The writing is on the wall. The emperor has no clothes. The mountain of strength and power that is Wall Street has been revealed to be an illusion: a computer generated image of a thing that exists only in the minds of true believers. But optimism is a difficult thing to kill, especially after a decade of bullishness that was rewarded by unprecedented profits, and so the vast majority still believes what they most want to hear: that all is well, that the Fed is in control, and that if there is a downturn that it won't be very bad. It's a wonderful story, if only it were true.

The believers can't be blamed for their optimism. After all, in every financial crisis over the last two decades or so, and there have been many, the depressing forecasts by "gloom and doomers" have never materialized, at least in the United States. Bubbles have come and gone, leaving only a couple of minor recessions in their wake, so how could anyone believe that this time will be any different?

The answer is that each bursting bubble of the past was "fixed" by the creation of a bigger bubble, which allowed the debts of the past to be rolled over into the newer schemes of the present and future. Sure, there were always a few casualties after every bursting bubble, but the powers that be are very adept at staying afloat while passing the bill on to investors and taxpayers. And even though the loopholes that allowed those lucrative bubbles get plugged by regulators, new ones are found or created, and the great game of milking the bubble is kept going for another few years. In essence this "serial bubble blowing" process is not much different than when you max-out a credit card and "solve" the problem by getting a new credit card. You can keep doing that for as long as you can keep getting new credit cards, but eventually you will run out of credit and the party is over. Of course, when you stiff the credit card company, only you and it suffer, but in the case of bubbles, the damage can get spread far and wide, and today that is true more than ever.

National borders and tight regulations used to isolate bursting bubbles in various nations from the rest of the global economy, limiting their damage, but over the last few decades of deregulation and globalization this is no longer the case. Loans in California can be made by banks in New York and then repackaged and sold to hedge funds in Europe and investors in Asia, which is why defaults in Indiana can cause firms in Germany to go under. Now with a fully integrated and loosely regulated global marketplace, bubbles can grow to monstrous proportions, infecting every corner of the world while resisting all efforts to contain them. Such is the case with the ravenous "credit bubble" of today, which was born in the wake of the bursting dotcom bubble and which has no equal in size and scope in all of recorded history. It is beyond anyone's ability to control or to fix and when it finally bursts, as it appears to be doing, the suffering will affect everyone on the face of the earth. This time though, there appears to be no "next bubble" into which to sweep the massive fallout from the current one. The world is tapped out and the debts are past due, but that hasn't stopped the central banks from trying to delay the inevitable once more.

It should surprise no one that the central bankers of the world were revealed to be hypocrites early on. The doctrine of leaving the free markets to work things out on their own is only adhered to when things are going in favor of the financial giants. When the markets drop and the losses mount, the capitalists suddenly transform into communists and the invisible hand of the marketplace is shoved aside by the inflationary hand of the Federal Reserve. Their remedy is the same as always: a quick, and this time enormous, "liquidity injection" to keep the money flowing; which, last month, served only to prop up a foundering system of financial malfeasance and moral decay. After all, the central bankers cannot afford to admit that the system that they preside over is dysfunctional and rotted to the core so they must do whatever they can to maintain the facade that all is well. While it is true that central banks must act to save the markets, their jobs would have been much easier if they had exercised stricter monetary policy and tighter lending standards, nipping the bubble in the bud at the expense of slower growth or a recession. Unfortunately, as explained in the last edition of The Burning Blade, a nation's leaders must preside over growth and progress every year or risk being deposed and thus bubbles, debt, and short term solutions are encouraged, even when they come at the expense of future growth. And so as long as central bankers are appointed by politicians, the tight-fisted economists will rarely reach the top post while those that give speeches about fighting deflation by dropping money out of helicopters are fast-tracked. But those who advocate loose monetary policy are not necessarily scheming profiteers. In reality most have simply embraced the ideology of Neo-liberal economics which downplays the negative side of running debts and champions deregulation. Many Neo-liberal true believers are convinced that bubbles are really just signs of true economic strength and prosperity rather than problems of a loosely regulated financial market and have put forth convincing arguments that far-above-average growth is sustainable indefinitely. They claim that the central bank's role is essentially to nurse bubbles along rather than pop them and prevent them from recurring. It's hard to argue against them. After all, until the bubble bursts, the evidence is on their side, and with each money making deal and trade, more converts are made to the god of eternal wealth creation. It's truly a case of the blind leading the blind: those blinded by ideology leading those blinded by greed.

Despite how it may appear today, the crisis is far from over. It's not about a few sub-prime loans gone bad, but about the magical creation of trillions of dollars of housing equity through the manipulation of interest rates and the leveraging of trillions of dollars of loans against those homes into gargantuan sums that sent every global market skyrocketing. The practice of leveraging, one of many dangerous financial gimmicks that has been abused to an extreme, turns small gains into large ones, but now it is turning small losses into potentially fatal ones which can bring down major firms overnight. Anyone paying attention to the housing market knows that the losses due to foreclosures have only just begun. Rates are resetting, prices are dropping, and the economy is costing people jobs. In regards to the marketplace spasms that we've seen over the last two months, there's a lot more where that came from, and as the collapse continues, it will pick up speed.

In the past, financial collapses have played out over months, not days, and generally take more than a year to hit rock bottom. These descents are neither constant nor gradual and over the period of the collapse a number of false bottoms are reached where the markets turn upwards and everything seems to be over. But after each rebound comes another, deeper drop, followed by another rebound and another drop. Over and over the process repeats, punishing anyone who dares to invest in what seem to be bargain basement deals, until finally equilibrium is established once more. If the collapse has truly begun, then the world will be a very different place a year from now. Very different indeed. And, as usual, I'd love to be wrong about this as I'm doing well in the current financial climate, but when I see how many of those that I care about are faring, and witness how the reality of a dysfunctional economy - not the fiction that the well known economic indicators suggest - is grinding down upon them, I realize that what we need most of all is change, even if that means slogging through another Great Depression to get to better times.

Speaking of impending doom, you won't have to wait too long to hear the latest Fireaxe CD "Eternal Devotion to the Dark Goddess". The mixing is nearing completion and is gelling nicely, yielding a full, rich sound that both sounds and feels good. Also, the artwork is almost complete and it too is a healthy cut above that which has been previously released. Click this link to view what you will soon see spinning around inside your CD player. It seems that I'm getting better at this whole artist/musician/sound engineer thing.

Those are the wings of the Dark Goddess. You'll get to see her in all her malevolent beauty in the fold-out booklet. I think that you will all be very pleased if not blessed (cursed?) to own it.

A big ‘Hello’ to anyone receiving the Burning Blade for the first time. This is the Fireaxe newsletter.