"The total debt in the United States today is approaching $50 trillion and that does not take into account the huge amounts required for the federal funding of social security and Medicare. There is absolutely no way that this money can ever be repaid except by continued inflation. Now that the credit bubble has blown up, inflation is no longer an option; bankruptcy looms."

- Ian Gordon

Please pardon the size of the graph. It reads: Total US Debt = $48 Trillion. $58 trillion unfunded liabilities such as healthcare and retirement. Total US debt is now 304% of GDP. Red: Debt; Blue: National Income

"IN NEW YORK MONEY IS GOD AND GOD IS MONEY"

- LOUIS HENRY SULLIVAN

Today the god Mammon sits on two thrones in New York and London and to a lesser degree in most of the other financial centres of the world.

The two financial world capitals have enjoyed unrivalled prosperity during this unprecedented speculative fever. They too have developed massive hubris, which has allowed them to develop and sell all over the world huge swaths of questionable securities.

New York, however, takes the prize, because the investment firms housed in that city control many of the London firms. During these major investment bull markets, New York becomes the centre of the universe, or at least in the minds of most of those living there. The city pulsates on money. The great investment houses become the epitome of wealth. Some of this wealth is transferred to partners and key employees in the form of huge performance bonuses.

�Profits on Wall Street have been boosted by a surge in mergers, takeovers, as well as sharp increases in trading levels of stocks and derivatives. Figures suggest leveraged buyout firms have attracted more than $170 billion of new money so far this year, helping drive $2,900 billion in announced mergers and acquisitions. In addition, more than $110 billion poured into hedge funds in the first nine months, beating the last annual peak in 2002 and fueling demand for stocks, bonds, commodities and derivatives.� (Gulf News, David Litterick and Katherine Griffiths, Saturday, November 25th, 2006).

In 2007, five of the largest US brokerages paid out $36 billion in bonuses based on 2006 performances. This was an increase of 30% over the 2005 payouts. The average annual pay cheque in New York is about $300,000 or five times more than the average annual pay in the remainder of the United States.

Most of the people working in these investment firms attribute these enormous profits to the business acumen of the firms� leaders. Few of them give credit to the massive bull market. �We compulsively associate unusual intelligence with the leadership of the great financial institutions-the large banking, investment banking, insurance, and brokerage houses. The larger the capital assets and income flow controlled, the deeper the presumed financial, economic and social perception.�-

�Financial genius is before the fall.� (A Short History of Financial Euphoria. P.15 and P.17).

Much as it might appear today that the amazing wealth enjoyed collectively in New York and London is a permanent affair, it is not. Investment bull markets do not last forever. And the bigger and more speculative the bull market, the greater and more devastating is the ensuing bear market- To this end we can anticipate that the mother of all stock bear markets is about to descend on New York and London. When it does, these two cities will bear the brunt. In 1975, the City of New York was forced to go hat in hand to the State and Federal governments to bail it out of bankruptcy; all because, stocks had been in a bear market since 1966, which had been exacerbated by a mini stock crash in 1974.

The beginnings of Ate�s punishment for New York�s hubris are becoming evident. �---there are signs that the latest boom in New York -evidenced by a proliferation of high-end restaurants, up market boutiques sprouting in once gritty areas is grinding to a halt.� (Financial Times. November 3rd/4th 2007). So far this year (2007), job losses in the financial services industry in the City total 47,000. This includes the recent firing of Stan O�Neil, the Merrill Lynch boss, after the company was forced to take $8.4 billion write down related to the sub-prime mortgage fiasco. For his performance Mr. O�Neill was rewarded with a $160 million severance package.

Michael Bloomberg, New York�s mayor has initiated municipal budget cuts and a hiring freeze in anticipation of reduced tax revenues.

While hubris is generally a domain of powerful individuals, greed can become the sin of lesser mortals. And nowhere is greed more apparent than during huge speculative markets.

Wealth disparity is most obvious in the United States, where 70% of that country�s wealth is owned by a mere 10% of its citizens. �Today the top 5% of Americans have all the money, while the bottom 95% seem to have all the debt. Why so much damn debt on the part of the bottom 95%? Well, they�re to keep up their standard of living, and can�t do it on what they make. So how do they manage? This is how�today both the husband and wife work, and they also do a lot of borrowing.� (Richard�s Remarks � Dow Theory Letters Inc.).

For the most part US consumers are in a hopeless position. Their debt obligations stretch as far as the eye can see. Their ability to honour these promises rests upon an economy that can only be sustained by even more debt. Their assets are pledged; their homes, their cars, everything. They have become slaves to the banks. Vast portions of their incomes are paid out in interest payments and debt reduction. Will they ever recover from this nightmare? Many will not. They will go to their graves in debt to the banks. Until that time, they will continue to make their onerous payments for fear that they will lose everything.

In the 1970�s, corporate bosses earned about 40 times as much as the average worker. Today thanks to stock options, generous bonuses and pay, bosses earn about 370 times the average pay of their employees. There are 140 companies under investigation for back dating options, which was done to give the bosses cheap company stock. A good example of this boss/worker wage disparity is the firing of Richard Nardelli as CEO of Home Depot. For this, he received the princely sum of $210 million. His sacked underlings were, perhaps, lucky to receive a mere boot in the backside. You would think that with all that money in his jeans, Mr. Nardelli would quietly ride into obscurity. But no; �That�s right, Cerebrus has confirmed that the disgraced former CEO of Home Depot, who became the poster child for excessive CEO compensation, has taken the reigns at Chrysler.� (Forbes. August 6th, 2007).

In 2006, the top three US hedge fund managers drew more than $1 billion in salaries. The top 25 managers received a total of more than $ 14 billion, which is larger than the GDP of Jordan and Uruguay and would be enough to pay the salaries of the 80,000 New York public school teachers for almost three years. (Source-CNN, New York Times).

�The world is flooded with liquidity. Every central bank has been creating liquidity. Today the big money is made by bankers taking over companies, and by companies and venture capitalists taking over companies. It�s a paper trading world-casino, run by big-time financiers and worldclass investment bankers. It�s quite a game, and it�s not played by the middle class, it�s played by Wall Street and the new entrepreneurs.�

First four articles in this series by Ian Gordon:

1. THIS IS IT! (Series on Kondratieff Cycle-4)
   
   
2. THE CREDIT CRUNCH (Series on Kondratieff Cycle-4)
   
   
   
3. "FAR FROM THE MADDING CROWD�S IGNOBLE STRIFE�" (Series on Kondratieff Cycle-4)
   
   
   
4. HUBRIS AND GREED (Series on Kondratieff Cycle-4)
   

 FINAL INSTALLMENT (NEXT): ... THE FEDERAL RESERVE

*THE KONDRATIEFF CYCLE

The Kondratief cycle* was first described by Nicholai Kondratief, a Russian Economist early in the 20th century. He discovered a 50-60 year cycle in economic data series of the economies of the United States and other Western industrial nations. He used it to explain the underlying patterns of rises and falls in these economies.

"And important underlying feature of the cycle is a build-up in debt during the up-phase of the cycle, and a destruction of that debt as the economy collapses, in the crash phase at the end of the period, normally considered to be 50-60 years."

- Axis Editors

Spring

• Gradual increase in business activity and employment
• Consumer confidence increases in line with growing economy
• Consumer prices start a gradual increase from very low levels
• Stock prices begin a steady rise and reach a peak at the end of Spring
• Interest rises slowly from historic low levels in line with gradual credit expansion

Summer

•  Summer War � 1st Cycle: War of 1812
  2nd Cycle: US Civil War
  ; 3rd Cycle: Word War I 1914-1918
  4th Cycle: Vietnam War
• Financed by massive increase in money supply leads to large inflation which peaks at the end of Summer
• Gold prices reach significant peak at end of Summer
• Interest rates rise rapidly and peak at end of Summer
• Stock market under pressure and ends Summer with a bear market low

Autumn

• Massive stock bull market financed by fiscal and monetary largesse
• Stock prices reach euphonic peak to signal start of winter
• Inflation and commodity prices fall
• Real Estate prices rise and reach peak at beginning of winter
• Gold and Gold equities in bear market, reach bear market low at Autumn�s end
• Debt reaches astronomical levels by end of Autumn
• Massive consumer confidence due to stock prices, real estate prices and plentiful jobs

Winter

• Stocks start major bear market, the bear market is in proportion to the preceding bull market
• Debt repudiation significant
• Bankruptcies
• Banks and quasi banks in crisis
• Credit crunch � interest rates rise
• International currency crises � a la 1931-34
• Gold and gold equity prices rise as deflation takes hold