The foundation for the original financial architecture and economic systems of the modern era was laid over the last two to three centuries. Much of the actual architecture and various systems were designed, engineered and constructed during a time that would be considered the Stone Age when compared to the Information Age of 2013. Herein lies the crux of the matter.
Way back in the days there were relatively few stock and bond exchanges, as well as limited currency and commodity trading. Of course, real estate investments have always been around but certainly not in the form of Real Estate Investment Trusts, Real Estate Limited Partnerships, and Collateralized Debt Obligations that we see today.
Over the last century there has been exponential growth experienced in every single market across the globe. Equity, bond, currency, commodity, real estate, derivative to name the primaries. Each of their original trading platforms were built to accommodate a vastly different world. You could say that the foundation specs were quite minimal, especially relative to the 21st century.
Was Superstorm Sandy really an OMEN?
By way of an analogy we all saw Superstorm Sandy blow through the Northeast in October of 2012. As it wended its way though New York City, what was revealed was just how vulnerable the Big Apple really is. Especially the business district in Lower Manhattan. Even the subway lines from Wall Street down to the Battery were incapacitated for an unheard of amount of time. Much of Wall Street all the way to the Battery was either without power or completely shut down for days after the storm.
What’s the point?
The city of New York was also built over a few centuries. However, much of the infrastructure was built over the past one hundred years. Each decade of expansion brought with it new layers of technology and building materials and design changes.
As each new phase of construction was overlaid on top of the preceding one, the infrastructure became burdened by the outdated or obsolete technology from previous times. Equipment and machinery that was old and worn out became easily stressed when forced to operate under extraordinary pressures such as weather events like Superstorm Sandy. Likewise, inferior parts and substandard components served to further weaken the entire system, especially the older infrastructure and creaking architecture, just as we saw happen in the wake of Sandy.
The following statement concerning technospheric breakdown accurately describes not only the predicament of NYC infrastructure, it’s also applicable to the current state of the global economic foundation and financial architecture.
“Equipment, machinery and technology which has not been proportionately upgraded to meet obvious requirements, ever-growing needs, newly emerging challenges and contingencies of the 21st century will begin to fail and breakdown at an ever-increasing rate.”
– “Technospheric Breakdown: Ongoing, Ubiquitous and Unstoppable“
When the economic foundation cracks and the financial architecture teeters
Herein lies the greatest challenge of the 21st century regarding the consequences of globalization and current state of worldwide commerce. The world is now one huge marketplace. However, the current global marketplace was assembled over decades (and centuries) by the piecing together of a multitude of little markets. A veritable hodgepodge of financial patchwork and economic mishmash have been somehow jumbled together to make it all stick together to function as a cohesive global economy.
How the markets (read global marketplace) continues to function, given all of the obvious flaws and inherent weaknesses is anybody’s guess. Truly, only by the daily manipulations and monthly machinations of the Hidden Hand does it really continue to present some semblance of order and efficiency. Were it not for the artificially propping up of so many collapsing platforms, the whole House of Cards would have fallen many years ago. The following quote sums up the true state of affairs quite well.
“The global money matrix, worldwide financial architecture and planetary economic landscape most closely resemble the proverbial House of Cards in the form of a Pyramid-Ponzi scheme superstructure built on quicksand.”
– “The FOUR HORSEMEN Herald the Death Knell of ‘Free Market’ Capitalism“
US Government Shutdown, Debt Ceiling, and Budget Debate
Clearly Obamacare has served as a worthy pretext to initiate the much more serious issues facing the US Government and American people. Whereas it has the potential to bankrupt the nation over the long term, so does the failure to reign in the burgeoning $17 trillion dollar debt and ballooning federal budget deficits.
In this regard, Oct. 17 functions merely as the latest in a long series of wakeup calls. Managing the largest economy on earth with virtually no budgetary consensus or attention to a catastrophic national debt level is a recipe for disaster. Overlaying the most costly and forced piece of legislation (aka Obamacare) during this time of economic turmoil and financial uncertainty has only further upped the ante.
No, the proverbial CAN can no longer be kicked down the road. And to continue to do so will only make matters much worse. The various market bubbles, which are expanding against all odds at this very moment, will deflate sooner or later. If they pop in a disorderly fashion, it will not be a pretty picture.
There’s no question that the derivative market provides the glue, tape and staples which hold the entire House of Cards together. The myriad bets being placed and hedge positions being held are literally keeping this global Ponzi scheme from falling apart. Therefore, it’s imperative that serious regulatory controls be enacted for this ever-burgeoning derivative market. Otherwise, the consequences will be too great to even consider putting “Humpty Dumpty back together again”.
It would be much better for every stakeholder playing this game, if the current opportunity (read government shutdown) for a reality check triggers a genuine attempt toward finding real solutions. Denial is no longer an option. The whole world will fall victim to whatever financial apocalypse and/or economic armageddon awaits in the absence of a durable resolution.
If October 17th comes and goes without the President and Congress appropriately addressing the actual systemic issues related to government spending, tax reform and the national debt, the USA risks even greater calamity when things do reach the final breaking point.
State of the Nation 2013
October 9, 2013