It's the Economy, Stupid!

It's not a new world order, its the same old order.

I guess we're going to see the government make the same mistakes it made in the 20th century over and over again. It seems the boom-bust economic cycle that the government likes to create is here to stay. We had an extended period of growth, which was in fact after an unstable period in the 1970s, not dissimilar to the situation we are in today.

The primary factor for unsustainable borrowing was excessively low interest rates starting at the time of the tech boom. Which was enabled due to the reserve banks referencing a price inflation index that no longer had anything to do with the average cost of living for the median household. This was because any influence of land values, petroleum prices etc were removed in revisions to the CPI, despite these contributing significantly to costs of living. The rationale was that these were making CPI measurements too large and therefore were contributing to interest rates that were higher than what those economists wanted. At least over the short term. Yes in the short term these adjustments to the CPI and related indices enabled higher growth, but in the long term it was clearly unsustainable.

If you remove the effect of certain prices on the inflation index, what happens? Those prices increase significantly, whereas those that are included do not. The prices may equalise later, but this effect takes much longer - 5+ years evidently.
This redistribution, combined with looser lending standards meant the housing bubble was inevitable (I know I was worried about the potential size of the bubble back in 2003, though I did not know the extent of the bad loans in the USA). Yet those who had the power to say or do something about it eg the government and in particular those in charg of the the FED and other banks did nothing. Now you may say that there is a new bunch of people in the white house, but you have to remember that politicians in practise are always reactive, rather than proactive. Which means they will always exaggerate the boom-bust cycle.

With regards to CPI measurements, one could argue that the costs of living vary dramatically between households and therefore any measurement has questionable applicability. One solution would be to allow the free trade of privately backed currencies, albeit under a regulated banking system. Fundamental transaction costs for converting currencies are trending towards zero due to electronic banking, so a single currency is no longer necessary.
Consider a gold backed currency. Why not a currency that is backed by the essential commodities we need to live? Toothpaste futures, may sound like a funny concept, but the framework already exists today.

 

Americans are stupid.

They can only conceive of two economic models.

1. Capitalism
2. Socialism/Communism

Everything they have been taught by media tells them that Socialism/Communism is bad and that minimal government involvement in the market will provide them the cheapest prices and the most freedom.

It has never occurred to most Americans that economies function on a spectrum and that are a wide variety of different forms of capitalism.

Anarcho-capitalism
Consumer capitalism
Corporate capitalism
Creative capitalism
Crony capitalism
Democratic capitalism
Eco-capitalism
Finance capitalism
Global capitalism
Humanistic capitalism
Inclusive capitalism
Late capitalism
Laissez-faire capitalism
Liberal capitalism
Merchant capitalism
Mixed economy
Monopoly capitalism
Neo-Capitalism
Philanthrocapitalism
Technocapitalism
Regulatory capitalism
Rentier capitalism
Social capitalism
Social market economy
State capitalism
State monopoly capitalism
Welfare capitalism

 

Or god forbid, realise that ideology is not the driver of politics, it is simply a mythical story that people tell to justify a particular system.

 

Very true.

How easy it is to forget that ideas are not reality.

To truly pursue an ideal is to understand that you are chasing perfection in an imperfect world. It is an absurd task.

But as we are all cognitive misers, it is easier to think in terms of absolutes and to allow ourselves to be persuaded by attitudes associated with those absolutes rather than by reason.

 

I'm probably familiar with this situation deeper than most of you guys since I have been in investment business one way or another for 8 years now. I have also managed to predict the start of the current downturn back in 2006.

There are a lot of things they are purposefully not telling you. For example that the real value of your economy as measured in commodities (gold, oil, materials, etc) rather than dollars is actually declining since 2000 for straight 9 years now. As you can see from this chart (borrowed from here)

(at the current moment this chart number has fallen below 10)

Credit is the lifeblood of the capitalism so it's expansion/contraction numbers are more important than GDP and inflation. And as you can see from the article right now it's in an awful state. Real economic recovery is simply not possible under such conditions - whatever the analysts might be saying. The government is of course trying to stop the credit evaporation by converting private debts into public - national US debt have been ballooning lately. That buys some time but it cannot buy growth. This is the lesson Japan has learned the hard way - it's economic downturn had lasted for 15 years since 1990 - and they were using the exact same measures to stop it.

A close to zero growth is the best thing that can happen in the following few years in my opinion. Worst case scenarios include Great Depression II, hyperinflation and WW3. I expect something in the middle between best and worst so the downturn is definitely not over yet.

 

Tamagochi knows what he's talking about.

And I'm one of them who thinks the worst case scenario will occur

 

Don't get me wrong - I do not enjoy being a prophet of doom The sooner hard times will end the better for all of us. But I just cannot ignore what numbers are saying.

 

Why is it then that most political ideologies are concerned with means, rather than ends? This focus on means tends to lead to the thinking that such ideologies are mutually exclusive, when in reality a majority of them have similar ends in mind.

 

If you control your audience's beliefs, then you control the conclusion they reach. To get control of beliefs, you merely exploit your audience's values.

So if I want you to believe capitalism is the way to go, I merely convince you of the premise that there is no personal freedom without private property. If I want you to believe socialism is the way to go, I merely convince you of the premise that there is no equality unless resources are distributed based on need.

Look at the health care debate. The capitalists argue that people will lose choice if the government gets involved, i.e. death panels, bureaucratic health care, etc. Whereas the socialists argue that the uninsured will continue to suffer and health care will become a luxury.

Exploitation of values is probably the most efficient means of controlling people's attitudes.