THE LINK BETWEEN GLOBALIZATION AND THE RECESSION -
IMPLICATIONS FOR THE FUTURE

Bruce Sundquist
bsundquist1@windstream.net

Edition 5 - November 2010 (Updated 4/1/11)

Prior Editions: Ed. 1, August 2009 // Ed. 2, October 2009 // Ed. 3, December 2009 // Ed. 4, May 2010

~ TABLE OF CONTENTS ~

~

~ ABSTRACT ~

[1]

~ The US Unemployment Picture - Worse that the Statistics Suggest ~

[2]

~ Some Background on the Housing Bubble ~

[3]

~ Some Background on the Dysfunctional Behaviors in the Financial System ~

[3-A]

~ Higher-Risk Banking Structure ~

[3-B]

~ Dysfunctional Incentive Systems for Traders in Financial Institutions ~

[3-C]

~ Elimination of Regulations Passed in Response to Prior Financial Disasters ~

[3-D]

~ Federal Anti-Regulation Attitude for Wall Street ~

[3-E]

~ Much Higher Leverage at the Nation's Largest Investment Banks ~

[3-F]

~ Higher Levels of Risk for Fannie Mae ~

[3-G]

~ Derivatives ~

[3-H]

~ Credit-Default Swaps and their Veil of Secrecy ~

[3-I]

~ Securitization and Over-Borrowing ~

[3-J]

~ Replacing Second Mortgages by Home-Equity Loans ~

[3-K]

~ Biased Credit-Rating Agencies ~

[3-L]

~ Investments in Hedge Funds by Pension Funds, University Endowments and Charitable Organizations ~

[3-M]

~ Rating Games with CDOs and Name Games with CDSs ~

[3-N]

~ Ponzi Scheme Proliferation ~

[3-O]

~ Globalization of Dysfunctional Behavior in Financial Systems ~

[3-P]

~ Why all this Dysfunctional Behavior now? - And Why the Urge for Greater Risk? ~

[4]

~ The Role Interest Rates Played in the Housing Bubble and in the Dysfunctional Behavior of the US Financial System ~

[5]

~ The Interactions among Corporate Profits, Low Interest Rates, and Weakness in the Consumer Sector of the US Economy ~

[6]

~ The Link Between Consumer Sector Weakness and Mismanagement of Globalization ~

[7]

~ Spillover Effects of a Weak Consumer Sector ~

[7-A]

~ ~ ~ Consumer Responses to the Weak Consumer Sector ~

[7-B]

~ ~ ~ The Role of Federal Tax Law Changes and other Federal Policy Changes on Interest Rates ~

[8]

~ Short-Term Strategies for Preventing Future Great Recessions ~

[8-A]

~ ~ ~ Reduce the Role of Political Ideologies ~

[8-B]

~ ~ ~ Reduce the Role of Globalization Mismanagement ~

[9]

~ Long-term Strategies for Strengthening the Consumer Sectors of Developed Nations ~

[9-A]

~ ~ ~ Strategy 1 - Reduce Scarcities of Financial Capital in Developing Nations ~

[9-B]

~ ~ ~ Strategy 2 - Reduce Major Inefficiencies in the US Economy ~

[10]

~ Mismanagement of the Globalization Process - Common or Rare? ~

[10-A]

~ ~ ~ Structural Adjustment Programs (SAPs) in Developing Nations ~
~ ~ ~ [10-A1]~
SAPs in Urban Areas, [10-A2]~SAPs in Agricultural Areas ~

 

[10-B]

~ ~ ~ Effects of Globalization on Consumer Sectors of Economies ~
~ ~ ~ [10-B1]~
Developing Nation Economies, [10-B2]~Developed Nation Economies ~

[10-C]

~ ~ ~ Caste Systems in Developed Nations in Response to the Effects of Globalization ~

[10-D]

~ ~ ~ Summary of the Above Effects of Globalization ~

~

~ Appendix A ~ A Prior Economic Meltdown - Regulation at its Best - and the Current Meltdown - Deregulation at its worst ~

~

~ Appendix B ~ The Sequence of Cause-Effect Links that Led to the Great Recession
~ ~ ~ (A Summary of the Document Above)

~

~ Reference List

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~ ABSTRACT ~
It is commonly assumed that the current global recession was triggered by the collapse of the US housing bubble, in combination with numerous dysfunctional practices throughout the US financial system. This document shows that it would be a mistake to stop examining the cause-effect linkages at that point. Digging deeper enables one to trace the current Great Recession back through a series of events to the early 1980s, and to a mismanaged globalization process in the US. Political ideologies favoring deregulating the financial system and "Less-government-is-better-government" generally have made the Great Recession significantly worse. This basic cause and its supporting ideology produce some surprising and disturbing implications for the future. Perhaps the most disturbing is the possibility of the current recession lasting indefinitely, and worsening over time. The reason for the possibility of an "indefinite" duration of the Great Recession is that the bursting of the housing bubble caused Americans to run out of options for dealing with the economic pain being inflicted by a mismanaged globalization process. That lack of options could, by itself, produce a recession of indefinite duration. One also arrives at a clearer understanding of what the US should do to avoid future Great Recessions. Changing US management of its globalization process to be more similar to the way the EU and Japan manage globalization would produce a major benefit. Without that, the weakened consumer sector of the US economy (the main result of globalization mismanagement) will continue and worsen. Sound management of the globalization process appears to be getting more difficult, if the experiences of the EU and Japan are any indication. This may require consideration of other options.

Readers seeking a quick summary of the cause-effect linkages connecting US mismanagement of globalization to the current Great Recession should go to Appendix B.

[1] ~ The US Unemployment Picture - Worse that the Statistics Suggest ~
The importance of getting a deeper understanding of the Great Recession of 2008 can be seen in recent unemployment data. The deeper one looks into this data, the more shocking it becomes (09Z1). The Bureau of Labor Statistics estimates that 7.4 million people have lost their jobs since the start of the recession (09G4), giving an unemployment rate of 9.6%. (It was 4.8% before the recession.) It's worse than that. People asked to take unpaid leave are not part of the 9.6%. More than 1.4 million people who wanted, or were available for, work were not counted because they hadn't searched for work in the four weeks preceding the survey. The number of workers taking part-time jobs has doubled in the recession to about 9.3 million (09G4), or 5.8% of the work force. Adding those whose hours have been cut to those who cannot find full-time jobs brings the total unemployed to 16.5%, increasing the number of involuntarily idled workers to 25 million.

Also, the average workweek for rank-and-file employees in the private sector (80% of the US workforce) slipped to 33 hours (48 minutes per week less than before the recession began). This is equivalent to the work of 3.3 million employees. This means that if it were not for the shorter workweek, the jobless rate would be 11.7%, not 9.6% (09Z1), and increases the 16.5% figure mentioned above by several percentage points. This is depression territory, or close to it. Another trend makes the unemployment picture even worse. The number of unemployed whose unemployment benefits are scheduled to run out is expected to reach 0.5 million by the end of September, and 1.5 million by the end of 2009 (09E1). Also a working paper by three economists at Columbia University found that, on average, most workers who are let go in a recession do not recover their old annual earnings, and that income losses can persist for as long as two decades. These data were based on studies following the recession of the early 1980s. The largest wage losses were typically for workers who had long tenures at their previous companies (09L2). Middle-class families in 2008 earned less, adjusted for inflation, than they did in 1999 (10H1).

Job seekers in July 2009 outnumber openings 6 to 1, the worst ratio since the government began tracking open positions in 2000. Some 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed. At the beginning of 2009, job seekers outnumbered jobs 4 to 1. In the recession of 2001, the number of jobless reached a little more than twice the number of full-time job openings (09G3).

It has also been noted that the recoveries following the two recessions before the current Great Recession have been more or less jobless (09G4). Should the recovery following the current Great Recession also be more or less jobless, the consumer sector of the US economy (70% of that economy) will continue to be weak indefinitely. This means that interest rates and returns on investment in our retirement vehicles (IRAs, 401(k)s and annuities) will also continue to remain low indefinitely. This, in turn, means that the dysfunctionalities of the US financial system will continue, raising the prospect of more "Great Recessions" waiting in the wings. Thus far (five months after the current Great Recession has supposedly been over [09G4]), jobless rates have continued to be high, and interest rates have continued to remain low. So thus far, "recovery" from the Great Recession has been following the same behavior as the prior two recoveries from recession, i.e. jobless. Later in this document, other reasons will be developed supporting the contention that the current Great Recession (at least in terms of a weak consumer sector and low interest rates) is likely to continue indefinitely. (In website 12/16/09) The last recession with a recovery in which employment also recovered was in the early 1980s (roughly the start of the globalization era) (09B5). The Washington Post reported (Jan. 3, 2010) that the entire past decade "was the worst for the U.S. economy in modern times." There was no net job creation between December of 1999 and January of 2010. "No previous decade, going back to the 1940s, had job growth of less than 20 percent." (10H1)

Labor Department data of late December 2009 (09G5) suggest that U.S. unemployment has peaked, but this is probably not the case. The number of people drawing regular unemployment benefits dropped from 6.9 to 5.0 million during the period between late June and late December of 2009. But during this same period, the number of people drawing extended and emergency benefits increased from 2.8 to 4.7 million. The sum of these two categories of people drawing benefits (9.7 million) has not changed between late June and late December 2009. Also, the number of people who have given up looking for employment, and hence are not counted among the unemployed or among those in the labor force, have numbered some 5.6 million during the last half of 2009 (09G5). So the sum of these three categories of people numbers some 15.3 million -probably the best indicator of the seriousness of the problems of the consumer sector of the U.S. economy at the end of 2009.

The effects of the Great Recession on people in the developing world are equally disturbing. The World Bank has determined that the effect of the Great Recession on the developing world so far has been to push an additional 64 million people into absolute poverty - living on less than $1.25/ day - over the past two years (10J1). The Bank also predicts an economic growth rate for the global economy of 2.7% in 2010. This rate will be insufficient to absorb the anticipated number of newcomers that hope to enter the labor markets in 2010. The rate will also be unable to make a net reduction in the number of people forced out of work in the past two years (10J1).

The effects of this unemployment ripple, not only through the consumer sector of the economy, but also through much of the remaining third of the US economy. Some 920 football fields of office space are available in Manhattan (10H2). This space is found in 180 major buildings totaling $12.5 billion in value. Owners of these buildings often face foreclosure or bankruptcy, or they have problems making mortgage payments. Rents for commercial office space fell faster over the last two years than in any such period in the last half-century (10H2). Rents are expected to go lower. By 2011, the value of New York metropolitan area office buildings is predicted to decline by 58% from its late 2007 peak. It is already down 40%. Job growth in New York City has been impossible to detect - typical of the nation as a whole. Cities like Chicago, Washington and Boston face similar, or worse, situations. Turn-around is not expected until 2014 (10H2).

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[2] ~ Some Background on the Housing Bubble ~
In 2005 and 2006, US lenders wrote an estimated $3.2 trillion in new home mortgages (a record). To do this they lowered their credit standards considerably. In 2005, 20% of mortgages taken out were "sub-prime" (made to borrowers with poor credit). Many more mortgages had risky features such as low (or no) down payments, interest-only payments, and ballooning repayment schedules. As interest rates rose in 2006, mortgage delinquency rates and foreclosures soared. Many of these risky (sub-prime) mortgages were bundled into products rated as "AAA" by credit-rating firms with a financial incentive to inflate ratings. (See [3-K] below.) These products were then sold to investment bankers who sold them to investors worldwide who believed that they were investing in high quality assets. More than 20% of global private debt securities are now tied to housing in the US - $7.5 trillion - far larger than even the investment in US Treasury securities ($4.3 trillion on 12/31/06) (07E1). In 2006, more than 40% of sub-prime borrowers weren't required to produce pay stubs or other proof of their income and assets (Credit Suisse Group data). Many home-mortgage loans made in 2005 and 2006 were made without the lenders being sure of what the house was worth (07H2). All this took place during a "bubble" in the housing market during an explosion in home sales that was then the main driver in keeping the US economy healthy (or apparently healthy). (Some, like economist Paul Krugman, claim that housing was the only driver keeping the US economy healthy.) But even then, all sorts of corners had to be cut in order to accommodate the flood of cash looking for a place to park. The origin of the "flood of cash" is discussed in Section [5].

Alan Greenspan began raising interest rates in 2004. He justified these rate increases in 2005 when he referred to "signs of froth in some local markets (09L1)." Many claimed to have identified the housing bubble in 2005 (09L1). The peak in home prices came in May of 2006 (09L1). Today's Great Recession began in December 2007, over three years after Alan Greenspan began increasing interest rates. All this shows how difficult it is to identify (and stop the progression of) bubbles. Even becoming aware of the existence of a bubble (and taking action to halt if) three years prior to its collapse can be insufficient to avoid a severe recession. It is likely, however, that taking steps to halt the housing bubble three years prior to the bubble bursting probably significantly reduced the damage caused by collapse of the bubble. The same was probably true for the stock market crash of 1929 and the ensuing decade of the "Great Depression." The federal government invoked tight money policies aimed at curbing stock speculation well before the crash (09L1).

Others (09G2) claim that it may be easy to at least identify "asset bubbles" like the housing bubble and the stock market bubble of 1929 far in advance. Asset bubbles (e.g. housing bubbles) are caused by "debt bubbles" (rapid growth in debt). In the current case, low interest rates produced a rapid rate of growth in debt (mainly mortgages). This "debt bubble" fed the "asset bubble." Any debt growth rate in excess of 5%/ year (the long-term rate of GDP growth) is probably feeding an "asset bubble." Taking action to restrain the growth rate of "debt bubble" to below 5%/ year is difficult because Federal agencies, Congress, and the public must be involved in executing this restraint (09G2). Having a well defined, widely acknowledged limit to debt-bubble growth rates might make the political problems easier. Greenspan began raising interest rates in 2004 as a strategy for restraining "debt-bubble" growth. His interest rate growth, however, was apparently insufficient to achieve the desired restraint on debt bubble growth. The analysis below links US mismanagement of globalization to the housing bubble, the dysfunctional behavior in the financial system, low interest rates, and other means of encouraging debt-bubble growth. That growth would have been hard to reduce, politically, because it was aimed at addressing significant economic weaknesses in the economy, and particularly in the consumer sector of the US economy. It would probably be easier to fix the mismanagement of the globalization process. Achieving this would probably reduce, or eliminate, the need for promoting debt-bubble growth since the consumer economy would be significantly improved. That would have then spared the US and the world from the Great Recession.

[3] ~ Some Background on the Dysfunctional Behavior in the Financial System ~
It is useful to list, and describe, some of the more serious dysfunctional practices characterizing the US financial system as it was when the US housing bubble collapsed.

[3-A] ~ Higher-Risk Banking Structure ~
In early 1999, Alan Greenspan helped persuade Congress to repeal the Depression-era laws that separated commercial and investment banking. (Recall that this law was passed as a means of reducing overall risk in the financial system.) (08G1).

[3-B] ~ Dysfunctional Incentive Systems for Traders in Financial Institutions ~
In financial institutions like commercial banks and investment banks, the system of incentives for traders was (for nearly the past 20 years) extremely skewed to favor high-risk (and hence high gain) investments when dealing with other people's money. If the high-risk investment paid off, the trader was rewarded with a huge bonus. If the investment was a huge loss for the investor (customer) the trader either suffered no penalty or was rewarded with a huge "golden parachute" on the way out the door. Economist Alan S. Blinder, when in the Clinton Administration, was involved in attempting to regulate compensation practices in banks to reduce the extreme bias for high-risk investments whenever an investor's (customer's) money was at risk. That effort failed totally (09B1).

[3-C] ~ Elimination of Regulations Passed in Response to Prior Financial Disasters ~
The economic collapse is often blamed on repeal of five regulations that had all been passed in response to previous financial disasters. Three deregulation bills, passed in 1999 and 2000, deregulated Wall Street (and Enron). Two other bills deregulated Fanny Mae and Freddie Mac. (See "Trillion Dollar Meltdown" by Charles Morris.) Some of the same processes (mainly deregulation) were at work in the savings-and-loan meltdown in the late 1980s, and in the extreme currency devaluations in Southeast Asia and Latin America in the late 1990s. These two events are described in more detail in Appendix A and in Section [8-B] (top).

[3-D] ~ Federal Anti-Regulation Attitude for Wall Street ~
The strong anti-regulation philosophy of the Bush Administration toward Wall Street is demonstrated in the figures on the number of prosecutions as a result of fraudulent stock schemes. In 2008, federal officials bought the fewest prosecutions for securities fraud since at least 1991. There were 133 prosecutions for securities fraud in the first 11 months of the 2008 fiscal year - down from 437 cases in 2000 and 513 cases in 2002. At the S.E.C., agency investigations that led to Justice Department prosecutions for securities fraud dropped from 69 in 2000 to 9 in 2007 (08L1).

Deregulation can take other forms. The S.E.C., in response to deregulation pressures from the Bush administration (and from the pro-deregulation bias of S.E.C. Chair, Christopher Cox), created a "voluntary supervision program" for Wall Street's largest investment banks. After some time, Cox realized that the voluntary supervision program had contributed to the global financial crisis, so he shut the program down (08L2). Cox has now switched to a pro-regulation viewpoint. He asked Congress for the first time to regulate the market for "credit-default swaps," financial instruments to insure the holder against losses from declines in bonds and other types of securities (08L2).

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[3-E] ~ Much Higher Leverage at the Nation's Largest Investment Banks ~
In April of 2004, the 5 members of the S.E.C. Board of Directors considered an urgent plea by the big investment banks for an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. This would allow them to invest in mortgage-backed securities, credit derivatives, and other "exotic" instruments. The S.E.C. voted 4-1 to permit this additional risk. Only the S.E.C.'s expert on risk management voted against this change, calling it a "grave mistake." At Bear Stearns, the leverage ratio (a measure of how much the firm was borrowing compared to its total assets) rose sharply to 33:1 ($33 of debt per $1 in equity). The ratio at other large banks also rose significantly. All this was watched over by "voluntary" procedures, not S.E.C. procedures (08L3).

[3-F] ~ Higher Levels of Risk for Fannie Mae ~
In 2004, Fannie Mae's Chief Executive Daniel Mudd was under intense pressure from Wall Street Firms, Congress, shareholders, and suppliers of mortgages to take on additional risks. The head of Countrywide Financial (seller of more loans to Fannie Mae than anyone else) threatened to take his business elsewhere unless Fannie Mae took on higher risks. Between 2005 and 2008, Fannie Mae purchased, or guaranteed, at least $270 billion in loans to risky borrowers - more that three times as much as in all its earlier years combined. In September of 2008, the White House was forced to orchestrate a $200 billion rescue of Fannie Mae and Freddie Mac (08D1).

[3-G] ~ Derivatives ~
The role of derivatives in the recession of 2008 is becoming increasingly apparent, and is being seen as the centerpiece of the crisis. Financial experts such as George Soros, Felix G. Rohatyn and Warren E. Buffet saw derivatives as financial contracts that "we don't really understand how they work" and that are "financial weapons of mass destruction" (08G1). A 2007 book by David Bookstaber warned of a looming crisis. Bookstaber warned Congress that derivatives are "vehicles for gambling" and urged a "flight to simplicity" in financial products (10S1). These sorts of words can be understood from the fact that the derivatives market was (in 2008) $531 trillion, vs. $106 trillion in 2002. Derivatives allow financial service firms and corporations to take on more complex risks. Critics have noted the absence of rules forcing institutions to disclose their positions in derivatives, and to set aside funds as a reserve against bad bets on derivatives. A 1994 bill requiring greater derivative regulation never passed. The risks posed by derivatives was well known at least as early as 1993 when Henry Hu (now in the S.E.C.) warned that derivatives could cause major problems for financial firms (10S1).

In late 1999 Alan Greenspan and Robert Rubin recommended that Congress permanently strip the Commodity Futures Trading Commission (CFTC) of regulatory authority over derivatives. (The CFTC had been attempting to regulate derivatives.). The House and Senate overwhelmingly passed the bill that kept derivatives clear of C.F.T.C. oversight. President Clinton signed the bill into law (08G1). The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers and imperiled AIG had been driven by the fact that they, and their customers, were linked to one another by derivatives (08G1). Alan Greenspan has since admitted that he had put too much faith in the self-correcting power of free markets, and had failed to anticipate the self-destructive power of wanton mortgage lending (08A1). Paul Volker (chairman of President Obama's Economic Recovery Advisory Board) said that there is not "one shred of neutral evidence" that any financial innovation of the past 20 years has led to economic growth (10R1).

[3-H] ~ Credit-Default Swaps and their Veil of Secrecy ~
Some $55 trillion in "credit-default swaps" (CDSs) are outstanding. In the past two years the market for CDSs has doubled in size. This total market is more than the gross domestic products of all the nations on Earth combined. Yet there is no public disclosure, nor any legal requirement for these contracts to be reported to the S.E.C. or to any other government agency. Government regulators have had no way to assess how much risk is in the system, whether CDSs have been accurately valued, or honestly traded, and when people issuing and trading them have taken on risk that threatens others. Congress had decided not to regulate CDSs in 2000 when the CDS market was tiny relative to its current size. All this secrecy has made it extremely difficult for government experts to plan any concerted action to pull the nation out of its global recession (08C1).

[3-I] ~ Securitization and Over-Borrowing ~
Derivatives weren't the only culprit in the recession of 2008. Peter Bernstein (who has witnessed almost every financial crisis of the past century) sees two other contributors. One is the abuse of securitization - the trend of banks to hold fewer loans on their books and, instead, turn them into securities that are then sold to other investors. The other abuse is simply years of over-borrowing by US financial institutions and consumers alike (08B1). Securitization resulted in people selling sub-prime home mortgages (and falsifying data on mortgage applications, making the mortgage appear more secure than it actually was). Securitization passed the hidden risks on to unsuspecting investors who were told that the bundles of high-risk loans they were investing in were actually AAA-rated investments. These trends, like all the others noted above, reflect an increasing trend toward taking on ever-increasing risks as a means of achieving increasing rates of return on investments (apparently weighing, very little, the fact that these increasing yields are just compensation for taking greater risk).

[3-J] ~ Replacing Second Mortgages by Home-Equity Loans ~
Even the above does not provide a complete list of culprits. Citicorp ran a $1 billion advertising campaign from 2001-2006 urging homeowners to take out "home equity loans." These loans were formerly known as "second mortgages," - high-risk (high interest-rate) loans to people usually in dire financial straits. Home equity loans were touted as means of making life more luxurious - never mind the additional risk involved. Since the early 1980s, the value of home equity loans outstanding increased from $1 billion to more than $1 trillion, and nearly 25% of Americans with first mortgages have them. Banks' returns on fixed-rate home equity loans and lines of credit are 25-50% higher than returns on consumer loans overall. The downside of this bonanza is now becoming apparent. The portion of people who have home-equity lines more than 30 days past due stands 55% above its average since the American Bankers Association began tracking it around 1990. Delinquent loans now total over $10 billion. For the first time since WWII, the portion of total US home value that Americans own has fallen to less than 50%. In the 1980s, that figure was 70% (08S1). (Banks, etc. own the remainder of these homes.) This decrease in homeowners' equity in their homes, during a period of declining home prices, makes foreclosure problems far worse. This compounds the misery that is being felt as a result of the current Great Recession.

[3-K] ~ Biased Credit-Rating Agencies ~
We have all heard how banks bundled sub-prime loans (and loans with falsified data on the credit-worthiness of the home buyer) and then sold them to gullible investors as AAA-rated investments. Another part of the problem was the credit-rating agencies (Moody's, S&P, Fitch, et al). They could earn more by rating securities higher, and security analysts were put under heavy pressure from management to keep customers happy. Also derivatives, credit default swaps, collateralized debt obligations, et al were becoming increasingly complex, giving security analysts plenty of cover. Some well-known financial experts have contended, "we don't really understand how they (derivatives) work" (08G1). When Countrywide Financial complained that Moody's assessment was too tough on a pool of their securities, Moody's assigned higher grades to its rating, even though no new, and significant, information had come to light (08M1). These securities and mortgages later soured, leaving investors with large losses, and leaving homeowners and communities struggling with foreclosures. Moody's came to enjoy profit margins higher than those of the mightiest of Fortune 500 companies, including Exxon and Microsoft (08M1) by making customers happy.

[3-L] ~ Investments in Hedge Funds by Pension Funds, University Endowments and Charitable Organizations ~
Even pension funds (total assets in 2005: about $9.4 trillion (06S3)) are now being affected by the glut of financial capital in the developed world. Growing numbers of pension funds, university endowments, and charitable organizations are investing billions into "hedge funds." These are secretive, lightly regulated investment partnerships with risks that are hard to measure, returns that are hard to predict, and management fees and other charges that are some of the highest on Wall Street. Such environments are perfect setups for fraud by fund managers. In the past they normally managed money only for wealthy investors. Hedge fund managers do not need to give investors specifics about trading activity, and there are no daily updates on the value of investors' holdings as there are with mutual funds. Hedge funds often take long or short positions on stocks, and invest in "credit derivatives" and commodities
(05A4) (06S3). Pension funds and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, vs. $5 billion in 1995. Pension funds account for roughly 40% of all institutional money (05A4). Some pension funds have more than 20% of their assets invested in hedge funds (05A4) (06S3).

Congress has been lobbied heavily for amendments that would make it easier for hedge funds to manage even more pension money without having to comply with federal laws that governs company pensions (05A4) (06S3). The Pension Benefit Guaranty Corporation, a federal agency, covers corporate pension failures - even pension funds invested in high-risk assets. Taxpayers also cover pension failures by state- and local governments (05A4). Long-Term Capital Management, a hedge fund, nearly collapsed in 1998. Bayou Group, a $450 million hedge fund shut down after most of its money disappeared. Its two officers have pleaded guilty to fraud charges (05A4). The net amount of money flowing into hedge funds that focus on emerging-market investments rose from $4.7 billion in 2004 to $5.3 billion in 2005, bringing total assets to $44.5 billion. Pension funds, endowments and other institutional investors such as universities and charitable organizations (06S3) are pouring money into hedge funds - funds that they have been avoiding for years (06P3). The size of the US hedge fund industry in 2006 was $1.23 trillion (06R4). The size peaked in 2008 at $1.9 trillion (09B2). The size in 2009 is expected to decline by 30% (due to withdrawals) to under $1.0 trillion (09B2).

[3-M] ~ Rating Games with CDOs and Name Games with CDSs ~
Collateralized Debt Obligations, a.k.a. CDOs were effectively bonds. The collateral for these "bonds" was thousands of sub-prime mortgages. The rating agencies unaccountably rated these CDOs as AAA. Despite their superb ratings, they still looked fishy enough that they proved nearly impossible to sell without insurance against loss of principle. Credit Default Swaps (CDSs) were thus concocted to serve the purpose of acting as insurance against people losing their principle when they bought CDOs. But if CDSs were labeled "insurance" then the issuer (AIG and others) would have been required to retain lots of reserve capital against the possibility that they would have had to pay claims for losses encountered as a result of CDOs losing their value. So AIG did not label CDSs as "insurance." They just named them "CDSs." As a result, AIG and others were not required to retain huge amounts of reserve capital. Hence AIG and others effectively insured hundreds of billions of dollars worth of CDOs without having to retain any reserve capital at all. Eventually someone suspected that there was a problem and refused to accept CDOs as collateral. This resulted in the demise of Bear Sterns. Suddenly everyone realized what a house-of-cards this was, and CDOs became nearly worthless. Thousands of banks, including most of the largest, held CDOs as reserve capital, for which they qualified by virtue of their alleged AAA ratings. Most of these banks instantly became insolvent. A replay of the Great Depression threatened. This forced the taxpayer to pony up massive amounts of money to save the US economy. Most of the above activities that enabled this fiasco were illegal before 1999. In 1999-2000 Congress passed three bills that eliminated these regulations. (See [3-C] above.) The Global Recession was thus born. (Brooke Jennings provided the above analysis.)

[3-N] ~ Ponzi Schemes Proliferation ~
Another outcome of a dysfunctional financial system in an environment of very low returns on investment stems (as usual) from a desperate search for high yields on investment on the part of investors. For many, that led to legitimate high-risk investments that got wiped out with the severe economic downturn. For others, it was a matter of trusting people passing themselves off as brokers or fund managers who touted high earnings on investment and low risks - a.k.a. Ponzi schemes. The Great Recession exposed nearly four times as many such investment schemes in 2009 (150+) as in 2008 (40) (09A1). More than $16.5 billion vanished in the 150+ schemes in 2009 - often wiping out people's life savings. The amount lost in those 40 2008 schemes was greater, but only as a result of Bernard Madoff's exceptionally large scheme (estimated at $21 to $50 billion) (09A1).

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[3-O] ~ Globalization of Dysfunctional Behavior in Financial Systems ~
When the European Union (EU) was formed, member nation governments were required to keep their borrowing below specified limits relative to their GDP in order to avoid undermining the Euro currency. However Wall Street engaged in tactics similar to the ones that fostered sub-prime mortgages in the US to conceal borrowing. During the past decade, Wall Street found ways of enabling the Greek government (and possibly other European governments such as Italy, Spain, Portugal and Ireland) to conceal massive amounts of debt from the EU's budget overseers in Brussels. In early November of 2009, Goldman Sachs offered the Greek government financial instruments that would have pushed billions of dollars of debt from Greece's health care system far into the future. The deal was hidden from public view and EU budget overseers by treating it as a currency trade rather than as a loan. Financial derivatives were also used in the increasing Greece's debt in ways that hid it from public view. Instruments developed by Goldman Sachs, JP Morgan Chase and numerous other banks enabled politicians to conceal borrowing in Greece, Italy and possibly elsewhere from EU oversight. Wall Street banks provided cash in return for government payments in the future with those liabilities not appearing on the books. Greece, for example, traded away its rights to airport fees and to lottery fees in years to come in exchange for immediate cash (10S2). The potential ramifications of this dysfunctional behavior have shaken stock markets around the world. The EU and its currency could suffer staggering losses, especially if the problem spreads to other weaker southern EU countries like Spain, Portugal and Italy. Even England and northern EU nations could suffer long-term, extreme economic hardship. In essence, the Great Recession could spread far beyond US shores.

[3-P] ~ Why all this Dysfunctional Behavior now? - And Why the Urge for Greater Risk? ~
The above problems with the US financial system all happened about the same time, even though it would seem that any one of them could have happened at any time in the past, quite independently of the others. It is also important to note that every one of these dysfunctional behavior reflect the same trend -an urgent need to engage in increased levels of risk. There must be reasons for these common traits. Knowing these reasons would aid in understanding the real cause of the current Great Recession. This improved understanding is achieved below.

[4] ~ The Role Interest Rates Played in the Housing Bubble and in the Dysfunctional Behavior of the US Financial System ~
The dysfunctional financial system and the housing bubble both tend to be linked significantly to a protracted period of very low interest rates. This made the cost of borrowing for a home abnormally low, enticing many would-be homeowners to enter a market without fully understanding the risks posed by interest rate fluctuations. This is particularly dangerous when mortgages come with features that greatly increase the risks to homebuyers, e.g. ballooning repayment schedules. The Federal Reserve lowered prime rates nearly to zero, apparently in an effort to perk up the US economy. At the same time, the US economy was (is) also being perked up by huge and growing Federal budget deficits, huge and growing trade deficits, huge and growing current-accounts deficits, huge and growing household debts, and major income-tax reductions. The World Bank, trading partners (e.g. China), and numerous economists see high degrees of risk in such policies (08S2). These entities continue to be ignored, and the value of the dollar, quite logically, keeps trending downward - in itself a potentially dangerous trend. Clearly the US economy has serious problems if all these risky resuscitation measures are seen to be needed. The reason for the link between low interest rates and the dysfunctional behavior of the US financial system are discussed near the bottom of this Section [4].

Despite recent indications of an improving economy, a "surprisingly large number'' of money managers and economists warn that, despite hopeful signs, the US economy is not strong enough to support a long-running stock- and bond recovery. These experts contend that the market needs a sign of real economic recovery, and that recovery requires a surge in consumer spending, business investment and home buying. This, they say, is not likely to happen any time soon because of the massive consumer debt load that is likely to require some years before it can be reduced to normal levels. (According to the Federal Reserve, total household indebtedness peaked at the end of 2007 at 132% of disposable income. That was by far the highest level since at least the end of WWII, nearly quadruple the 36% of 1952 and 69% of mid-1985. Household indebtedness has dropped only slightly since its 2007 peak.) (09B3) The experts also note that the weakness in household income, partly resulting from the sharp turn-down in hourly wage growth, will make it harder to raise savings without significant constraints on consumption (09B3). They also note that spending on home building and capital spending (the two other possible "growth motors") are not likely any time soon, due to the "enormous" overhangs of unused capacity in both the housing- and business sectors (09B3). Few, if any, of the recent indications of an improving economy reflect improvements in the consumer sector of the US economy. These recent indications thus pertain to the remaining one-third of the US economy.

The reason for the huge and growing trade deficits and current account deficits is that the US has not been competitive in world trade for over three decades (since 1976). The US has also been paying little attention to the effects of foreign trade on US wages and benefits. These aspects of the US management of globalization are unlike those of the EU and Japan, both of which manage the globalization process far better than the US. The EU and Japan were somehow able to remain competitive in world trade (no prolonged trade deficits) and to protect wages and benefits. However both have been experiencing increasing difficulty with protecting labor. (See discussion of caste systems in Section [G1] in Ref. (08S3)) Non-competitiveness in world trade puts the US in an increasingly precarious position because it is impossible for any nation to increase its trade deficits and current account deficits indefinitely (08S2). Also, such policies give major lenders (e.g. China) ever-increasing control over US trade policies. This is an increasingly risky situation for the US to be in.

An extreme lowering of prime rates in an environment full of extreme financial deficits also leaves the "Fed" out of ammunition for fighting further declines in the US economy. Something must be extremely wrong with the US economy if it is forced to lower interest rates to extremely low values, and to engage in massive deficits of all sorts to give the US economy the appearance of health. Discovery of the origin(s) of the extreme weakness in the US economy helps to discover the real origin of the dysfunctional behavior in the US financial system, the extremely low interest rates, the housing bubble, and the current Great Recession.

The link between low interest rates and dysfunctional behavior of the US financial system comes about as follows. People investing their business profits and their wages in 401(k)s, IRAs, annuities, etc. were being faced with returns on investment that were extremely low, often below the rate of inflation. Seeing their dreams of a secure retirement sinking in a sea of low returns, they desperately sought higher yields. The only way to achieve high yields (they thought) was to invest in high-risk investments. This forced financial institutions to seek out high-risk investments, and to oppose federal regulations meant to protect investors from high-risk situations. This desperate, search for yields (i.e. high-risk) could easily (and probably does) explain the overwhelming bulk of the dysfunctional behaviors of the US financial system described in Sections [3-A] - [3-M] above. It could easily (and probably does) explain all that lobbying to eliminate federal regulations that protected investors. This, then, would also explain why all those dysfunctional behaviors described in Section [3] all occurred at around the same time (answering the question posed at the top of an earlier paragraph). It also explains why all US financial system dysfunctional behaviors reflected the urge to take on additional risks.

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[5] ~ Interactions Among Corporate Profits, Low Interest Rates, and Weakness in the Consumer Sector of the US Economy ~
Since former President G.W. Bush took office in 2001 corporate profits have seen huge increases. These profits more than doubling since 2000. In 2006, corporate profits as a share of national income (GDP) were at the highest level ever recorded (07K1). Wages and salaries, on the other hand, now make up the lowest share of the US GDP since 1947 when the data first started being tabulated. (06G2). The probable reasons for this are globalization-related:

Despite this corporate profit gusher, non-residential investments (investment other than housing construction) in the US have been growing very slowly by historical standards. As a share of GDP, US non-residential investments in expanding production-, sales-, and services facilities, modernization, etc. have not been robust (06U3). They remain far below levels of the late 1990s, and have been declining in recent quarters (07K1). All this suggests that US corporations can see little value in investing its growing profits in expanding the capital facilities of US industry. There has to be some logical explanation of this unusual behavior. (Usually, increasing profits produce increasing investments in corporate expansion.)

Also, US corporations have been distributing their earnings to shareholders by buying back the company's own stock. In the year ending 3/31/06, US corporations spent a record $367 billion in stock buybacks, an extraordinary amount (06U3). In the second quarter of 2006, large corporations bought back shares at an annualized rate of $464 billion. More than 40% of S&P500 companies reduced their shares outstanding with buybacks in just the second quarter of 2006. In 2007, S&P 500 corporate buybacks totaled $600 billion (10D1). Never before has the magnitude of stock buybacks been at this level (06Y1). (More typical rates are about $100-150 billion per year (10D1).) The obvious implication of this is, again, that US companies can see no investment in themselves that represents a better use of corporate earnings, despite rising earnings. Another use of the wealth of corporate profits has been huge bonuses to upper-level corporate officials. For example, the investment firm Goldman Sachs paid bonuses to its employees that averaged nearly $600,000 per person, its best year since it was founded in 1869 (10H3). This too suggests that US corporations can see no investment in themselves that represents a better use of corporate earnings.

The extreme weakness in the US economy noted in Section [4] is clearly not to be found in the lack of corporate health. Nor is that weakness in the economy likely to be found in the lack (or higher price) of financial capital that could be used in funding corporate expansion. The source of the extreme weakness in the US economy must be sought in some other sector of the economy. The most obvious possible source of weakness in the US economy is in the consumer sector. That sector typically represents about two-thirds or more of US economic output (09B3). Consumer sector weakness would explain why US corporations could find no reason for investing their growing earnings in corporate expansion mention above. US consumers are in no position to increase their purchases of any increased outputs of US industry. Wages and salaries now make up the lowest share of the US GDP since 1947 when the data first started being tabulated. (06G2).

The postulate of weakness in the consumer sector of the US economy makes sense in other ways. Globalization, which became a significant factor in the US Economy in the early 1980s, has grown to become a very important factor in the US economy. Globalization is, in essence, a mixing of the developed world economy with the developing world economy. The developing world economy is suffering from (1) extreme scarcities of financial capital (the cause of virtually all of the other problems of the developing world (09S1)) and consequently (2) extreme gluts of labor. Such a mixing of economies can hardly avoid providing huge benefits to developed world providers of capital. Such a mixing of economies can also hardly avoid imposing extreme duress on those who provide labor to the developed world's GDP (in essence, the consumer sector of that economy).

Very low interest rates translate to very low costs of capital. The laws of supply and demand tells us that this low cost of capital is linked to an over-supply of capital and/ or to an abnormally low number of investment opportunities. Weakness in the consumer sector would produce both of these effects. This environment appears to have caused the low interest rates. It also appears to have created, and therefore explains, both the dysfunctional behavior of the financial system and the housing bubble - the two triggers that precipitated the current Great Recession.

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[6] ~ The Link Between Consumer Sector Weakness and Mismanagement of Globalization ~
The above-mentioned abnormally large flow of capital into corporate profits could logically be seen as money extracted from the consumer sector of the US economy - and as the cause of the weakness in that sector. That capital flow is a logical outgrowth of the effects of globalization as described in Section [5]. The EU and Japan apparently manage their globalization processes in such a way as to avoid, or reduce, this capital flow. If somehow the US could also avoid that capital flow, the bulk of the extremely low interest rates could be avoided. The weakness in the consumer sector of the US economy could also be avoided. Therefore the dysfunctional behavior in the US financial system and in the housing bubble could have been avoided, or at least greatly reduced in scope. The returns on investment in IRAs, 401(K)s, and annuities would increase to values that pose less of a risk to retirement plans.

The over-supply of capital seeking investment opportunities, and the abnormally low supply of investment opportunities are both consequences of the mismanagement of the globalization process in the US that created the weak consumer sector of the economy. Chapter 3 Section (3-A) of Ref. (08S2) provides a large amount of data showing that the decline in the consumer sector is well under way in the US and, to a much lesser degrees, in the EU and Japan. Management of the globalization process was (is) far better in Europe and Japan in terms of maintaining competitiveness in world trade while protecting the wages and benefits of labor (08S2). A brief summary of consumer sector problems is given below.

The same reference also examines the most commonly seen arguments in support of the globalization process:

Both arguments are shown to be false (08S2), suggesting an eventual 60-80% decline in the earnings of developed world labor, and extreme and growing weakness in the developed world's consumer sector.

The first argument is based on the significantly higher labor productivity in the developed world, compared to that in the developing world. However that "labor" productivity is almost totally a result of high levels of capital investment in human capital creation, and in productivity-raising capital facilities. Both capital investments have high, global-range mobilities in today's world, and therefore so does that "labor" productivity. One can see the high mobility of "labor" productivity in the hundreds of scientific and technical universities that are being constructed annually in China and India. This is one of the things that the huge trade surpluses of India and China with the U.S. are being invested in. Some in the U.S. believe that getting college-level educations will insulate them from the degradation of wages and benefits resulting from competition with developing nations. Sooner or later they will probably experience a rude awakening.

The second argument can be shown to be physically impossible, based on "footprint" analyses and "net primary production" analyses (08S4). It can also be seen in recent observations of major price increases for oil and other natural resources, caused in significant part by just 20% or so of the populations of China and India (in total, a small fraction of the population of the developing world) becoming part of the global economy.

Also, the "Ricardo Principle" (the theory most commonly invoked when supporting the contention that "subsidy-free trade" (a significant focus of multi-national trade agreements) makes world trade more "efficient") is shown (08S2) to be inapplicable to the current globalization process - or to any globalization process in which virtually all components of economic activity are extremely mobile. For example, the theory would conclude that, for the current globalization, all the labor involved in producing items involved in international trade should be performed in developing nations where such labor is far cheaper. Were that done, developed world nations would experience huge and non-sustainable trade deficits, plus extreme problems with unemployment, and a consumer sector so weak that imports would probably grind to a virtual halt.

It should also be noted that, even today, nearly three decades after globalization became an important part of the US economy, "subsidy-free trade" barely exists. Agricultural, fishery, mineral and forestry-based exports are all heavily subsidized by the US. The costs of all sorts of environmental degradation processes involved in virtually every product that the US exports are rarely internalized. In other words, all these exports are usually subsidized. Trade agreements themselves are opposed to internalizing such costs, i.e. they are inconsistent with the basic principal upon which globalization is defended. Imports from China are all heavily subsidized by currency regulation, and by the failure to internalize the costs associated with the extreme environmental degradation involved in producing what China exports.

Below are brief summaries of some of the causes of the weak consumer sector of the US economy and of the economic pain inflicted by the mismanagement of globalization thus far on those who provide the labor component of the GDP. (For more detailed data, and much more data, see Ch.3 Sect. (3-A) of Ref. (08S2).)

The unusual US complacency over stagnating, or falling, wages over the past quarter-century has been attributed to: (1) Higher stock market yields, (2) Falling interest rates, and (3) increasing numbers of paychecks per household. But none of these trends are sustainable (00M1). US total fertility rates have dropped significantly since around 1970, reducing living expenses for wage earners. However this trend, also, is non-sustainable, so the complacency is also non-sustainable.

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[7] ~ Spillover Effects of a Weak Consumer Sector ~
The above data show that wages and benefits of US labor are stagnant, or declining. As a result, the consumer sector of the US economy is also stagnant, or in decline. One result is a scarcity of investment opportunities in capital facilities serving the consumer sector of the economy. But all that corporate profit growth (top of Section [5]) requires increasing numbers of investment opportunities offering a good return. The result: low and declining rates of return on investment, i.e. low interest rates. This makes retirement income instruments (e.g. IRAs, 401(k)s and annuities) far less useful than in normal times.

As the buying power of consumers continues to fall, US companies must eventually (if not already) find themselves in a state of over-capacity. This can hardly produce anything but a self-perpetuating cycle of declining stock prices, lower rates of return on investments, (i.e. lower interest rates), further rounds of layoffs, and increasing weakness in the consumer sector of the economy.

The sum total of all the effects noted above cannot possibly affect only those who provide labor and human capital to the GDP. Intuitively, there ought to be spillover effects into the other segments of the US economy. These spillover effects are now becoming increasingly apparent, at least in terms of the effects on providers of financial capital to the GDP. Articles in the Wall Street Journal (05I1) (06L2) (06P3) and the New York Times (05A4) (06U3) provide thorough analyses of these effects. The end-results are becoming increasingly clear.

Global pension-, insurance- and mutual fund assets under management increased from $31 trillion in 1998 to $46 trillion in 2004. During the same period, global central bank reserves have doubled to $4 trillion (05I1). Also steep price increases in oil and other commodities have greatly increased the financial wealth of commodity-producing countries. These growing floods of new financial capital into a marketplace that has little need for additional financial capital due to stagnant, or declining, consumer purchasing power have translated into:

  1. Money market yields are below, or only slightly above, the rate of inflation,
  2. Global investors are pouring money into risky investments such as emerging countries' stocks and bonds, real estate, real estate-backed debt, commodity funds, fine art, private equity funds, and even complex, hard-to-understand- and hard-to-evaluate investments such as "naked credit-fault swaps," "credit default swaps," "collateralized debt obligations" and "derivatives," and
  3. Mutual funds, non-profit institutions, charities and local governments are increasingly investing in hedge funds and/or adopting hedge-fund tactics (06L2) such as short selling (selling borrowed shares of stock in hopes of profiting from a price decline), buying securities on margin, or with borrowed money, and/or using more complex derivatives, or financial contacts whose value is based on an underlying investment. Such tactics impose both added risks and higher management fees on investors.

This, in turn, results in escalating prices of these kinds of assets and hence rapidly falling returns on investment (as a percent of asset value). Investors are now willing to accept yields on risky ("high yield") corporate bonds and emerging market bonds that are only about 2.5 percentage points above the yields on comparable Treasury securities (05I1). The higher the price of risky assets, the greater the risk of owning these assets. This explains terms like "housing bubble." There are probably many more bubbles around than that one. All this froth comes only eight or so years after the Internet stock bubble burst around 2001. The bubbly nature of Internet stocks was widely known long before that bubble burst. The same was true of the current housing bubble (Section [2]). Even minor downturns in the economy can impose huge losses on investors in high-risk-low-return investments.

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[7-A] ~ Consumer Responses to the Weak Consumer Sector ~

An important question to be asked now is: Why did it take so long after the early 1980s (the start of significant levels of globalization-related influences) for things like the housing bubble, the dysfunctional behavior of the financial system, and the severe recession to occur? The answer appears to be the following.

As a result of globalization, providers of labor to the US economy found their earnings stagnant, or declining, and falling increasingly behind their rate of "labor-productivity" growth. The response of the providers of labor to the GDP was to counteract the effects of their otherwise declining living standards (and savings) by a series of non-sustainable strategies:

  1. Increasing the percentage of housewives in the labor force,
  2. Working longer hours,
  3. Increasing "Togetherness." Since 1980 (about the time globalization became a significant economic issue) there has been an upward trend in the number of multi-generational family households, defined as households with three or more generations, with a grown child (over age 25) and parents. After WWII, the portion of Americans living in multi-generational family households fell by more than half until 1980 when the trend reversed itself. From 1980 to 2008, this portion rose by a third to 16% of the total U.S. population, or around 49 million Americans (10B1).
  4. Submitting to ever-increasing levels of stress in the workplace environment, driven by growing pressures to become more "productive." These stresses have spilled over into the remainder of the US economy. (See the bottom of Section [6] - second bullet from bottom.)
  5. Drawing down savings to the point where the average savings rate of American families has become slightly above or below zero. (In the 1950s through the 1970s (pre-globalization) U.S. personal savings rates as a percentage of disposable income increased from 7% to 10%. In the 1980s through 2007 (in the globalization period) personal savings rates as a percentage of disposable income decreased from 10% to 1.5% (09B5) (Commerce Department data).
  6. "Maxing-out" credit card debts, and increasing the number of credit cards held. (New, tougher, bankruptcy laws were passed to discouraged these practices.)
  7. A seventh strategy then came along in the form of a huge advertising blitz by banks and other mortgage holders that urged homeowners to take out some, or all, of the equity they had in their homes (08S7). (See Section [3-J])

"Home equity loans" were sold using suggestions for spending the proceeds on frivolous "feel-good" purchases. (Previously such "second mortgages" were regarded as high-risk loans taken out only by people in dire circumstances who needed the money for basic needs. The mortgage-holders' advertising never mentioned "second mortgages" and talked only about the alleged benefits to homeowners of "taking out the equity in their homes.") That seventh strategy for protecting living standards ended tragically in late 2007 and 2008 in the long-anticipated (and inevitable) bursting of the housing bubble, declining home values, and a blizzard of mortgage foreclosures. That blizzard was enhanced by the far smaller equity that the homeowner had left in their homes after having sold so much of it off.

At this point (early in the Great Recession), US consumers had little or nothing left to sell off: All their options had been "maxed-out," or nearly so. This puts the consumer sector of the US economy, and hence the US economy, in a precarious position - the likelihood of an ever-worsening consumer economy, and all the economic problems that worsening implies in an environment of an economy already in an extremely weakened position.

[7-B] ~ The Effects of Federal Tax Law Changes and other Federal Policy Changes on Interest Rates
At various points during all this "maxing-out" of consumer options, US tax laws were revised to (1) decrease tax rates on the earnings of financial capital (e.g. dividends) with no corresponding decrease in the tax rates on the earnings of labor, (2) decrease inheritance taxes and estate taxes and (3) reduce income tax rates in the higher tax brackets. All of these changes transferred the tax burden increasingly onto the consumer sector of the US economy (those who are suffering from globalization) and away from those who supply financial capital (those who are currently benefiting from globalization). All this has produced such results at Warren Buffet's secretary paying a higher federal tax rate than Mr. Buffet. It also contributed to producing the widening the US "income gap" to the point of becoming the world's largest. (In 2000, the richest 5% of the US' population had more wealth than the remaining 95% of the US population) (05U1).

The situation is even worse than that described above (10H3). Since the late 1970s there have been a long series of policy changes in government that overwhelmingly favored the richest 5% of the US population. These changes resulted from increasingly sophisticated, well-financed, and well-organized efforts by the corporate and financial sectors to tilt government policies in their favor, and thus in favor of the very wealthy. These efforts involved far more than just tax laws. They also involved deregulation, safety net issues, changes in industrial relations policies, government action, and corporate governance policies that have allowed C.E.O.s to basically set their own pay. All this was deliberately shaped to allow those who were already very wealthy to amass an ever-greater increasing share of the nation's economic benefits (10H3). The rest of America, from the poor through the upper middle class, has fallen further and further behind - thus the increasingly sick consumer sector of the US economy, thus the dysfunctional financial sector of the US economy - thus the housing bubble, - thus the Great Recession. During the early stages of the Great Recession (2008 and 2009) the earnings of those earning more than $50 million annually increased by a factor of five even as the nation as a whole was being rocked by the worst economic downturn since the Great Depression (10H3).

Multi-national corporations have discovered other ways of avoiding taxes even while making record profits. The top corporate tax level in the US is 35% (usually less see above) (11D1). In the UK it is 28%. In Ireland it is 12.5%. In Bermuda it is 0%. So multinational corporations can simply declare their profits in the nation with the lowest corporate tax rate regardless of where the profits were actually earned. General Electric, for example, earned $14.2 billion in 2010 - $5.1 billion of it from US operations and paid no taxes. In fact, taxpayers would up paying GE several billion dollars in 2010. Google saved $3.1 billion in taxes over the past three years by shifting the majority of its foreign profits into accounts in Ireland, the Netherlands and Bermuda (11D1).

Forest Laboratories Inc. does almost 100% of its sales here in the U.S. They have almost 100% of their employees in the U.S. and their headquarters are in New York City, and yet the majority of their profits show up in a mailbox in Bermuda. An economist at Reed College estimates that the U.S. is losing nearly $90 billion / year in federal tax revenues from all US companies. Multinational corporations have also lobbied for a "tax holiday" that results in even more tax benefits. In 2004 Congress passed the "American Jobs Creation Act" that produced even more tax benefits. Instead of creating jobs the act caused most of the benefits to go into buying back company stock (11D1).

In an environment of declining earnings of labor, a weak and weakening consumer sector of the US economy, a high unemployment rate, and an increasing glut of capital with no place to park it, the changes described above were/ are clearly counterproductive. Further changes were negotiated as part of the various economic stimulus strategies of 2008 and 2009, despite their counterproductive effects. A boost to the ailing consumer sector, e.g. an increase in minimum wages, would have been far more productive in terms of promoting the recovery from the Great Recession.

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[8] ~ Short-term Strategies for Preventing Future Great Recessions ~
The analysis above showed that the mismanagement of the globalization process by the US and numerous major policy changes in the federal government that tended to further weaken the consumer sector of the US economy are
the underlying cause of the Great Recession that the US and other developed world nations are currently suffering from. However it is important to note that it is impossible to halt, or even to significantly slow, the globalization process. The mobilities of virtually all of the elements of economic activity have simply grown too large to permit this. Also, these mobilities are increasing rapidly. High mobilities of some, or most, of the elements of economic activity are the essence of all past and future globalization processes. This does not mean, however, that the management of the globalization process and the associated multi-national trade agreements cannot be criticized and changed.

Defending changes in the management of the globalization process is needlessly difficult without closely examining the fundamental principles and arguments on which globalization is based:

The Ricardo Principle can be shown not to apply to the current globalization process or any globalization process in which virtually all the elements of economic activity are highly mobile. The two arguments above can be shown to be false. (See third paragraph of Section [6].)

Mismanagement of the globalization process produced the weak consumer sector of the US economy, and also low interest rates. These, in turn, produced both the housing bubble and the dysfunctional financial system in the US. It is shown in Section [8-A], however, that focusing purely on the globalization process is not as likely to be as productive as an approach that also examines some other key issues that made it possible for the effects of a mismanaged globalization process to ripple throughout the entire economy to the US financial system and to the housing bubble. Section [8-B] deals with strategies more directly related to mismanagement of the globalization process.

[8-A] ~ Reduce the Role of Political Ideologies ~
Weak consumer sectors and low interest rates have been encountered in the past without producing the extreme effects that the Great Recession has inflicted on the developed world. Low interest rates in the past have not generated the extreme dysfunctional behaviors in the US financial system that was a key player in producing the Great Recession. (Section [3].) Something else is apparently at work here. Putting the entire blame for the Great Recession on mismanagement of the globalization process would probably be a mistake. It is becoming increasingly clear that the deregulation ideology and the broader "Less-Government-is-Better-Government" ideology among the nation's leaders are probably at least a significant part of that "something else" in causing the Great Recession. (See Section [7-B].)

Without eliminating the regulations that had protected Americans from extreme, systemic risk-taking in the past, it would have been almost impossible for the financial system to engage in all that dysfunctional behavior described in Section [3] above. Remember that the five most important legislative acts of deregulation eliminated regulations that were created during previous times of serious economic problems. (See "Trillion Dollar Meltdown" by Charles Morris.) Ideology-based legislation did not just engage in deregulation. The deregulation ideology is actually just one of the components of the broader "Less-government-is-better-government" ideology outlined in Section [7-B] above.

That broader ideology also produced major changes in the federal tax code, deregulation, safety net issues, changes in industrial relations policies, government action, and corporate governance policies that have allowed C.E.O.s to basically set their own pay during the past decade or so. (See Section [7-B] above.) All of these tax code changes contributed to a weakening of the consumer sector of the economy, and to an increase in the investment capital glut that contributed to low interest rates that, in turn, contributed to the housing bubble, and to the dysfunctional behavior in the financial system. All these revisions of the federal policies were in the direction of shifting an increasing share of the cost of government from providers of capital to providers of labor (the consumer sector of the US economy) e.g. taxing the earnings of labor at a higher rate than the earnings of capital. Examining the cause-effect linkages connecting the current "Great Recession" to mismanagement of globalization shows that such policy revisions were/are counter-productive.

Eliminating these major changes during the past decade or so would increase the levels of economic activity as a result of a stronger consumer sector. This, along with the decrease in corporate earnings toward more typical (and more manageable) values, would eliminate some of the financial capital glut that was part of the cause of low interest rates. Higher interest rates would reduce or eliminate much of the dysfunctional behavior in the US financial system. Accomplishing these two results would prevent future Great Recessions, and do so by addressing the fundamental causes of such recessions - not by merely addressing intermediate causes and symptoms. Providers of financial capital to the GDP would benefit by not suffer from bankruptcies and the drops in prices of stocks and other investments that invariably accompany bubble-bursting processes. The problem is that the strategy of eliminating the counter-productive federal policy changes of the past decade, though beneficial, seems unlikely to achieve results sufficient to accomplish all that is needed.

The only strategy for avoiding future Great Recessions by checking the influence of the deregulation ideology and the "Less-government-is-better-government" ideology is to work to influence the legislative process and the election results. It took only a decade or two for legislators to forget the reasons why the regulations designed to protect the public from extremely high systemic risk financial dealings were passed initially. The US cannot afford a Great Recession once every decade or two. The past consequences of extremely high systemic risk financial dealings must be constantly pointed out in the arenas of public opinion. Candidates for public office who tend to function on an ideology-driven basis should be replaced by candidates who examine the pros and cons of proposed legislation on an issue-by-issue basis.

Another legislative strategy involves requiring greater degrees of transparency in the dealings of the US financial system. This would make it more difficult to engage in the dysfunctional behavior of the recent past. Legislation to accomplish both ends would have merits in their own right. However the results would cause the public considerable duress. Investors' IRAs, 401(K)s, annuities and other retirement vehicles would continue to pay very low rates of return on investments. At the same time, the consumer sector of the US economy would remain sick and make the entire US economy sickly at best.

Another legislative strategy would involve raising interest rates by direct actions of the Federal Reserve. Doing this in a sick US economy would be unpopular politically to say the least. Also, they would be ignoring the fundamental causes of the Great Recession, risking a failure of these strategies to accomplish the desired results.

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[8-B] ~ Reduce the Role of Globalization Mismanagement ~
If one examines the overall global trade issue in the context of ever-increasing mobilities of virtually all components of economic activity, i.e. globalization, a number of observations stand out as pointing to dysfunctional behavior in the current overall globalization process. They are the following.

Note the uniformity in the biases of all of these features of globalization. Note, also, two major results for the US: (1) a glut of profits for US corporations and (2) a lack of opportunities for investing these profits due to the extreme weakness in the consumer sector of the US economy - a consequence of the inherent effects of globalization on those who provide labor to developed world economies. The net effect of these two results was extremely low interest rates, a dysfunctional financial system, a housing bubble - and hence the current Great Recession. It is far from clear that US corporations achieve a net benefit by producing extreme weaknesses in the consumer sector of the US economy. They lose virtually all their options for investing their profits in productive activities. Also they lose a large measure of purchasing power of the adversely affected two thirds of the US economy represented by the consumer sector. Yet another result of the needless biases in multi-national trade agreements has been the ever-increasing public resistance to future trade agreements. This resistance has slowed the rate at which the US legislative branch approves proposed new trade agreements.

First note that attempts to prevent future occurrences of housing bubbles and dysfunctional behavior of the financial system, as the sole strategy for preventing future Great Recessions, is unlikely to produce the desired effect. Such attempts would leave the real causes of the Great Recession in a position to produce future Great Recessions. However, undoing the deregulation of the US financial system would have merits in its own right. It would make high-risk investments harder to keep within the regulations aimed at preventing high risk investing. It would also force greater openness in the management of the US financial system.

The question now is "What strategy can most rapidly reduce the probable length of the Great Recession? Part of this recession is probably due to US credit markets seizing up. As US financial institutions and corporations start stating their assets more honestly and accurately, this process has been showing a noticeable lessening in recent months. Many suggest that this trend, and other related trends, may herald the end of the recession. This would appear to be based on a large measure of wishful thinking. The economy still must take account of:

Globalization in the 20th century is inherently a process of blending the developed world economy with an economy that suffers from an extreme scarcity of capital and, consequently, an extreme surplus of subsistence-level labor. In a world in which virtually all of the elements of economic activity are extremely mobile and rapidly growing more mobile, such an economy-blending process must inherently produce huge financial payoffs for the sector of the developed world economy that provides capital for the GDP. It must also impose extreme duress for the sector of the developed world economy that provides labor to the GDP, in essence the consumer sector. This, in essence, is what created the current Great Recession in the US. It occurred shortly after US providers of labor "maxed out" all seven of their non-sustainable options for protecting themselves from the economic pains of globalization. (See Section [7-A].) They therefore faced the prospects of major reductions in wages and benefits, i.e. a consumer sector of the US economy destined to grow increasingly weak over time. This would make all the problems that contributed to the creation of the current Great Recession worse. Using a variety of strategies, the EU and Japan have been able, thus far, to protect the earnings of labor, and to do so while avoiding a constantly increasing trade deficit. This spared the EU and Japan from the current Great Recession in the US other than suffering significant collateral damage.

The most obvious starting point for getting out of the Great Recession is at the roots of the problem - the mismanagement of the globalization process in the US, both in terms of not protecting the earnings of labor and incurring (since 1976) an ever-increasing trade deficit that makes US globalization policies non-sustainable. The EU and Japan avoided both blunders. If the US had managed globalization like the EU and Japan the Great Recession probably would not have happened. The problem with any strategy involving emulating the handling of globalization in the EU and Japan is that both regions are now having trouble protecting their labor wages and benefits from declining toward developing world levels. This can be seen from the early stages of an age-based caste system in the EU, Japan, the US and elsewhere (08S3). The striking similarities in these three caste systems suggest a common origin. It is hard, therefore, to imagine any origin other that globalization. All this would suggest that, even if the US did resort to the same globalization management policies as the EU and Japan, this too might eventually fail to avoid future occurrences of Great Recessions.

The developed world probably needs to devise better ways of managing the globalization process. An examination of the trade agreements of the past few decades (08S2) shows that they are all heavily, needlessly, and counterproductively stacked in favor of the interests of multi-national corporations. These corporations already have a fundamental advantage. Also they are able to arbitrarily declare which country their profits were earned in, and choose the one with the lowest tax rate. Eliminating these biases would benefit the consumer sectors in developed nations and slow the development of caste systems. (See Section [G1] of Ref. (08S3).) Both outcomes would significantly reduce the likelihood of future Great Recessions.

Strategies for Reducing the Likelihood of Future Great Recessions
Over the short term, politics is the only viable avenue for reducing the frequency of Great Recessions. Anything that benefits the consumer sector of the US economy is likely to be effective. Interest rates are likely to improve, reducing the dysfunctional behavior of the financial sector and perking up retirement plans. The tendency for housing bubbles would be decreased. Restoring the federal regulations intended to protect the public from extremely risky policies in the financial sector would decrease the likelihood of another Great Recession, although interest rates would not be increased. Eliminating the changes in the federal tax policies and other policies that are counter-productive of the past decade or so would aid the consumer sector, as would increases in minimum wages. (See Section [7-B].) Opposing multinational trade agreements that needlessly bestow benefits on multi-national corporations would be beneficial since these benefits occur at the expense of consumer sectors in both developed- and developing nations. Over the long run however, the above are not likely to keep the earnings of those in developed nations who supply labor to the GDP from trending continually downward until they approach convergence with developing world wage scales. Other strategies are required since the options for sustaining US standards of living have been nearly, if not completely, "maxed-out." (See Section [7-A].) These long-term strategies are described below.

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[9] ~ Long-term Strategies for Strengthening the Consumer Sectors of Developed Nations ~
Over the long term, the main strategy should be to reduce the strong interdependence between the developed world and the developing world. This would be expected to reduce the need for trade between the two worlds, and this would be expected to strengthen the consumer sectors of the developed world's economies. The interdependence between the two worlds comes mainly from the dire scarcity of financial capital in the developing world, and the perceived need in the developed world for cheap goods. This perceived need for cheap goods is fulfilled by damaging the consumer sectors of the economies of the developed world. This damage is what links the mismanagement of the globalization process by the US to the current Great Recession as shown above.

In addition to the above main strategy, another long-term strategy described below is that of eliminating several of the major inefficiencies in the US economy. Doing this would accomplish the dual purposes of improving the health of the consumer sector of the US economy, as well as making US industry less non-competitive in the global marketplace.

If the developing world's dire scarcity of financial capital could be greatly reduced or eliminated, developing nations would have stronger consumer sectors within their own economies, and therefore have less need for access to consumers in developed nations, i.e. less need for export markets. China is learning that now as a result of badly weakened consumer sectors in developed nations due to the Great Recession. China is now focusing increasingly on selling manufactured goods to Chinese, since the Chinese economy was damaged relatively little by the fallout of the Great Recession in the US (09B4). Also, developed nations would see new markets for their exportable production in developing nations.

To many, the cost of eliminating the dire scarcity of financial capital in developing nations seems to carry a far greater price tag that what the developed world could ever afford. This is a serious misconception. The actual cost could be extremely low (a small fraction of the cost of the development- and humanitarian aid that developed nations currently provide to developing nations) (09S1). Also, the strategy proposed here for eliminating the scarcity of financial capital in developing nations has been proven to be highly successful a number of times in the past. Since then, costs have been dropping rapidly as a result of new technologies (09S2).

Eliminating the dire scarcity of financial capital in developing nations means that these nations evolve to a greater degree of similarity with developed nations. It has been shown using "Footprint" analyses and Net Primary Production (NPP) analyses (08S4) that large-scale conversions of developing nations to developed nations are physically impossible due to natural resource constraints. Perhaps the most serious constraints are fossil fuels, water, food and wood. However these resources are all currently subject to large amounts of waste. A combination of legislation and higher prices could largely eliminate this waste if the required political will could be developed. Also a new technology for significantly enhancing the productivity of tropical croplands is forthcoming (08S5).

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[9-A] ~ Strategy 1 - Reduce Scarcities of Financial Capital in Developing Nations ~
This issue is discussed at some length in another document on this website (09S1). However several new technologies are making the process significantly less expensive, while significantly improving the outcomes, or showing significant potential for doing so (09S2). In essence, the reason for the extreme scarcity of financial capital in developing nations is a huge drain on any financial capital that is created. That drain is the cost of expanding the infrastructure that population growth calls for. The current size of that drain has been estimated at about $1.4 trillion/ year. This is money that nations with a median income of $2/ person/ day do not have. As a result, much of this capital drain takes the form of unmet need, meaning that infrastructure per capita is constantly decreasing. Serious scarcities of financial capital are capable of causing the bulk of the other problems that developing nations suffer from - including "bad government" that is often mistakenly seen as the cause of the ills of developing nations rather than as a consequence of these ills (09S1).

Support for all this is provided by the fact that all eight nations that have evolved from developing world status to developed world status over the past 100 years did so during periods of active family planning programs. So successful were these nations at making the transition that several are now major lenders of financial capital to the US. The three nations of Latin America that have had active family planning programs in recent decades (Chile, Brazil and Mexico) are now the three Latin American nations showing the beginnings of a middle class - a rarity in Latin America.

Significant side benefits result from reducing financial capital scarcity and population growth. Recent research (05M2) has examined the more common theories as to why the poorest of developing nations have been falling further behind the rest of the world economically during 1980-2002. The median per-capita growth of the poorest countries during that 20 years has been zero, but positive everywhere else. The research found that only one theory offered a statistically significant explanation as to the cause of this failure -involvement in wars and civil conflicts. This is not a useful conclusion. However the research failed to consider high fertility rates as a possible explanation. Nor did it examine what possible effect high fertility rates may have played in the greater likelihood of poor countries being involved in wars and civil conflicts. Fortunately a later study made the relationship between fertility rates and the probability of civil armed conflict fairly quantitative. Results of this study are summarized below.

Effect of population growth rate on the probability of civil armed conflict (04P1)

Births per 1000 per year

45+

35-45

25-35

15-25

15-

Probability of Conflict*

40-52%

30-34%

23-33%

11-16%

4%

* Likelihood of an outbreak of a civil conflict in a given decade

The combined results of these two studies show that significant reductions in fertility (an increasingly inexpensive process) would greatly decrease the incidence of civil armed conflict and, as a result, provide significant economic benefits to developing nations. This, in turn, reduces another drain on developing world capital creation - armed conflict. It also makes developing nations safer places for capital investments. This reduces, still further, the scarcity and cost of financial capital.

Eliminating extreme scarcities of financial capital can also generate major improvements in developing world agriculture (08S6). For example, in Africa the cost of imported chemical fertilizer is about 60 times greater than in the EU (in units of hours of labor to purchase a ton of fertilizer). This is due mainly to the extremely bad condition of, and scarcity of, transportation infrastructure (a consequence of high population growth rates). As a result, African farmers are mining soil nutrients, explaining why so much of the world's hunger is found in Africa. More financial capital can produce better transportation infrastructure that can, in turn, reduce the cost of imported chemical fertilizers.

There is a logical explanation for the relationship between armed conflict and population growth rates noted above. Armed conflicts are almost always born out of situations of extreme duress. In developing nations, that duress typically comes from problems generated, directly or indirectly, by the extreme scarcity of financial capital. That scarcity, as noted above, is linked to population growth. An example of this comes from the Middle East, a region with one of the highest population growth rates in the world. There, young Muslim males are in a state of extreme duress for a variety of reasons (08S8). As a result, they are easy prey for fundamentalist Muslim clergy seeking volunteers for engaging in terrorist attacks. A CIA document (00C1) points this out as a major cause of armed conflicts in the Middle East. A RAND study (00N1) also uses population issues to explain why the developed world's military has such difficulty in dealing with conflicts in the region.

New Technologies for Eliminating the Dire Scarcities of Financial Capital in Developing Nations
This issue is discussed at some length in another document (09S2) on this website, so it will not be repeated here.

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[9-B] ~ Strategy 2 - Reduce some Major Inefficiencies in the US Economy ~
Eliminating major inefficiencies in the US economy can be of significant benefit to the consumer sector of the US economy because that sector pays for these inefficiencies. Increasing the health of the consumer sector reduces the risk of creating new Great Recessions.

Health Care System Inefficiencies: This issue is discussed at length in two of the documents on this website (04S1) and (06S1). So the issue is not covered here.

Capital Utilization Efficiencies: The second category of health-care system inefficiencies covers the ever-increasing inefficiency of capital utilization in the US health-care system. However the same capital utilization inefficiencies are found throughout the entire US economy, and are growing increasingly costly as the capital intensity of the US economy grows ever larger. Such inefficiencies invariably wind up being paid for by the consumer sector of the US economy, and therefore increase the risk of future Great Recessions. This author, in the early 1980s, did an analysis of capital utilization inefficiencies in general, including a strategy for reducing them. The analysis is now obsolete, but because the capital intensity of the US economy is constantly increasing, the conclusions reached by the 1980 analysis could only under-estimate the current benefits of greatly increasing capital utilization efficiency. The early 1980s document is described in the first (04S1) health-care economics documents in this author's website. So that basic analysis is not repeated here.

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[10] ~ Mismanagement of the Globalization Process - Common or Rare? ~
At least two books (03J1) (04P2) and a detailed analysis by George Monbiot (05M1) have documented behavior of a wide variety of key figures in the management of the globalization process that would normally be considered sinister, corrupt or worse. The figures implicated include:

Summaries of these three documents are provided in Ref. (08S3), Section [D] Part [D3].

Mismanagement of the globalization process by the US was shown above to be the main underlying cause of the Great Recession. The extreme currency devaluation in much of Latin America and Southeast Asia in the late 1990s is widely agreed to be another example of the mismanagement of the globalization process. It caused extreme duress to many hundreds of millions of people in regions where economic safety nets are rare at best. It is of interest, then, to examine the history of the globalization process globally to determine how common such events are. If they are found to be common, it becomes clear that avoiding future Great Recessions requires a major examination of the globalization process to determine how that process should be handled in the future. The extremely high (and increasing) mobilities of virtually all the components of economic activity make it clear that abolishing globalization is out of the question.

Data meant to provide an answer to the question of the frequency of incidents of globalization mismanagement are provided below. It becomes clear that the mismanagement of the globalization process is common worldwide, and is becoming more common, and the consequences are becoming increasingly dire. It has already caused extreme duress to a large fraction of the earth's population, both in the developing world and the developed world. The Great Recession should probably have been seen as inevitable under such circumstances. Future Great Recessions are virtually certain unless the management of the globalization process is examined thoroughly, and substantive changes are made in this management and in the trade agreements that define the rules of the process. In some instances, mistakes were made that caused extreme duress to hundreds of millions of people even though proven procedures were widely known (08S3) (09S1) that could have prevented this duress and provided significant benefits to these same people. The studies noted above ((03J1) (04P2) and (05M1)) provide significant evidence for the charge that the "mismanagement" of the globalization process was deliberate, rather than accidental, and intended to plunder poverty-stricken developing nations. Political ideologies were clearly involved. In the case of the Great Recession, political ideologies also contributed significantly to the sequence of links leading from the mismanagement of the globalization process to the Great Recession. This was discussed above. The globalization process and its associated trade agreements appear to be being used with increasing frequency as cover-ups for ideological and political agendas.

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[10-A] ~ "Structural Adjustment Programs" (SAPs) in Developing Nations ~
~ ~ [10-A1]~
Urban Areas of Developing Nations, [10-A2]~Agricultural Areas of Developing Nations

[10-A1]~SAPs in the Urban areas of Developing Nations ~
Perhaps no single example of globalization mismanagement caused more duress to more developing world people than SAPs (08S3). The International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) used the leverage they had via their loans to developing nations and globalization trade agreements to impose SAPs. These imposed extreme hardships on deeply indebted developing nations. They forced these nations to devalue currencies, privatize state infrastructure and services, remove import controls and food subsidies, charge consumers the full cost of health- and education services and generally downsize the public sector. The UN's major study of urbanization (03U2) concluded that the single main cause of increases in poverty and inequality in developing nations during the 1980s and 1990s was the "retreat" of the state (i.e. privatization imposed by SAPs). The middle class disappeared. The brain drain to oil-rich Arab countries, and to the West, increased dramatically (95B1). In Africa, SAPs resulted in capital flight, collapse of manufactures, marginal or negative increases in export income, drastic cutbacks in public services, soaring prices, and steep declines in real wages (97R1).

Argentina, after the recession of around 2001, was forced by SAPs to eliminate public education. Prior to that, Argentina was one of the world's least socially stratified nations. Eliminating public education is producing a caste system. The poor become illiterate and unable to lift themselves out of the lowest caste. Japan is also among the world's least socially stratified nations. But it too is developing an age-based caste system, but not because of SAPs (08S3). Instead it is due, apparently, to increasing difficulties in dealing with globalization generally. Initially, Japan had been able to manage the globalization process quite well, keeping wages among the world's high, and maintaining significant trade surpluses.

The apparent strategy of SAPs was to make developing nations more "efficient" by eliminating internal subsidies and eliminating subsidies for exports, a major intent of the WTO. One goal was apparently to increase the likelihood that these nations will become better able to repay their external debts, currently amounting to well over $3 trillion and growing (08S3). The results of SAPs were the exact opposite. They provided a significant portion of the cause of the development of a large, and rapidly growing, "informal" economy in which daily survival is often challenging. (The "informal economy" is projected to become about two thirds of the developing world economy during the next few decades (08S3).) They also greatly decreased likelihood that these developing nations will ever repay their $3 trillion+ external debts - a potentially staggering blow to developed world financial institutions and taxpayers - and to developing world economies when they lose their access to external loans.

Political ideologies are clearly at play here. The developing world's problems have very little to do with "inefficiencies" (a.k.a. "bad government"). Instead they are due to the staggering burden (about $1.4 trillion/ year) of financing the expansion of infrastructure required to accommodate population growth. The result is a dire scarcity of financial capital that causes "bad government" and all the other problems typical of developing nations. Active family-planning programs tend to eliminate these problems - and at very low (and declining) cost (09S1).

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[10-A2]~SAPs in Agricultural areas of Developing Nations ~

SAPs devastated rural smallholders (farmers) by eliminating government agriculture subsidies and pushing developing world farmers into global commodity markets that were (are) dominated by developed world agribusinesses (that are heavily subsidized by developed-world governments) (00B1). For the typical developing nation with an economy that is 50-70% agriculture-based, this is no small matter. SAPs (along with population growth, and the lack of undeveloped arable land) are producing one of the largest human migrations ever known - the rural-to-urban migration. The dispossessed farmers typically migrated to the vast slums that ring the bulk of the large urban areas of the developing world. There they typically become part of the "informal" economy where survival is often a day-to-day challenge (08S3).

[10-B] ~ Effects of Globalization on Consumer Sectors of Economies ~
~ ~ ~ [10-B1]~
Developing Nations, [10-B2]~Developed Nations~

[10-B1]~Consumer Sectors of Developing Nation Economies ~
Fundamentally, the providers of labor in developing economies ought to benefit significantly from the globalization process since it helps to relieve the extreme scarcity of financial capital that plagues developing nations. This is often pointed out as being true, based on GDP-per-capita data (08S2). However, if one examines consumption data, a better indicator of the actual benefits received by providers of labor in developing economies, the opposite conclusion is reached. (GDP-per-capita data apparently also includes the earnings of multi-national corporations.) Despite the fundamentals, globalization also imposes duress on those who provide labor to the developing world's GDP. (See Table (4D-1) in Ref. (08S2).) Reference (08S3) also compiles data on the state of consumer sectors of developing world economies. Virtually all of these developing world consumer sectors have degraded significantly during the globalization process, particularly in terms of the expansion of the "informal economies" of developing nations.

Even in China, globalization has resulted in about 80% of the population (those in the interior) losing their health-care benefits. (Remember those "barefoot doctors?" They are no more. Instead China is now charging people for health care at rates that only those working in export-based industries can afford.) Chinese also suffer from the extreme degradation in China's air quality and water quality, particularly since China's entrance into the global marketplace. India's public education system now exists, primarily, in name only. The well-educated Indians that now work in export-based industries all came from families of the rich (a small fraction of India's population) that could afford private education for their children. Somehow the managers of globalization have managed to cause significant duress in the bulk of the consumer sectors of the economies of the developing world and of the developed world. Consumer sectors are typically 60-70% of the GDPs of any given economy, so this is clearly a strong indictment of the management of the globalization process. The probable reason for this debacle is that multi-national trade agreements tend to be strongly, and needlessly, biased in favor of multi-national corporations. This bias even goes to the point of violating the basic purpose of such trade agreements, reducing export subsidies and reducing non-internalized costs as a means of maximizing the efficiency of trade. Yet trade agreements tend to treat collateral environmental damage as a non-internalized cost, in essence subsiding trade, but in ways that serve the conveniences of multi-national corporations.

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[10-B2]~ Consumer Sector of Developed Nation Economies ~
It was found above that the main cause of the Great Recession was the mismanagement of the globalization process in the US. As a result of globalization, providers of labor to the US economy found their earnings stagnant or declining, and falling increasingly behind their rate of productivity growth. The response of the providers of labor was to counteract the otherwise declining living standards (and savings) by a series of seven non-sustainable strategies listed in Sector [7-A]. At this point (early in the Great Recession), US consumers have little or nothing left to sell off. All their options had been "maxed-out" or nearly so. This puts the consumer sector of the US economy, and hence the entire US economy, in a precarious position - the likelihood of an ever-worsening consumer sector of the economy, and all the economic problems that worsening implies in an environment of an economy already in an extremely weakened position. It is this lack of further options for protecting against the effects of globalization that causes this document to conclude that the Great Recession is likely to last indefinitely and worsen over time. Even if the Great Recession had never happened, the "maxing-out" of the above six options would eventually have put the US consumer sector into an ever-worsening condition.

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[10-C] ~ Caste Systems in Developed Nations in Response to the Effects of Globalization ~

Caste systems are developing in the EU, the US, Japan, Argentina (08S3) and probably others. The Argentine caste system is a result of SAPs. All four systems are age-based, and have numerous other similarities, suggesting a common origin. Young workers are finding it increasingly difficult, or impossible, to obtain educations comparable to those of their parents, or to achieve earnings comparable to those of their parents. Detailed descriptions (with reference citations) of these three caste systems can be found in Ref. (08S3) Section [G1] of this website, so these descriptions will not be repeated here. In much of the developing world, the division between the formal economy and the informal economy behaves like a caste system, rigged so that those in the informal sector find it increasingly difficult, or impossible, to become part of the formal economy. A major catastrophe looms here because, in much of the developing world, the informal economy is projected to become about 2/3 of the total economy. So it may become increasingly difficult for those in the formal economy to continue abusing (and discriminating against) those in the informal economy.

[10-D] ~ Summary of the Above Effects of Globalization ~

Clearly, the overwhelming bulk of those in both the developed- and developing worlds have been affected negatively, and to extreme degrees, by the way the globalization process has been managed overall.

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Appendix A ~ A Prior Economic Meltdown -Regulation at its Best - and the Current Meltdown - Deregulation at its Worst ~
In the 1930s, after the Great Depression, a congressional investigation was held to investigate the causes of the Great Depression. The investigation led to indictments, jail sentences and, eventually, important "New Deal" reforms. The Securities and Exchange Commission was created, and the Glass-Steagall Act was passed. That Act was designed, in part, to prevent the formation of banks too big to fail. In recent years, many of the reforms that were passed then were eliminated (10R1).

There are some surprising and instructive similarities between the events leading to the Great Depression and the events leading to the current Great Recession however. Prior to the Great Depression, National City Bank (now known as Citigroup) repackaged bad Latin American debt as new securities. These were sold to gullible investors during the booming 1920s. When disaster struck in 1929 the bank's executives awarded themselves millions of dollars worth of interest-free loans, much like today's Citigroup executives pocketing short-term illusionary profits (10R1). The bad Latin American debt of the 1920s has an eerie resemblance to today's bad home mortgages.

America emerged from the Great Depression with a tightly regulated banking system. The regulation worked: The nation was spared major financial crises for almost four decades after WWII. But as the memory of the Great Depression faded, bankers began to chafe at the restrictions they faced. And politicians, increasingly under the influence of free-market ideology, showed a growing willingness to give bankers what they wanted (09K1).

The first wave of deregulation took place under Ronald Reagan - and quickly led to disaster in the form of the savings-and-loan crisis of the 1980s. Financial interests lobbied to eliminate the government regulations that limited the ability of S&Ls to loan money to home-mortgages only. Congress eliminated these regulations, allowing S&Ls to lend money for about any purpose, no matter how risky. This eliminated the reason why S&Ls were created in the first place. It also opened the door to all manner of fraudulent investment opportunities. Money previously invested in sound home mortgages was, instead, invested in all manner of high-yield, high-risk investments - all still insured by a federal government that apparently thought it was still insuring home mortgages. The resulting debacle cost taxpayers about $150 billion (about $300 billion in today's money), although it could have cost about $400 billion had the recovery process not been well managed. 

In 2003, top bank regulators staged a photo-op in which they used garden shears and a chainsaw to cut up stacks of paper regulations. The bankers, liberated both by legislation that removed traditional restrictions and by the hands-off attitude of regulators who didn't believe in regulation, responded by dramatically loosening lending standards. The result was a credit boom and a monstrous real estate bubble, followed by the worst economic slump since the Great Depression (09K1). Yet, on 12/11/09, the US House of Representatives (with the meltdown caused by the runaway financial system, and the mass unemployment that meltdown caused still fresh in American minds) every Republican and 27 Democrats voted against a modest effort to rein in Wall Street excesses (09K1). Three days before the House of Representatives voted on banking reform, Republican leaders met with more than 100 financial-industry lobbyists to coordinate strategies (09K1). It is events like these that add fuel to the contention that the current Great Recession is going to last a very long time. Even at this late stage it is clear that we still haven't learned much of anything. 

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Appendix B ~ The Sequence of Cause-Effect Links that Led to the Great Recession that Began in Late 2007: A Summary of the Document Above ~

The sequence below suggests the importance of tracing the events leading to the current Great Recession as far back as possible in order to identify the real source of the problem. Only in that way can steps can be taken to prevent future occurrences of the problem that have some hope of working. In the current situation, it is fine to identify the housing bubble and the dysfunctional financial system as the "cause" of the problem. It is also fine, then, to restore the regulations governing the US financial system that were eliminated in the past decade of ideological fervor that contended that financial markets tend to "self-correct." Even if these restored regulations somehow manage to escape the next binge of ideological fervor favoring deregulation ten years hence, the underlying causes of the current recession will not have been addressed. The risk of future Great Recessions will remain high, and new recessions are likely to occur long before the costs of current "stimulus" programs have been paid for.

The above assumes that the current Great Recession will end eventually. Due to the unique set of circumstances that caused this recession, there may be no end. You will be able to see an end approaching simply by updating the compilation of data in Section (3-A) of Chapter 3 on Reference (08S2). Add whatever new data you find. These data give an indication of the health of the consumer sector of mainly the US economy. Ignore quarter-by-quarter trends. Stick with year-by-year trends or longer.

First: The initial event in the series of links was apparently the mismanagement of the globalization process in the US. (That process became a significant factor in the US economy in the early 1980s, and has been growing in significance ever since.) Had the globalization process been managed like it was (and is) in Europe and Japan, it is doubtful that the current recession would ever have taken place.

Europe and Japan were able to accomplish both of these things, although in recent years they have been encountering increasing difficulty in achieving these ends. As a result, the early stages in an age-based caste system can be seen in Europe, Japan, the US and others. The nearly identical characteristics of the caste system in all three regions suggest a common source. It is hard to imagine any common source other than globalization.

Second: The initial event described above doubtlessly produced numerous consequences in the US. However, two such consequences appear to have had the most significance in terms of the cause-effect linkages leading to the current Great Recession.

The First Consequence: Since 2001 the US has been experiencing large increases in corporate profits. These profits more than doubling since 2000. In 2006, corporate profits as a share of national income were at the highest level ever recorded (07K1). There were probably two reasons for this increase in corporate profits.

The Second Consequence: Stagnant, or declining, wages and benefits in the US due to competition from developing world labor and weak labor markets in the US due to the export of millions of jobs overseas created a weak consumer sector of the US economy. (The consumer sector typically represents 60% of the GDP.) See Ref. (08S2) Chapter 3 Section (3-A) for a large amount of data supporting the contention of a weak consumer sector.

The above two consequences, together, contributed to a large surplus of corporate capital in an environment with a minimal need for capital. This is because the weak consumer sector eliminated much of the need for expanding the outputs of the industrial sector of the economy. One result of this was that corporate profits were allocated heavily toward buying back company stocks, since there was little need for capital investments in expanding industrial facilities. The second significant result was major reductions in interest rates. This reflected two things: simple supply-and-demand considerations affecting the price of capital, i.e. interest rates, and also actions of the Federal Reserve to lower interest rates to provide the economic stimulus needed for propping up an economy suffering from a weak consumer sector. The Federal Reserve cut interest rates to extremely small values. At the same time, the US economy was also being perked up by huge and growing Federal budget deficits, huge and growing trade deficits, huge and growing current-accounts deficits, huge and growing household debts, and major income-tax reductions. Clearly the US economy was (is) having serious problems dealing with the weak consumer sector of the economy.

Third: The very low interest rates for prolonged periods of time held major repercussions throughout the US economy. People investing their business profits and their wages in 401(k)s, IRAs, annuities, etc. were being faced with returns on investment that were extremely low, often below the rate of inflation. Seeing their dreams of a secure retirement sinking in a sea of low returns, they desperately sought higher yields. The only way to achieve high yields (they thought) was to invest in high-risk investments. This forced financial institutions to seek out high-risk investments, and to oppose federal regulations meant to protect investors. This desperate, search for yields (i.e. high-risk) probably explains the overwhelming bulk of the dysfunctional behaviors of the US financial system described in Sections [3-A] through [3-M] above - and all that lobbying to eliminate federal regulations that protected investors. This, then, also explains why all those dysfunctional behaviors reflect the urge to take on additional risks.

Consumers, too, were having problems dealing with stagnant or declining wages and benefits. As globalization became an ever-increasing influence in the US economy, US consumers attempted to maintain their living standards by a series of non-sustainable strategies listed in Section [7-A] above.

Fourth: The prolonged period of low interest rates produced (as it always does) a strong stimulus to the housing market. Many people were attracted to that market who had little understanding of the risks related to interest-rate fluctuations. Also, the urgent need was felt by US financial system for achieving high interest rates on mortgages. High risk (and high sales volumes and high mortgage loan rates) were achieved by offering such features as low (or no) down-payments, interest-only payments, and ballooning repayment schedules. The dysfunctional character of the US financial system produced bundles of sub-prime mortgages that got rated as AAA investments by credit rating companies that received more fees for assigning higher credit ratings to securities. Such securities, with a combination of good rates of return and high (inflated) credit ratings, were snatched up by eager (and gullible) investors worldwide. This is one of the reasons why the current Great Recession is so global in its extent.

Fifth: Any minor fluctuation in interest rates in the environment described above would naturally produce a wave of mortgage foreclosures that produces a domino effect (busting of the housing bubble). A widely accepted viewpoint says that the current Great Recession was triggered by a combination of the housing bubble and by a highly dysfunctional US financial system. The linkages above defend the view that both were the product of the sequence of events described above. (Note the use of "triggered" here instead of "caused.")

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~ Reference List ~

88C1 Susan H. Cochrane, "The Effects of Education, Health and Social Security on Fertility in Developing Countries", Policy, Planning and Research Working Paper No. 93, World Bank, Washington DC (1988).
93Z2 G. Pascal Zachary, Bob Ortega, "Workplace Revolution Boosts Productivity at cost of Job Security", Wall Street Journal (3/10/93).

95B1 F. O. Balogun, "Adjusted Lives: stories of structural adjustment," Trenton NJ (1995) p. 80.
96C1 Catherine Caufield, "Masters of Illusion: the World Bank and the Poverty of Nations", Henry Holt, New York (1996).
97P1 David Poindexter, "Population Realities and Economic Growth," Population Press 4(2) (Nov./ December 1997) http://www.popco.org/irc/essays/essay-poindexter.html.
97R1 Carole Radoki, "Global Forces, Urban Change, and Urban Management in Africa," in Radoki, Urban Challenge (1997) (See Charles Green, editor, "Globalization and Survival in the Black Diaspora: The New Urban Challenge" (1997).
98B1 Rodolfo A. Bulatao, "The Value of Family-Planning Programs in Developing Countries", RAND MR-978-WFHF/RF/UNFPA (1998) 79 pp.
98C1 Helene Cooper and Thomas Kamm, "Loosening Up", Wall Street Journal (early 1998).
99K1 Peter T. Kilborn, Pittsburgh Post Gazette (2/28/99).

00B1 Deborah Bryceson, "Disappearing Peasantries? Rural Labor Redundancy in the Neoliberal Era and Beyond," in Bryceson, Christobal Kay and Jos Mooji, editors, Disappearing Peasantries? Rural Labor in Africa, Asia and Latin America, London (2000) p. 304-305.
00C1 National Intelligence Agency, CIA, "Global Trends 2015: A Dialogue About the Future with Nongovernmental Experts", (70 pp, unclassified) (reported on in New York Times (12/18/2000) (Also see http://www.cia.gov/nic/pubs/index.htm or http://www.cia.gov/cia/publications/globaltrends2015/index.html#link2 ).
00J1 Leon James, Road Rage and Aggressive Driving, Prometheus Books (2000).
00M1 Michael Milken, "Amid Plenty, the Wage Gap Widens", Wall Street Journal (9/5/00).
00N1 Brian Nichiporuk, "The Security Dynamics of Demographic Factors", RAND MR-1088-WFHF/RF/DLPF/A (2000) 52 pp.

02G1 Kelly Greene, "Health Benefits for Retirees Continue to Shrink, Study Says", Wall Street Journal (9/16/02).

03J1 Fatoumata Jawara, Aileen Kwa, Behind the Scenes at the WTO:  the Real World of International Trade Negotiations (September 2003).
03U1 (Unknown) "North America: Jobs Move Offshore as Firms Continue to Economize", New Haven Register (4/14/03).
03U2 UN-Habitat (The UN's Human Settlement Program) "The Challenge of the Slums: Global Report on Human Settlements 2003," London (2003) (the first truly global audit on urban poverty).

04I1 See for e.g. International Rivers Network, Risky Business for Laos: The Nam Theun 2 Hydropower Project. IRN, Berkeley, California (September 2004).
04K3 Lynn A. Karoly, Constantijn W. A. Panis, "Forces Shaping the Future Workforce and Workplace in the US," RAND Labor and Population, 2004. (Prepared for the US Department of Labor) RAND Corporation 1700 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 (Available from www.RAND.org).

04O1
Jeff D. Opdyke, "With Pension Failures in the Thousands, How Safe is Yours?" Wall Street Journal (9/15/04) p. D1.
04P1 Population Action International, "How Demographic Transition Reduces Countries' Vulnerability to Civil Conflict" in PAI's publication The Security Demographic: Population and Civil Conflict After the Cold War (2/11/04). http://www.populationaction.org/resources/factsheets/factsheet_23_securityDemog.html.
04P2 John Perkins, "Confessions of an Economic Hit Man", Berrett-Koehler Publishers (2004) 264 pp.
04R1 William Ryerson, "PMC-Ethiopia's two radio serial dramas are causing great behavior changes", Ethiopian Reporter (6/16/04). Contact William Ryerson, President, Population Media Center, 145 Pine Haven Shores Road, Suite 2011, P.O. Box 547, Shelburne VT 05482.
04S1 Bruce Sundquist, "Inefficiencies in the U.S. Health Care System - Identifying and Fixing Them," Edition 3 (August 2004) http://home.windstream.net/bsundquist1/hci.html

05A1 Edmund L. Andrews, "Savings: Lots of Talk, but Few Dollars" New York Times (3/13/05).
05A4 Riva D. Atlas, Mary William Walsh, "Pension Officers Putting Billions into Hedge Funds", The New York Times (11/27/05).
05I1 Greg Ip, Mark Whitehouse, "Huge Flood of Capital to Invest Spurs World-Wide Risk Taking", Wall Street Journal (11/3/05) p. A1.
05M1 George Monbiot "I'm With Wolfowitz: Have we forgotten what the World Bank is for?" The Guardian, (4/5/05)
www.monbiot.com.
05M2 Branko Milanovic, "Why did the Poorest Countries Fail To Catch Up?" Carnegie Papers of the Carnegie Endowment for International Peace, Number 62 (November 2005) 31 pages. http://www.carnegieendowment.org/files/CP62.Milanovic.FINAL.pdf.
05U1 UN Development Program, Human Development Report 2005, United Nations, New York (See William E. Rees "Are Humans Unsustainable by Nature?" Trudeau Lecture, University of British Columbia School of Community and Regional Planning (2007))

05U3 United Nations Department of Economic & Social Affairs, World Contraceptive Use 2005," (2005) http://www.un.org/esa/population/publications/contraceptive2005/2005_World_Contraceptive_files/WallChart_WCU2005.pdf (Last visited 5/19/09).

06B1 Dr. Tim Black, Chief Executive of Marie Stopes International, in a personal communication to this author of 11/23/06.
06G2 Steven Greenhouse and David Leonhardt, "Corporate profits rise as workers' pay stalls," Pittsburgh Post Gazette (8/28/06) p. A1.
06I1 International Service Assistance Fund, press release of 6/22/06. (Contact ISAF at 919-990-9099 or visit www.quinacrine.com)
06K1 Paul Krugman, "Left-behind economics," Pittsburgh Post Gazette (7/15/06).
06L2 Eleanor Laise, "Mutual Funds Adopt Hedge-Fund Tactics", Wall Street Journal (2/21/06) p. D1.
06P3 Scott Patterson, "Cocktail of Hedge Funds, Emerging Markets is a Risky Mix - but the Big Investors Love It," Wall Street Journal (3/23/06) p. C1.
06R4 Anita Raghavan, Ianthe Jeanne Dugan, Gregory Zuckerman, "Despite Blue-Chip Gains, Hedge Funds Increasingly are Faltering and Closing," Wall Street Journal (9/4/06) p. C1.
06S1 Bruce Sundquist, "Large-Scale Computerization - The Cure for the Health Care Crisis," Edition 4 (May 2006) http://home.windstream.net/bsundquist1/hcc.html
06S3 Deborah Solomon, "Congress May Let Hedge Funds Manage More Pension Money," Wall Street Journal (7/28/06) p. A1.
06U3 (Unknown) "Where Did the Good Investments Go?" Editorial, New York Times (6/17/06).
06W4 David Wessel, "Why It Takes a Doctorate to Beat Inflation," Wall Street Journal (10/19/06) p. A2.
06Y1 Deborah Yao, "S&P: Big Firms bought back a record $116 billion in shares," Pittsburgh Post Gazette via Associated Press (8/25/06) p. E2.

07E1 Editors, "Mortgage Insecurities," New Your Times Editorial (2/22/07) (based on an analysis by Mark Zandi and Juan Manuel Licari, two economists for Moody's Economy.com).
07H1 Thomas Heffner, "Economy In Crisis: Creating Awareness Of Our True Economic Condition," http://www.EconomyInCrisis.org (1/26/07) (Visited 2/17/07).
07H2 James R. Hagerty, "Mortgage-Bond Pioneer Dislikes What He Sees," Wall Street Journal (2/24/07) p. B1.
07K1 Paul Krugman, "Profit-taking," Pittsburgh Post Gazette (5/5/07) p. B7.
07S1 Bruce Sundquist, "Quinacrine Sterilization: The Controversy and the Potential," Edition 1 (January 2007) http://home.windstream.net/bsundquist1/qs.html
07W1 Marcus Walker, "Just How Good Is Globalization?" Wall Street Journal (1/25/07) p. A10.

08A1 Edmund L. Andrews, "Greenspan Concedes Error on Regulation," New York Times (10/24/08).
08B1 E.S. Browning, "One Guy Who Has Seen It all Doesn't Like What He Sees Now," Wall Street Journal (4/26-27/08).
08C1 Christopher Cox, "Swapping Secrecy for Transparency," New York Times (10/19/08).
08D1 Charles Duhigg, "Pressured to Take More Risk, Fannie Reached Tipping Point," The New York Times (10/5/08).
08G1 Peter S. Goodman, "Taking Hard New Look at a Greenspan Legacy," New York Times (10/9/08).
08L1 Eric Lichtblau, "Federal Cases of Stock Fraud Drop Sharply," New York Times (12/25/08).
08L2 Stephen Labaton, "S.E.C. Concedes Oversight Flaws Fueled Collapse," New York Times (9/27/08).
08L3 Stephen Labaton, "Agency's '04 Rule Let Banks Pile Up New Debt, and Risk," New York Times (10/3/08).
08M1 Gretchen Morgenson, "Debt Watchdogs: Tamed or Caught Napping?" New York Times (12/7/08).
08S1 Louise Story, "Home Equity Frenzy Was a Bank Ad Come True," New York Times (8/15/08).
08S2 Bruce Sundquist, "Globalization: The Convergence Issue," Edition 16 (April, 2008) http://home.windstream.net/bsundquist1/.
08S3 Bruce Sundquist, "The Informal Economy of the Developing World: The Context, the Prognosis and a Broader Perspective," Edition 2 (December 2008) http://home.windstream.net/bsundquist/ie.html
08S4 Bruce Sundquist, "Human Co-Option of Net Primary Production - The Photosynthetic Limits to Global Carrying Capacity,"Edition 2 (April 2008) http://home.windstream.net/bsundquist1/gcia.html
08S5 Bruce Sundquist, "Terra Preta - An Inexpensive, if not Profitable, Solution to the Problems of Global Warming and Developing World Hunger," Edition 1 (September 2008) http://home.windstream.net/bsundquist1/tpgw.html
08S6 Bruce Sundquist, "Sustainability of the World's Outputs of Food, Wood and Freshwater for Human Consumption," Edition 1 (March 2008) http://home.windstream.net/bsundquist1/su0.html
08S7 Louise Story, "Home Equity Frenzy Was a Bank-Ad Come-True," New York Times (8/15/08).
08S8 Bruce Sundquist, "Could Family Planning Cure Terrorism?" Edition 7 (March 2008) http://home.windstream.net/bsundquist1/terror.html

09A1 Curt Anderson (AP Legal Affairs Writer) "AP: Ponzi collapses nearly quadrupled in 2009" (12/28/2009 )

09B1 Alan S. Blinder, "Crazy Compensation and the Crisis," Wall Street Journal (5/28/09).
09B2 Cassell Bryan-Low, "Another Wave of Withdrawals Expected to Hit Hedge Funds," Wall Street Journal (3/2/09) p. C1.
09B3 E. S. Browning, Annelena Lobb, "Debt Burden to Weigh on Stocks," Wall Street Journal (8/10/09) p. C1.
09B4 Andrew Batson, "China Inc. Looks Homeward as U.S. Shoppers Turn Frugal," Wall Street Journal (9/29/09) p. A1.
09B5 Lisa Bannon, Bob Davis, "Spendthrift to Penny Pincher: A Vision of the New Consumer," Wall Street Journal (12/17/09) p. A1.
09E1 Erik Eckholm, "Prolonged Aid to Unemployed is Running Out," New York Times (8/2/09).
09G1 Mark Gongloff, "On Borrowed Time: Consumer-Led Recovery," Wall Street Journal (6/9/09) p. C1.
09G2 Gary Gordon, "Spotting Bubbles Isn't Hard, but Deflating Them Is," Wall Street Journal (8/3/09) p. A10.
09G3 Peter S. Goodman, "U. S. Job Seekers Exceed Openings by Record Ratio," New York Times (9/27/09).
09G4 Mark Gongloff, "Jobless Recoveries: The New Normal, It Seems," Wall Street Journal (12/04/09) p.C1.
09G5 Mark Gongloff, "5.6 Million Reasons to Doubt Jobless Rate," Wall Street Journal (12/31/09) p.C1.
09K1 Paul Krugman, "Still in denial," Pittsburgh Post Gazette (12/15/09). (See Appendix A)
09L1 Donald L. Luskin, "Can the Fed Identify Bubbles Before They Happen?" Wall Street Journal, (7/30/09) p. A17.
09L2 Michael Luo, "Income Loss Persists Long After Layoffs," New York Times (8/4/09).
09M1 Dambisa Moya, "Why Foreign Aid is Hurting Africa," Wall Street Journal (3/21-22/09) p. W1.
09S1 Bruce Sundquist, "The Controversy over U.S. Support for International Family Planning - An Analysis," Edition 9 (June 2009) http://home.windstream.net/bsundquist1/ifp.html 
09S2 Bruce Sundquist, "Strategies for Funding Family Planning, Maternal Health Care, and Battles Against HIV/AIDS in Developing Nations as Options Expand, Political Environments Shift and Needs Grow: A Critique," Edition 5 (November 2009) http://home.windstream.net/bsundquist1/fund.html

09Z1 Mortimer Zuckerman, "The Economy is Even Worse Than You Think," Wall Street Journal (7/14/09) p. A13.

10B1 Moriah Balingit, "Boomerang effect is a trend for U.S. Families," Pittsburgh Post Gazette (3/19/10). (Based on a Pew Research Center Study titled "The Return of the Multi-Generational Household.")
10D1 Liam Denning, "New American Cash Conundrum: Too Much" Wall Street Journal (1/21/10) p.C16.
10H1 Bob Herbert, "An Uneasy Feeling," The New York Times (Jan. 5, 2010).
10H2 Christine Haughney, "Further Slide Seen in Commercial Real Estate," The New York Times (January 8, 2010).
10H3 Bob Herbert, "Fast Track to Inequality," The New York Times (November 1, 2010) based on a new book "Winner-Take-All Politics: How Washington Made the Rich Richer - and Turned its Back on the Middle Class" by Jacob Hacker and Paul Pierson.
10J1 Tim Johnston, "World Bank sees risk of recovery losing steam," Financial Times (1/21/10).
10R1 Frank Rich, "The Other Plot to Wreck America," The New York Times (Jan. 10, 2010).
10S1 Kara Scannell, "At SEC, a Scholar Who Saw it Coming," Wall Street Journal (1/25/10) p. C1.
10S2 Louise Story, Nelson D. Schwartz, Landon Thomas, Jr., "Wall Street helped Greece get into debt," The New York Times (2/14/10).

11D1 Jesse Drucker, "How Offshore Tax Havens Save Companies Billions," Bloomberg News (3/17/11).

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