economy. As the U.S. housing market collapsed numerous institutions struggled to cover bad bets they made via the derivatives market. Massive insurer American International Group, Inc. (NYSE:AIG) had to be bailed out by the US government. Lehman Brothers went bankrupt. Bear Stearns was forced into a fire sale to JPMorgan Chase & Co. (NYSE:JPM), and numerous other banks faced derivatives related crises. Only massive efforts by the United States government & others staved off what could have been another global Great Depression. We must now ask if the worst derivative related problems have passed or if the 2008 Financial Crisis was merely a prelude of things to come.
Please remember this:
The foundation of derivatives is the Normal distribution. The Normal distribution assumes everybody acts independently. In a crisis people do not act independently. In a crisis derivatives will blow up.
We seem to be heading towards an economic downturn equivalent to the Great Depression of the 1930s.
It’s more of a slow-motion train wreck—Greece’s crisis started in 2009. But that leaves a puzzle—why is the American stock market not reacting to obvious warning signs?
The Philippines accused China of further ratcheting up tensions in a disputed portion of the South China Sea after it said dozens of Chinese vessels had been deployed there in recent days, despite a fishing moratorium.
The Philippine Department of Foreign Affairs said on Wednesday it had expressed “grave concern” this week to the Chinese Embassy after a dramatic increase in the number of Chinese vessels around the Scarborough Shoal in the past few days.
This conflict could risk dragging in the US. The Philippines is counting on its treaty with the US should things start heating up too much. So far the current conflict with China hasn’t shown signs of cooling much.
It’s not unreasonable to project that the South China Sea area might very well turn into a direct conflict between China and the US. Any such conflict would quickly escalate into a full-blown nuclear war. Since the US is perceived to be in decline by the Chinese, they are more willing to take on the US.
If a country thinks there is a good likelihood that a direct conflict leading to war may happen within a few years, then it might decide to launch a pre-emptive strike out-of-the-blue to attain a more favorable outcome. This strategy will ensure the survival of the regime, it’s military and at least a few million citizens. The alternative is to do nothing then later plunge headlong into war where the survival of any group, like the regime, is at risk.
This is a scenario that Japan found itself in right before it attacked at Pearl Harbor. The US was perceived to be in decline at that time as well due to the Great Depression. The attack was to preclude interference in its plans for Asia. World War I started because Germany perceived that the military build-up in Russia and France represented a serious danger a few years down the road. Better to attack before this build-up was complete.
Generally the decline of the US, no fear of nuclear war and the gutting of its nuclear arsenal represent a complete change in the defensive posture of the US. And there are constant calls to reduce its nuclear arsenal even further. The thinking that kept the US safe since the end of World War II is gone.
The forest is old. The summer is hot and dry. We only have to wait for a spark, but then it will be too late to escape. Perhaps it would be a good idea to start getting ready for nuclear war. Or even leave the US. When you finally figure out that you are in real trouble, then it will be too late.
Philippines Looks to US Treaty in China Dispute
The treaty between Manila and Washington makes no explicit mention of the South China Sea. But the Philippines’ Foreign Ministry is circulating letters it received from U.S. officials in 1979 and 1999 as evidence the treaty extends to its territorial claims in the South China Sea. Those include the shoal as well as some of the Spratly Islands, which are claimed by several countries.
U.S. Secretary of State Hillary Clinton last year said the United States “will honor its treaty obligations to the Philippines” but would not speak about how America would respond to – as she put it – “hypothetical events” such as a Chinese attack on Filipino forces in the uninhabited Spratlys.
BBC News – As China rises, America responds
And Luo Yuan, a senior officer at the People’s Liberation Army’s Academy of Military Sciences, told the paper that while neither the United States or China desire to start a war, “if China’s core interests such as its sovereignty, national security and unity are intruded on, a military conflict will be unavoidable”.
That’s tough talk, but it’s exactly the sort of aggressive tone which is alarming China’s neighbours and making them more receptive to America’s overtures.
South China Sea disputes could lead to war in Asia: think tank
Risks are growing that incidents at sea involving China could lead to war in Asia, an Australian policy think tank warned on Tuesday.
Concentrated on the South and East China seas, the risk-taking behavior of the Chinese military, resource needs, and greater assertiveness, raised the possibility of armed conflict that could draw in the United States and other powers, the Lowy Institute said in a report.
The Yale economics professor, who helped devise the Case-Shiller index for housing market trends, and famously called the dotcom bubble of the early 2000s and the housing market bubble later in the decade, told “Squawk Box Europe” that the world is in a “new age of austerity.”
“Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now,” Shiller said.
Many economists believe that the embattled euro zone has already entered the second part of a double-dip recession, with official figures due out this week expected to confirm as much.
We are in a pre-collapse state being heavily suppressed by massive borrowing. This only delays the inevitable and makes the eventual collapse worse.
Think about the sandpile model with sand constantly streaming down. If the sand gets piled too high, the sandpile will evendually want to collapse. The collapse is not the problem. The problem is that the sand got piled too high. The solution is to let the collapse take place. One must let the collapse happen in order to move forward. Suppressing the collapse means new sand will pile on top of an unstable structure.