Two academics, Simon Johnson from MIT’s Sloan School of Managment and Peter Boone from the London School of Economics predict that the world is close to inflating its final economic bubble. After this last party a Depression will overtake the world. The end is near, they claim, because interest rates are near zero the world over and there is nowhere else to go.
The doomsday cycle has several simple stages. At the start, creditors and depositors provide banks with cheap funding in the expectation that if things go very wrong, our central banks and fiscal authorities will bail them out. Banks such as Lehman Brothers – and many others in this past cycle – use the funds to take large risks, with the aim of providing dividends and bonuses to shareholders and management.
Through direct subsidies (such as deposit insurance) and indirect support (such as central bank bailouts), we encourage our banking system to ignore large, socially harmful ‘tail risks’ – those risks where there is a small chance of calamitous collapse. As far as banks are concerned, they can walk away and let the state clean it up. Some bankers and policymakers even do well during the collapse that they helped to create. …
Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. These crises appear to be getting worse and worse – and their impact is increasingly global. Not only are interest rates near zero around the world, but many countries are on fiscal trajectories that require major changes to avoid eventual financial collapse.
The only way to prevent a catastrophe, according to Johnson and Boone, is to cut deficits back and reform the financial system to avoid future hanky-panky. But neither is very optimistic it can be done. The actors benefiting from the short term bubbles are simply too powerful to keep anyone from wresting control of the wheel. And if the reformers ever succeed the money men will simply corrupt them all over again.
The real danger is that as this cycle continues, the scale of the problem is getting bigger. If each cycle requires greater and greater public intervention, we will surely eventually collapse….
In our view, the long-term failure of regulation to check financial collapses reflects deep political difficulties in creating regulation. The banks have the money, they have the best lawyers and they have the funds to finance the political system. Politicians rarely want strong regulators – except after a major collapse. So politics rarely favours regulation.
There are also big operational problems. … It requires a strong leap of faith to believe that our regulatory system will never again be captured or corrupted. The fact that it has spectacularly failed to limit costly risk should be no surprise. In our view, the new regulations discussed in Basel 3 will fail, just as Basel 1 and Basel 2 have failed.
Probably neither academic would be surprised to learn that after President Obama used octogenarian Paul Volcker to threaten the financial industry with removing its safety net he subsequently threw Volcker under the bus. The Daily Beast describes how Wall Street outmuscled the former chairman of the Fed.
Yet for all its drawbacks, at least the Volcker Plan was the start of a conversation about whether taxpayers should be forced to subsidize the risk-taking activities of Wall Street. … Wall Street heavyweights from Dimon to people like Larry Fink, the head of money-management powerhouse BlackRock—Obama supporters all—made their opposition to the plan well-known to the administration.
The message was clear: Wall Street, which helped elect Barack Obama with an unprecedented support for a Democratic presidential candidate (Goldman Sachs was the second largest contributor to the president’s campaign), was ready to start backing the opposition of the so-called Volcker Rule. … And with that, Volcker, one of the nation’s great economists, was thrown under the bus.
Now financial companies can operate on the basis that they are “too big to fail”, in other words to important not to be saved. Considerations like that probably led the Financial Times to consider ways to prevent another “derivatives inferno”. Goldman Sachs is back in the news again after Ben Bernanke complained it had helped Greece use derivatives to window-dress its finances. Reuters quotes Bernanke as saying “3e are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece … using these instruments in a way that potentially destabilizes a company or a country is counterproductive.” Even as the spotlight focused on Greece, a much bigger shadow was edging itself onto the stage from the wings: Spain. Big Money writes:
Forget Greece; the euro’s real enemy is Spain, reports the Wall Street Journal. Greece’s huge debts have caused concern among the 16-nation euro zone, but Spain has a larger economy and issues to match. Spain’s shrinking gross domestic product, down 3.6 percent in 2009, has put the country into its “deepest and longest recession in half a century.” Other problems, including “an unemployment rate of 19%, a deflating housing bubble, big debts and a gaping budget deficit,” threaten the continent and the euro, which launched in 1999. Since Spain is part of the euro zone, it cannot use certain measures. For instance, “Spain can’t devalue its currency,” “slash interest rates or print money.” The European Central Bank has control over those decisions. With a budget deficit of 11.4 percent of GDP, Spain also can’t pass tax cuts or spending increases. So, even if Greece pulls its act together, Spain might still drag the euro zone countries down.
The Desmond Lachman of AEI told the Wall Street Journal “if Spain is in deep trouble, it will be difficult to hold the euro together…and my own view is that Spain is in deep trouble.”
Do the the woes of the financial industry hold any lessons for President Obama’s health care “reform” effort? The Heritage Foundation argues that President Obama’s health care policies which revolve around a combination of increasing costs by mandating coverage of uninsured persons and price controls will eventually require that the health care industry be supported by taxpayer subsidies. These subisidies are unlikely to be withdrawn once they start because too many actors — patients, comp;anies, doctors — will have become hooked on them. According to the Raw Story the health care industry is deploying eight lobbyists for every legislator who will attend the health care “summit”.
Like the financial industry, health care will have become “too big to fail”.
embedded by Embedded VideoYouTube Direkt
Look at the numbers, Mr. President
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It’s not just for the children; its for the dentures.
(Hat tip: Ann Althouse
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And the Republicans have yet to come up with a sensible alternative to Obamacare.
I was under the impression they want the insurance companies to fail. Then, when every American is covered under the “public option” and the Treasury is thoroughly looted, they’ll collapse the currency and there won’t be health-care for anyone save the politically connected few. That’ll solve a lot of the left’s bugaboos: over-population, pollution, over-use of resources, land depletion, rednecks, babies, you name it.
And they’ll never again have to choke down a glass of Vino Novello.
Obamacare doesn’t need a sensible alternative, it just needs killing. The sensible alternative is not necessary to that effort.
According to the Raw Story the health care industry is deploying eight lobbyists for every legislator who will attend the health care “summit”.
Like the financial industry, health care will have become “too big to fail”.
The problem we have here at home, is that we are fully intent on being exactly like the socialist democracies or democratic socialist nations of Europe. And, we are well on our way to getting that “wish”.
The problem with socialist economic systems, is they tend to spill all their candy in the lobby. The cake for breakfast and candy for lunch crowd wants every “entitlement” to be borne by the “big guys”…but, really wind up taking the piranha bites out of the “average guy”, until he is peeled clean to the bone.
Soon, in California…the Greece of the US, taxpayers could well work until August or September before they are into any hope and change jingling in their own pockets.
Health care is a mixed bag of tricks and treats. Hispanics make up nearly a third of the uninsured in this country. We haven’t even touched on the census numbers for illegal or undocumented folks and their children…and how they impact those numbers.
But, if health care is jammed down the throats of an already financially waterboarded taxpayer…there is little room to breathe.
The only question now is…is there enough time?
Keep an eye on the British pound, too. There might be a temporary ‘flight’ to the dollar, before the dollar follows suit.
Google: ‘News Kontent: A reader’s resources on systemic collapse.’
Bob Murphy: You really stay on subject don’t you. Obamacare is just one more shovel of dirt on the grave. The fact that you continue to think that people should pay for the failings of others is the problem. Banks are not the problem if you let them fail. Auto companies are not a problem if you let them fail. Unions are the problem if they are not allowed to fail. I know one of your mantras THE POOR! THE POOR! I ask why are they poor? If it is due to poor choices, drugs, booze past criminal activity my answer so what, not my problem. If they are poor because of circumstances beyound their then I am willing to help. You talk of compromise? I answer If you want to take an arm and a leg I don’t think giving you just an arm is a good compromise for me.
The system can’t be reformed and it won’t be reformed, and it certainly can’t be overthrown. There is nothing to be done. The guilty will not only not suffer they will absolutely thrive- e.g. Bill Ayers.
You *will* need to go off the grid eventually. Start getting ready now.
A blog at the Economist describes who is on strike to protest austerity in Europe. Is it the the poor? Is the downtrodden? No, it’s something more noble than that. It’s the people who care for the poor and the downtrodden: government workers.
The problem with health care “reform” is that is is being designed by the very same people who would suffer if real reform were enacted. But call it “reform” and who can complain? Call it a labor strike and who would be so heartless, who such a scab or strikebreaker, who so bereft of ‘caring’ that he should point out they are tax collectors?
I wonder if the efforts of government to protect us from bubbles only allow the bubbles to grow bigger before they burs
I’m staggered by the irony that many of the players in our road to ruin are the “bogeymen” of Wall Street that the left loves to hate, and yet Wall Street is in collusion with, and dependent on the very people the left loves to put in power.
The ideological rules have changed dramatically. There is no simple right/left dichotomy. Enemies of genuine liberty can come from either direction, and they are usually working together these days.
6. Tom Curley:
“The fact that you continue to think that people should pay for the failings of others is the problem. Banks are not the problem if you let them fail. Auto companies are not a problem if you let them fail. Unions are the problem if they are not allowed to fail. I know one of your mantras THE POOR!”
How dare you, turkey! You have no data on which to make such grandiose statements. There have been problems with healthcare in America for years, for instance portability between states and between healthcare providers. Republicans or people with traditional American views can put forward remedies for such problems or stand by and let Obamacare steam roller them.
Based on your statement, and the flimsy premises on which you based it you are an idiot.
They miss the point – zero short interest rates are not just a sign of trouble, they are a cause of trouble.
The only way they would not CAUSE trouble is if price deflation occurred. Of course this has occurred in financial instruments, in real estate, and the monetized value of mortgages (which are, after all, financial instruments). But there is no sign of general price DEFLATION otherwise, and indeed, it is Bernanke’s double-secret policy to ignite INFLATION in order to monetize mortgage debt and maybe the federal deficit.
In this environment all the big players borrow everything they can lay their hands on, earn a small rent while they wait for an inflation spike that will effectively wipe away their principle debt.
I am very scared. I forget where the quote is from, but “this is like if someone told me they were reanimating corpses in the back room.”
Oh, don’t worry about Spain.
I just saw where they were starting an R&D effort to make airplanes out of one of their most abundant natural renewable resources:
CORK
At least the survivors of the crash won’t lack for life preservers….
FWIW, we are witnessing the end of the security bubble brought on by GWB’s willingness to fight back a little against Jihad.
Democrats move to ban cruel/degrading treatment for jihadis. The penalty for “degrading” treatment for jihadis is 15 years. Obama objects … to the portion prohibiting officials from reading terrorists their Miranda rights overseas.
Naturally, no one in the intel or military community will EVER interrogate a prisoner. It is unlikely they will even kill them … rather simply let them go. The signals have been sent … diversity trumps lives, or stopping a Jihadi. Offending the tender mercies of SWPL trumps national security.
It is now only a question of when and how, and how many people die, for the next big terrorist attack in the US.
Obama and the Democrats, of course, would not have it any other way. They want a crisis, so they can rule by decree and force rapidly submission, to Sharia-Lite, Islam, Jihad, the way the Netherlands is forcing submission with the Geert Wilders trial.
The Last Bubble is not the monetary system or global economy. It is the security system that underpins: free global trade, including movement of capital, goods, and in part, labor (less mobile but still moving). Take NYC nuked out of existence and instantly container shipping trade stops, probably never to resume, along with China’s economic collapse, and likely the whole international monetary system, and indeed fiat currency. Likely replaced by bi-metallic systems of silver and gold.
This would ripple out everywhere. If cash is king, that pretty much screws Amazon. Or the blogosphere micropayments and advertising system. Pajamas Media would be dead in that system, unless they could simply grab massive eyeballs away from CNN and Fox News. Paying by credit card of course would be obsolete, as would checks.
Obama likes the idea of this crisis, indeed he and the Dems WANT it, because it allows in theory rule by decree. HOWEVER, his problem is that he operates with massive distrust, already, being largely judged a failure, his house organs (the MSM) are discredited, and the likelihood of a challenger for authority and followers is high.
You don’t win followers by allowing part of the country to be attacked, and then offer submission to the enemy. No matter how much that appeals to the Harvard Faculty, Rev. Wright, Louis Farrakhan, your Lady McBeth Wife, or SWPL lunatics like Buffy whatsername and Yosi Sergant.
OT: Obama has said he is “neutral” on the question of the Falklands. It’s pretty much a done deal that Kirchner, finding falling popularity at home, will invade. And that the UK will be forced to accept it because they have no military and the US (Obama hates the British) is no longer their friend. Call this opening shock in the breaking of the Security Bubble.
All the jobs Britain expected out of oil exploration in the Falklands (and the Falklands itself) will be gone. The Argentines could take over the Falklands with about two detachments of Marines. The UK no longer having a Navy or RAF or much of anything else. Along with the Dutch withdrawing from Afghanistan (and the Canadians) this sounds the death knell for NATO.
…s-s-st.
“Oh, don’t worry about Spain.
“I just saw where they were starting an R&D effort to make airplanes out of one of their most abundant natural renewable resources:
“CORK”
Oh, I get it. And they’ll be powered by organically grown champagne from France and use corkscrew navigational systems operated by the Swiss Army. This could be a boost for the EU.
I’ll bet they have sausage and cheese snacks from all the other EU countries.
One step to stabilize the financial markets would be to outlaw CDS – credit default swaps. All existing should be cancelled, premiums returned. That is, for any US chartered bank backed by taxpayer funds, and for all US issued bonds, private and government.
http://krugman.blogs.nytimes.com/2010/02/05/the-spanish-tragedy/
Much of last year’s stimulus, the massive increases in government spending and the Fed interventions, were premised on economic slack keeping inflation at bay. Typically, as unemployment reached 5 percent and capacity utilization approached 90 percent, inflation became a threat. So the plan must be to withdraw the “stimulation” well before that point is reached. A year ago I speculated that point would be reached much earlier in the process than anticipated.
It was a year ago that Obama took $9 billion from Chrysler bondholders to give to the UAW, and I predicted persistent double digit unemployment as a result. It was not because of anything the Obama backing bankers or Wall Street Tychoons would do — despite their feigned outrage — because they would be taken care of by Tarp and the bailouts (plus, the money came from Republican small investors). No. It was the “mice,” not the “rats,” that President Obama should have worried about.
That action, so early in Mr. Obama’s term, told small and medium size business that they could expect no sympathy from the leftist who now ran Washington — and it came right when the folks running the businesses would be watching for signs.
As soon as it looked like Senator Obama — with his many dicey associations — would become President, they began their adjustments to a possibly unfriendly future. A year ago, they would have seen no reason to change direction. They would plan for higher cost workers, more costly regulation, more costly energy and falling demand. And continue to downsize.
Still, it was possible to see a stable point when the Democrats got their agenda past. Unemployment might hover around 10 percent in good times and 14 percent during slowdowns. The economy might grow at 2 percent in boom-times and zero to one percent during others. But most businesses could cope. After all, that is what businessmen do. You find a Democrat Pol to be your protector from the fat-cat bureaucrats, you deal with the Union bosses and their hired muscle (hired by you, as luck would have it).
As they waited for this new “thugocratic” future to materialize, they would do more with less. I know. I was less where I work and I’m now doing more.
Unfortunately, the Democrats did not pass their most damaging pieces of legislation. So the uncertainty remains. Worse, there is the real threat of social chaos to add to economic displacement, as the Rahmming of their agenda onto a largely unwilling population proceeds.
Now there has been a second act full of leadened symbolism: the broaching of price controls for businesses whose cost were pushed up by Washington. So, if you are a business — do you seek to expand market share or raise prices? Do you try to get margins up before inflation, government imposed additional costs and price controls give you “the double, or triple, wallop?” All this while the population at large is balking, if not actually rebelling? I think “small is beautiful” might become the business plan.
The Democrats hope to dump all sorts of money into the economy in the spring to produce a “recovery bubble” by the summer, and thus save themselves (with the help of the usual chicanery) in the fall elections. Instead, it may produce a sudden case of stagflation for the economy at large and electoral disaster for them. That is a prediction and a hope, since I believe much worse will happen if they stay in power.
#13, RWE
It is Portugal that is known for its cork, not Spain.
The Bank Credit Analysist refers to this as the debt supercycle. The idea is that post WWII debt has financed a vast expansion of wealth. The problem is that when (inevitably) incomes contract it become more difficult to meet the fixed payments that debt requires. For Greece and Japan the size of the debt means that neither can outgrow the debt. If their economies continue to contract and if interest rates rise, then the debt to GDP ratio will rise even if they were able to bring the non-interest portion of their budgets into balance. Countries and states have repudiated debts before. They will again.
I think the housing bubble was the last bubble. Business and consumers are de-leverging faster than governments are leverging up. I think for a few years the fed has been buying T-bills, China certainly has slowed purchases. Individuals and business, real genuine value creators, are at the limit of their borrowing ability and willingness.
I believe it’s a given that we’re heading for a worldwide depression that will be significantly worse than the Great Depression of our grandparent’s generation. The only real question is whether or not the collapse happens on this bubble cycle or the next one. IMHO, this full-on Depression should have been clearly evident back in March 2009. This event was delayed because the Federal Reserve began “cooking the books” through equity market manipulation, quantitative easing, etc. Most of this manipulation was done with freshly printed greenbacks thus transfering much of the financial industries indebtedness to the US taxpayer.
Nothing has been solved by doing this. All they’ve done is kick the can down the road a little bit more thus making the problem even worse when it finally explodes (this is evident in the chart that Wretchard linked).
The ethics of what the Federal Reserve has done are very slippery. On the one hand the Federal Reserve has successfully delayed this new Depression by a few months. Maybe they ran some macro-economic computer simulation and concluded that this new Depression would knock us back to the 19th century? If that’s the case then almost any form of illegality could be justified if it could keep the system running a little bit longer. Also it’s possible that the nonsense about Obamacare, Global Warming, etc. was intended only as an MSM distraction because any vigorous attempt at correcting the economy might have triggered the new Depression. However it seems more likely that what we’re really seeing is moral cowardice by the economic policy makers and left wing monomania by the Obama administration vis-a-vis Obamacare (all that liberals really understand are socialism and maintaining “the narrative”). Perhaps the Treasury Department and the Federal Reserve were afraid of making the tough decisions because they didn’t want the system to collapse on their watch. So they “extend and pretend” and hope the system doesn’t implode until after their term of office has expired.
I don’t know what to do. I can see it coming but have no clue about how to prepare, e.g. stockpiling bullets and whiskey are not practical answers.
Eggplan @ 22: The ethics of what the Federal Reserve has done are very slippery. On the one hand the Federal Reserve has successfully delayed this new Depression by a few months.
…
I don’t know what to do. I can see it coming but have no clue about how to prepare, e.g. stockpiling bullets and whiskey are not practical answers.
I’m with you, purple nightshade.
The fed did what they could, but how long can it continue? There’s never been a financial tightrope like this before, afaik.
My recommendation is stockpile the bullets and consume the whiskey immediately under the rule of, “I’d rather have this bottle in front of me, than have to have a frontal lobotomy.” Think of it as an advance on Obamacare.
I’m stockpiling Obama/Biden posters and bumperstickers too, so that when the crash comes I’ll have something for target practice besides empty whiskey bottles.
A couple of blokes say the party’s over, that we’re about to burst the last and final big bubble, and after that le deluge. Sure looks that way.
Sing along with Goody Goody
I’m Forever Blowing Bubbles (1919)
Music by John Kellette
Lyrics by James Kendis, James Brockman and Nat Vincent
http://www.youtube.com/watch?v=i17L3KrR8ag
I’m forever blowing bubbles
Pretty bubbles in the air
They fly so high
Nearly touch the sky
Then like my dreams they fade and die
Fortune’s always hiding
I’ve looked everywhere
I’m forever blowing bubbles
Pretty bubbles in the air
Now we’re on our last big bubble
Soon the bubble won’t be there
It’s blown so high
Nearly reached the sky
Taken my dreams and made them die
My fortune’s gone in hiding
Can’t find it anywhere
Now we’re in our last big bubble
Soon the bubble won’t be there
Bankers love those great big bubbles
Bonuses just fill the air
Salaries so high
Nearly reach the sky
Too big to fail you hear them sigh
Their fortune’s they are hiding
Burst bubbles they don’t care
Wall Street loves those great big bubbles
Pretty bubbles in the air
Five to seven years, according to this retiring Senator:
http://www.ft.com/cms/s/0/d618a9a4-225b-11df-a93d-00144feab49a.html
US financial meltdown “five to seven years” according to this retiring Senator:
http://www.ft.com/cms/s/0/d618a9a4-225b-11df-a93d-00144feab49a.html
regarding cork: I have heard that both Spain and Portugal are going to announce new programs which will revitalize their economies!!! They will be making very inexpensive ammunition out of cork, both for rifles and for larger tank and howitzer rounds. This is projected to lead to a huge new round of green jobs, since the new ammunition is sure to sell well since it is so environmentally friendly. This new ammunition will also greatly cut the cost of training, since the practice round will be attached to the end of the gun by a short string and can be used over and over.
Al Gore is selling stock in the new venture. And Spain has already booked the revenue from next year’s sales as income and is selling credit default swaps based on it.
Zhombre wrote: “I’m stockpiling Obama/Biden posters and bumperstickers too, so that when the crash comes I’ll have something for target practice besides empty whiskey bottles.”
Someone noticed today that all of the Obama commemorative plates that were selling for $20 or more after the election have turned up at Big Lots for $2 each. I’m thinking they would make excellent skeet targets.
On the bright side – all this talk of the “last” bubble is a bit overblown. There’s guaranteed to be a whole new round of this in about 70 years or so, these things are kinda cyclical. If you take good notes it might help your great grandchildren.
aw, but they’ll never believe it could happen to them.
Josh said:
“The fed did what they could, but how long can it continue? There’s never been a financial tightrope like this before, afaik.”
It’ll be a black swan that topples the system. We’re now like a yardstick balanced on one end (one little tap pushes it over). The Iranians will pop off of a test nuke or Spain/Greece will default on their debt or al Qaeda will play a nasty trick, etc. It’ll be some bolt-out-of-the-blue that triggers a Sell! to the algorithms running on Goldman-Sachs’ computer clusters.
It feels like half the world is waiting helplessly for this to happen. The other half (actually 95%) are making “Baa” sounds, munching the grass and watching American Idol.
So, which developed nation will default first?
Eggplant,
My (admittedly not too great) advice is basic preps. I don’t think we’ll see major disruptions, but if the shelves at the local supermarket get bare for a week or two while new supplies get opened up, it’s nice to have a well-stocked pantry ready. Start thinking about what your grandparents always had on hand, and make sure you have it, too. I forsee a period of time where things are very fluid, so a bit of self-sufficiency will be at the very least a comfort.
The most important thing to stockpile is knowledge. Knowing how to sort things out is very handy, especially if they need sorting out.
After that is involvement in local politics. When I was going to university, I sat in on my neighborhood’s meetings with our Alderman. Learning about the process of government was very helpful for me, but as a person gets older, going beyond the simple learning and into involvement pays dividends. If the big men at the top start to lose their grip on the levers of the system, then power will by necessity be pushed downwards. It’s important for conservative-minded people to be ready when this happens with good solutions, so that the same mistakes don’t get made over and over again. The most important solution being live within our means, of course.
Whiskey,
The UK has one big ace in the hole regarding the invasion of the Falklands: Perisher. The issue is not military, but political, because the military solution involves Spearfish going kablooie underneath the keels of laden troopships, along with the images of dead and dying Argetinian soldiers floating in the South Atlantic that will accompany it. Does Brown have the will to try is the more important question.
My guess is more political maneuvering will instead be the order of the day. If things go poorly, Obama may side with Chavez, Kirchner and some other ne’er do wells in attempting to push the UK out of the Falklands.
http://bigjournalism.com/dkalder/2010/01/24/we-are-we-so-in-love-with-the-apocalypse/print/
Daniel Kalder: Why is the pull of apocalyptic belief so strong?
Dr. Richard Landes: Our love for the apocalypse is connected with our sense of our own importance. To live in apocalyptic expectation means that you are the chosen generation; that in your time the puzzle of existence will be solved. It appeals to our- by which I mean humanity’s- megalomania: we all want to believe we’re special, that God has given us a front row seat for the most important events in history.
The United States had great economic growth from WWII until 2000 with Glass-Steagall in place. This economic doomsterism is IMO unwarranted.
“The fact that you continue to think that people should pay for the failings of others is the problem.”
I wonder how many of the ‘let them all fail!’ crowd here were actually around in 1929. Obviously we should let firms fail during normal times. Are these normal times? What do you suppose would happen if half the firms in this country failed all at once? Then we all really would pay for the failings of others.
Many firms borrowed money based on what we now know to be inflated asset values. Now that the bubble has popped, those asset valuations have come down. But the value of the corresponding debt has not come down (witness the highly negative reaction to mortgage ‘cramdowns’ for example). Rather than trying to grow their way out of it, they will instead opt to pay off those debts first.
Richard Koo does a much better job at explaining this than I can: Richard Koo on Balance Sheet Recessions.
“Dr. Richard Landes: Our love for the apocalypse is connected with our sense of our own importance. To live in apocalyptic expectation means that you are the chosen generation; that in your time the puzzle of existence will be solved. It appeals to our- by which I mean humanity’s- megalomania: we all want to believe we’re special, that God has given us a front row seat for the most important events in history.”:
I just figured I was unlucky.
Have we reached the point where life does imitate art: is “too big to fail” just the name we give to the “anti-dog eat dog rule” in Atlas Shrugged?
W,
Thank you getting into some real subject matter meat.
Josh said:
“One step to stabilize the financial markets would be to outlaw CDS”
I’m 100% with you on this; CDS and other derivatives _will_ make the natural economic fluctuations untenable. Esp. after adding to natural fluctuations, the crowbars given large financial instutions with 0% interest. These crowbars are ripping whole sections of load barring walls out.
Blaming it all on the bankers “capturing” the regulators is too easy. Everybody likes easy money. You have to be a real sorehead to worry about banks lending too much money when times are good, and you have to be a real Scrooge to object to bailing them out when times are bad.
There’s another economic mode that I think will come into play if things get much worse – Empire. Not the soft “Imperialism” that the US is accused of, but actual Empire building – Invade, Subjugate, Exploit.
I think China’s willing to do it in Africa and the weaker corners of Asia. I think Putin is willing to do it from Russia, but I don’t know if the populace would support him. Iran’s in the game once they have nukes, I’d guess.
How far do things go before America joins in? Mexico is a plump prize waiting to be plucked – failing state, weak central government, vast oil reserves and other natural resources, underemployed populace.
An interesting essay appeared half a century ago, in the now defunct, but most excellent, Horizon Magazine. The author postulated that the era of nation state (and empire) consolidation was drawing to a close and that powerful centrifugal forces would begin to tear apart many political entities. He predicted that the process would be evident by the turn of the century. Localism would become the new geopolitical trend. It seems evident that he was onto something. Since that time we have witnessed the breakup of Yugoslavia, the Soviet Union and the potential breakup of the EU. China also appears to be fragile. And, we are seeing powerful centrifugal forces arise in the US.
One factor that the author was not aware of, but engineers are very sensitive to, is lag induced oscillation. The more centralized the decision making process, the slower it will be. This time lag converts negative feedback to positive feedback and giant oscillations, or even complete runaway and breakage are the result.
Our current crises is largely attributable to this condition. In the days before Fannie and Freddy the risks of a home loan was evaluated at the local level where the loan officer could see for himself what the situation was and make a decision accordingly. Fannie and Freddy sucked this risk decision process away from the local loan officer and turned risk management into a statistical algorithm. But any statistical process lacks detail and has a long lag. Financial collapse was entirely predictable if you view the world from an engineering perspective. Indeed, more than one of my engineering colleagues made such predictions.
Back to localism. Tightening negative feedback loops is the way to achieve stability. This means a free market. It also means local economic and, therefore political, institutions. The center will not hold unless it offers a benefit which outweighs the negatives of lag induced oscillation.
#11 – Bob Murphy “How dare you, turkey! (snip snip) …Based on your statement, and the flimsy premises on which you based it you are an idiot.”
Wretchard – clear violation #3. Please get rid of this troll – he contributes nothing and is impeding the conversation.
Finance is fundamentally simple. We borrow from the future. The future arrives in the present in the form of cash flows, or in the case of the world economic system, as net new increments of economic productivity. The rate of interest is supposed to reflect the cost of borrowing from the future.
The two things we can control are how much we borrow and where we spend what is borrowed. For too long we’ve been living on credit; spending our money on consumption. Consequently the cash flows from the future have been on the decline. The real growth of the world economy has been falling.
But because reducing consumption is a political taboo we borrow some more. We reduce the rate of interest to the point where there is no longer a nominal cost to borrowing from the future. At that point you literally print money backed by the future without limit. That is the future telling you that not only have you borrowed too much, but you have spent it on the wrong things.
Behavior must change so that a reduction of borrowing and a change in what we spend things on creates the effect of cash flows. When checks start arriving from the future — when real growth returns — then it’s clear we’re doing something right. For as long as society lives on credit and doesn’t rely on real income, real productivity, the situation is unsustainable.
The reason why you cannot borrow indefinitely is that that the credibility of the game goes bust at some point and people cash in all these promissory notes at once. Since these promissory notes are backed by the sum of what is available in the present and this huge inflated expectation from the future — and once it becomes clear the future isn’t going to pay up — the assets of the present will only cover a fraction of the ultimate claims. In a crash, some will get 100 cents on the dollar while others will get pennies. A crash is like a huge Ponzi scheme coming down in ruins. Those who get paid early will have something. Those who get paid late will lose their entire claim.
But if this were all then the worst that could happen is that we’ll all divide up the assets of the present. And since the world will still be out there; the buildings still standing, the roads still paved, the farms still under cultivation, what could go wrong? The problem with a crash is that the whole system of exchange goes bust and business grinds to a halt. The information needed to make it work is corrupted and that corruption is expressed in huge money transfers from the Ponzi base to early exiters. Incomprehensible fortunes will be made against the backdrop of mass pauperization. Think of what Madoff did and multiply it by several orders of magnitude.
It is the stoppage of the system which ultimately destroys wealth. That’s happening now on a small scale. Factories which could produce something are closed; people in long term unemployment are losing their skills. The real economic system destroys itself when the game becomes unplayable, when to play the game with its broken rules is to lose according to the scoring system. So people get out of the game and the music stops. Taken to the limit a large percentage of the real economy will find itself paralyzed. In that paralysis as with the paralysis of a person, real atrophy will set in. Farms will go uncultivated. Goods will stop being produced. Actual poverty will become widespread. Starvation will become a reality in many places.
Simple, isn’t it? And that makes the behavior of the current crop of leaders all the more reprehensible. What are they spending all these borrowings from the future on? On useless things like public employment, cap and trade to stop ‘global warming’ and on bloating the health care system. They’re spending it on government handouts. For show, to perpetuate the illusion that they can’t perpetuate anyway. They’re not just bubbles; they’re baubles. The result will be predictable. When the cash flows from the future will dry up they’ll try to inflate it with more bubbles. One day it will be clear that’s what they’re doing; that securities all around are only worth a fraction of their face value and then the race will be on to encash before the others find out. They’ll fail and in the process the first ones to the cashier will succeed beyond anyone’s wildest dreams.
The world is in a race between the politicians bent on bubbling their way out their fecklnessness and a somnolent public which must act in time to stop them. America is in the forefront of the revival mostly because it has stopped taking things on trust and thinking for itself. The British have only now starting to awaken in the Tea Party way. They are far more under the spell of the Great and the Good than those who have drunk fewer glasses of Kool-Aid. But they are getting up and better late than never.
This entire health summit and the economic policies of which it is a part will be remembered for decades, maybe even a century hence for the complete idiocy that it is.
Bob Murphy @ 1 said:
The ONLY sensible alternative is to kill it dead, DEAD, DEAD. Are you some kind of plant from the DNC?
Warren Bonesteel @ 5:
See this: Generation Zero – The Movie
Doom is just around the corner. I hate to admit it but these folks are right and we must clean up our own mess.
wretchard @ 8:
I do get it. I can call armed robbery ‘giving to charity’ and get away with it, right? Time to buy the pitchforks, tar and feathers. Also, more ammo.
I do see some hope as the calls from headhunters are starting again after they dead, flat stopped for a year. There may be a small glimmer of light at the end of the tunnel or is that a train I hear?
Don Rodrigo @ 10:
Yup. Mind boggling isn’t it? And the left has NO issue with this strange, twisted dichotomy. Sort of the “these are not the droids you were looking for…” or today’s version of “Newspeak”. And today, The Zero, did it in Blair House ALL DAY LONG and without breaking into giggles at his own duplicity. Me, I would have had to ‘splode at some point into laughter.
Eggplant @ 22:
Buy non-hybrid seed stock
Learn to can (buy a pressure canner)
Get a good woodstove
Get good gardening tools – axe, hoe, rakes, pickax, etc
Get plans for sun stoves
ETC (The list can be quite large)
“They’re not just bubbles, they’re baubles” Amen to that Richard.
We are in for a 20 year period of crisis. Economic devastation and world war loom over us. I fear for my children who must face this.
Check out the new movie, Generation Zero. http://www.generationzeromovie.com/about.html
I had always thought that if I planned to have enough food, wood and savings to make it through a few months to a year we would as a family be given time to regroup and figure out how to get through the crisis. However, I have been reading about former middle class people who have been long term unemployed. They’ve blown through their savings and now their cushion is gone. They still can’t find work of any kind, after over a year. How do we face a multi decade crisis? This is truly scary.
Furthermore, I believe we are in worse shape than in the Great depression. 1. we have way more debt both in the private sector and the nation. FDR could spend and spend and get enough ditch digging jobs to keep the people content, but our over spending is part of the problem and cannot be part of the solution. 2. Family breakdown. We have high rates of divorce and illegitamacy. Those ‘families’ are highly vulnerable in the best of times, much more so now. Families were largely intact during the GD. 3. Societal breakdown. Entitlement culture. People could do for themselves in the GD. They were much more self sufficient. Now we have people waiting for their “obama cash.” What are we facing? Think Katrina on a national scale.
Yep, this is scary alright.
edited to add: Ah, I see RagnarD beat me to the Generation Zero link! GMTA
I think the authors are on to something, although I think their solution is inadequate.
It is pretty clear right now that there are some very unusual aspects of this business cycle, in historical terms. The first of these is how long it is taking for people to find employment. The Labor Department has tracked the median duration of unemployment since the late 1960s. During this time period, it has stayed pretty much between 3 and 12 weeks. This measure is important, because it is an indication of how long it takes for people looking for work to find a job. If the median duration of unemployment is, say, 5 weeks, it means that half the people found a job in less than 5 weeks, and half the people needed more than 5 weeks.
At the beginning of 2010, the number was more than 20 weeks. You can see this in the following graph:
http://www.flickr.com/photos/53982000@N00/4389013386/sizes/o/
Not only are people staying unemployed longer, but those people are disproportionately men and younger workers – as much as 75% of those who have lost their job this cycle are men. And unemployment among teenagers is 27% – and for black teenagers, it’s above 50%.
So, we have lots of surplus human capital, and a tremendous need for job creation. Moreover, we have an entitlement structure that will require high levels of productivity from the under-30 set to have any hope at all of being able to meet even a pared-back set of benefits (Social Security, Medicare, etc.). With the unfunded liability of those entitlement programs nearing $100 trillion (or >$300,000 for every man, woman, and child), if we do not generate significant productivity growth over the next 20 years, the entire system will collapse.
There is one, and only one, way to do this: unleash the entrepreneurial talent of the citizenry. We have to establish and maintain the conditions required for new company formation. These include:
1. Lowering barriers to starting a business.
2. Lowering tax rates.
3. Dramatically shrinking government (to keep capital from flowing from the productive private sector to the non-productive public sector).
4. Decreasing the cost of employment, especially mandated rules and benefits.
5. Control the cost of public sector employment.
(Aside: One of the most alarming statistics I’ve recently seen is:
The number of employees of US Dept. of Transportation with a salary of more than $170,000 per year in December 2007: 1
The number of employees of US Dept. of Transportation with a salary of more than $170,000 per year in July 2009: 1,680
If talented people continue to be recruited out of the wealth-producing private sector into the wealth-reducing public sector, we will never be able to achieve the growth levels we need to sustain our economy.)
In other words, we need to do pretty much the exact opposite of the legislative agenda of the Obama Administration.
There has been a lot of discussion over the years here at the BC about the “elites” and their dysfunction. But the problem is not that there is an “elite” – unless we decide to embrace anarchy, there will have to be one POTUS, and GE will need to have one CEO. The elites we will always have with us.
No, the problem occurs when the “elites” believe that all decisions must be made by them. There may indeed be only a handful of people who are truly capable of competently performing the job of President or Governor of a state. But there are millions of people who are perfectly capable of competently performing the job of small business owner. Yes, some people may only be able to manage a a handful of employees; but that is enough. Me, personally, I may not have what it takes to be POTUS, but I can manage a firm with hundreds of employees. Most days, anyway.
So, it’s not that there is a not distribution of talent and skills – there is. It’s just that the distribution is not bimodal.
Look, there are 5.7 million firms in the US; 5 million of them employ less than 20 employees. Create the conditions where each of them can hire 1 more employee, or the number of small businesses can increase by 10%, and we will recover 80% of the jobs lost during this recession. Do both, and the unemployment rate will fall below 6%.
Then what is the solution to the challenges we’re now facing?
It’s not our brilliant elected officials.
It’s not the boring bureaucrats who implement the vision of the brilliant elected officials.
It’s not the savvy corporate chieftains who seek rents and protection from said brilliant elected officials and boring bureaucrats.
It’s not the high-flying Wall Street firms who use free money from the brilliant elected officials and boring bureaucrats to pay huge bonuses to bankers who sell impenetrable products to the savvy corporate chieftains.
The solution is all around us: the entrepreneurs who take risks, serve customers, deploy capital, hire workers, and drive innovation. The small business owner. The guy or gal who works hard to survive, then build a business they can be proud of, and that people are proud to work for.
They don’t want tax credits.
They don’t want health insurance subsidies.
They don’t want government earmarks.
They don’t want to be thrown in jail for bad business decisions.
They want to ply their trade.
They want to support their family, and their community.
They want to know the rules and have them enforced fairly.
They want to decide for themselves how to spread their wealth around.
Unleash them, and we have a bright future ahead of us. They have brought us this far, and there’s more gas in their tank.
But continue to saddle them with more ever more administrative, regulatory, and tax burdens, and they’ll fail.
And our nation with them.
L3
the german Lufthansa pilots were on strike
http://tinyurl.com/yh5amf7
the french “retireds” were on strike, as well as the sky controllers
http://tinyurl.com/yk8mvsv
in Spain and in Greece people are striking for their jobs and for their retirement age
So why this Economist blogger talk about France as supposely having the same manifestations as in Grece and or in Spain ?
a guess, the good old cliché !
now about the greek shipping incomes and te possibility to help Greece (video)
http://tinyurl.com/yz2m2q6
When a corporation becomes “too big to fail”, it effectively becomes part of the government. When a corporation becomes “too big to fail”, that is when the officials of the formal government report to the corporation. This is true regardless of whether the corporation is privately owned or publicly owned.
The magnitude of the Wall Street bailout has shown the power of Wall Street finance in all of its nakedness. One of the reasons why universities face a backlash in state politics is because governors don’t like it when university presidents regard themselves as more important than elected officials and normal civil servants. Executives at Wall Street banks face a similar backlash.
It is altogether curious that the Obama administration has bogged itself down on health care “reform” when it should have pushed to regulate derivatives on Wall Street. Health care “reform” looks like a head fake to divert attention away from its failure to regulate the derivatives market.
The health insurance industry didn’t cause a meltdown in the stock market in 2008; the problem came from Fannie Mae, Freddie Mac, Wall Street banks, and their derivatives. It is altogether curious how the Obama administration is changing the subject away from the Bush-Obama bailout of Wall Street at the expense of the American taxpayer – one month before the 2008 presidential election.
Leo — How many entreprenuers in Cuba? In Nigeria? In China.
Contrary to your assertion, who runs government and HOW it runs is the MOST important question of all. Create a system that pretty much prohibits all but the Hacienda System (Cuba), crony-socialism-capitalism (China), or kleptocracy-thuggery, and you get the nations above. Which are known for either lethargic thuggery or bubble growth with lead toys and poison milk.
Moreover, most of the elites are profoundly stupid. Captain Wonderful being the biggest of them. Charlie Rangel, Nancy Pelosi, and Arnold Schwarzenegger are obvious failures, along with Captain Wonderful, and many of them are corrupt. You could replace any of them with a man picked randomly off the street and do better.
Yes BETTER not worse.
No entrepreneur would be stupid enough to expand and lose his shirt. It’s his shirt. He’ll pull back. Fire not hire. Use as many part-time contract workers as he can. Expand overseas, beyond cap and trade, ObamaCare, and other punitive measures. Even better, contract as much stuff out overseas, with cheap contract labor.
Higher taxes are coming. Greater regulations. VDH points out how Greeks don’t expand, because it MATTERS who runs things.
In fact, it would take more than a DECADE of free-enterprise friendly Republicans or Tea Party folks to turn things around.
Unemployment will remain at 10-15% officially, and about 25-30% unofficially, for more than a decade. This is reality, it cannot be changed. It will take that long for small and medium and large businessmen to trust a changed Party government not to screw them over.
Economic recovery rests on these five points:
1. Lower regulations.
2. Lower taxes.
3. Cheaper oil, around $35 a barrel in 2006 dollars.
4. Lower deficts not crowding out private borrowing.
5. Massive military spending to soak up labor and require US sourcing for all materials.
The F-22 Raptor program, since canceled by Captain BS, employed 120,000 in total.
Leo @#44,
That was epic. You have a way with words, like Congressman Ryan today. Are you one in the same?
Whatever is done to fix the current financial mess, it is going to hurt – a lot. Many things need to be done, including: Chuck out the tax codes and start again, with something like “you have an allowance of $8,000 per year before you pay tax and then after that you pay 30%” (in the case of income tax). Millions of IRS employees and tax accountants promptly are out of work – what a shame.
Tort reform – “loser pays” thus putting large numbers of lawyers out of work (what a shame!) and at the same time greatly reducing health care costs.
Completely ban the creation and sale of financial derivatives. As I understand it, a large part of loan interest payments is supposed to be a compensation for the lender on account of the risk of default. Derivatives of any sort are simply a way of keeping the profit and getting rid of the risk.
And that’s just the start. The entire West (and my country, the UK, is worse than the USA in most respects) has far too many people who are nominally employed, but create absolutely nothing and render no service of any real use. (A doctor making you well again is rendering a service – a tax accountant or ambulance-chasing lawyer is not, and an IRS employee is certainly not.) This has to stop – and sooner or later it will. Perhaps it would be better for this to happen without a decade or two of anarchy in between?
44 L3
Sounds right to me, but how do we get there? I don’t see a path until after a collapse, and unfortunately that’s just one of many paths.
39 Chester Lewis Richards:
…… Since that time we have witnessed the breakup of Yugoslavia, the Soviet Union and the potential breakup of the EU. China also appears to be fragile. And, we are seeing powerful centrifugal forces arise in the US.
That’s a pet theory of mine, that the issues we have are more a case of Centralizers vs. Decentralizers. An obvious example – political power has been consolidating, and so has economic power, but communications, for example, are becoming very decentralized. Which has had more success?
Were we better off when the local Banker or S&L made Mortgages, was aware of local conditions, and bore the risk if they made a mistake? I think so. When you divorce risk from reward a lot of bad things happen. A smarter person than I could cite many more examples.
Whether that centrifugal force translates into an eventual breakup of the US is questionable, but it surely points to Federalism as the path to the future. If we could figure out a way to get the Feds out of most things, and devolve the power back to the States, we’d be halfway home.
That’s an idea that is not even in play now, but we’ll see what happens once it becomes undeniable that the Centralizers have no solutions. Again I think that a prerequisite for this is a collapse of the current system.
Until then … lather, rinse, repeat.
wretchard,
The problem is no one is borrowing money right now except the government. People with great credit are not borrowing money to start a business, even though interest rates are at an all time low.
Other firms and individuals are paying off their debt as fast as they can. That’s what I did! It’s the rational response. Unfortunately it is destroying balance sheets. Companies that are technically underwater are not going to hire.
Leo,
1. Lowering barriers to starting a business.
2. Lowering tax rates.
3. Dramatically shrinking government (to keep capital from flowing from the productive private sector to the non-productive public sector).
4. Decreasing the cost of employment, especially mandated rules and benefits.
5. Control the cost of public sector employment.
Agree on all points but there is something hiding behind all of this. If we want 2-5 and especially 3 then we need to curtail entitlement programs. However, far too many Americans (the Boomers) based their lives around these promises. They are fixated on hyperinflation because some inflation happened when they were 25 and therefore don’t save. What will happen to them?
On some level I don’t care. IMO the Boomers are just as greedy as their parents yet don’t have the same generational level of accomplishment. Still, do we want to see them on the street? Or are we going to tax the younger generations and turn them into slaves?
Remember when we were told that we needed to unleash Wall Street to grow our way out of this problem? I barely remember the days when the money market was sufficient to fund retirements. Now you need to play in the stock market casino and they still aren’t fully funded.
#1 is key! A side effect of the wonderful FIRE economy we find ourselves in. But if we want to change it we will have to put in at least as much time, money and effort as the special interests.
Whiskey, how could you not see how your plan is inherently contradictory? Increase the size of the military, without raising taxes yet not borrowing money to crowd out private borrowing? What?
Then again there is a historical precedent for this.
My problem with ObamaCare and all government programs is that it coerces the taxpayers to do “good”. Doing “good” is the same as performing charity, and charity should not be performed at the point of a gun. Not to mention the fact that this gets to the problem of us having unlimited wants and finite means.
#40 “Old Salt” ?? Now why would someone copy my Nom de Guerre for this forum?
Well, just be aware that the poster on #40 is not the “Old Salt” that some of you have been communicating with in the past, for what it’s worth.
I guess I should have trademarked it, no?
OldSalt (original recipe)
CDR, USN (Ret.)
—————————————————
Oh, and re: “the last bubble”: I knew that the Democrats would manage to fleece the National Treasury once they held the tri-fecta of House/Senate/Executive power. I just didn’t foresee them using Wall Street and monetary policy to do it, nor that they would move as fast as they have (hmmm .. “never waste good crisis”, I suppose).
The only logical understanding of the Democrat’s laissez faire attitude about catastrophically-high Federal debt is that they fully anticipate, even favor high inflation. Simply put, either the money being spent today will be paid back in dollars-precious, or it’ll be repaid in dollars-worthless. After 15% or 20% inflation for a half dozen years, how “big” will that dollar-denominated National deficit actually be? Obama has decided on Dollars-worthless.
- OldSalt
Let’s start with the truth. All tax is theft; otherwise it would be called a gift or a contribution.
So no matter its redistributive intent, it is simply a question of how much of the individual’s private property will we allow to be stolen at gunpoint. None seems to be the appropriate amount; but that fundamental right gets eroded by enforced compassion from every direction.
Leo and Capt Raman rightly observe the problems. Laws and regulations are only possible if funded by taxes, with the lawmakers and bureaucracy always formally planning expansion as part of the job description.
The current Congress is on schedule to pass more than 60,000 new laws in 2010. Last year they passed 60,000 new laws. I mean if they’re only 1 page each? Now, add-in new laws, rules and regulations from local, county, state and regional bureaucracies and the aggregate is incomprehensible. IE, it’s impossible to know when one is breaking the law and ignorance is still NO EXCUSE. Then, it’s simply a matter of where the enforcement effort is applied. Along with the ability to print currency and no credit limit, what’s not to like?
If we are to escape long-term involuntary servitude, then some very basic premises need changing.
My guess is the black swan for US is a massive tax revolt. Naturally the system collapses. Creative destruction? True, no matter who prevails.
How can a tax revolt be illegal? Immoral?
Any meaningful success in righting this ship will require dispassionate frugal decisions, from now on. Good luck. Imagine EPA and NOAA informing a new admninistration that it will take 10 years and cost $200 Billion to shut down. And the hundreds of lawsuits from gov’t and NGO lawyers claiming it can’t be done legally, while their client is injured. “Loser pays” might be useful.
Unshackling – hollowing out the bureaucracy identifies the challenge; but the solution doesn’t create new jobs, it merely allows for them. So, isn’t the real job of the next administration to cut the red tape by 50% in their first term? Could be a slogan, no?
whiskey @ Feb 25, 2010 – 11:00 pm:
For a short while, yes. And then Mr. Mo. T. Street would be corrupted by the system. The concentration of power is the fundamental problem. Change 100% of the people out, and within weeks we’d be right back to where we are now. Power corrupts. The ring of power wants to be found.
Hey, 60% agreement. We could break our own filibuster!
Cheers,
L3
dtmack @ Feb 26, 2010 – 1:30 am:
By engaging in the political process, as distasteful as that may be for those of us who’d rather be left alone. One key may be finding a way to engage the 40% of the people who do not vote. Perhaps they’ll engage when they lose their job, and can’t find another.
We are entering a risky time. But then opportunity always comes with risk.
Cheers,
L3
Thank you L3. I wish more people in the Tea Party movement were aware that a strong national defense does not equal spending a trillion a year on defense/intelligence and defending nations that ought to defend themselves (NATO, cough, cough).
Does everyone in Europe get free dentures?
hyep –the looting has been at breathtaking speed and boldness. These guys are so bad, just their coming-on starting in the 2006 house and senate was plenty to “make shoo-er” (as they so often say) they had a Bush recession to mask the robbery. Also predictable: agencies running wild. being executive-branch critters under their own law (“administrative law”), they’re made to order for rule by (what amounts to) royal decree.
Anyhoo, the bubbles and baubles mentioned above –that and the stupendously revealing tv images yesterday of the vile liars atop our three branches –put me to contemplating Cromwell’s famous message to the rump parliament:
In 1653, after learning that Parliament was attempting to stay in session despite an agreement to dissolve, and having failed to come up with a working constitution, Cromwell’s patience ran out. On 20 April he attended a sitting of Parliament and after listening to one or two speeches, he stood and in booming voice addressed the gathering:
“You have sat too long for any good you have been doing lately! Depart I say; and let us have done with you. In the name of God, go!”
He then declared “you are no Parliament ” and called in the Sergeant at Arms and his troops, to begin clearing the chamber. As the newly-ex-parliamentarians filed from the room, Cromwell removed from its place of honor the Speaker’s Mace, the symbol of Parliamentary power –and tossed to the Sergeant at Arms, saying
“Here, take this fool’s bauble and carry it away!”
***
(ah, would that the crepuscular anecdoteers from yesterday could be similarly handled!)
you know what we are heading for. the current politicians will be voted out en mass. The new pub majorities in both houses will just be sitting down when they realize the treasury is empty, no one will loan Washington another dollar or even roll over the current debt, even printing unlimited dollars, will not get anyone a single visit with a doctor or a box of crackers because you won’t be able to buy anything with dollars. We’ll find out that most of our gold has been “leased” and is in the hands of other people with contractual rights to it. The new politicians will be as popular as the Greek government. Trying to shut off people from things that think they are entitled to and paid taxes for during their entire working lives will lead to strikes and demonstrations even though no one will be able to fill the promises,
Leo #44:
The great thing about a crisis is that it does not ever go to waste. People learn from it.
And as Wretchard said, the world will still be out there, with all of its resources and potential. It is not some Mad Max future where all of the resources have been expended, but rather one in which we have been denied access to them in the name of some political philosophy or another. We can drill for oil and gas, plant crops, and even the union workers can learn how to actually work.
When the excrement hits the fan, lots of bad things happen, but you do finally get rid of the excrement.
This morning I walked next door to the post office to drop a letter in the mail. I had lost track of the time; they were just starting to open the doors. And on my way back I helped a lady there raise the American flag. I kept it from touching the ground as she hauled it aloft.
When all this goes down, we’ll roll up our sleeves, and no one will stop us from finally getting to work.
And, I, for one, won’t let the flag touch the ground.
L3 @ 56
Your item 3 on Natural Gas. This has the added benefit of saving petroleum (after the adaptation lag) for feedstocks, which IMO is a higher and better use than fuel.
——————————-
All this goes back to the creation of the Fed. If businesses fail, businessmen learn from their mistakes (or are tagged failed and incapable). If they are protected from failure, no learning occurs. The Fed is a powerful tool. It protects us from business failure. The problem is that we use it too much. We use it too much because it relieves the normal and necessary pain of business, which serves to clean out the deadwood. Its like antibiotics. If we take too many antibiotics the bugs just get stronger and more resistant ’til a headcold requires hospitalization.
I havent read Schumpeter (I understand that only a few can) but I hear he has the idea of creative destruction down. I think healing destruction should be in there somewhere.
Re: Black Swans that tigger the collaspe. How about this one:
“within the next hundred years, a long period of cool climate with its coldest phase around 2030 is to be expected. It is shown that minima in the 80 to 90-year Gleissberg cycle of solar activity, coinciding with periods of cool climate on Earth, are consistently linked to an 83-year cycle in the change of the rotary force driving the sun’s oscillatory motion about the centre of mass of the solar system. As the future course of this cycle and its amplitudes can be computed, it can be seen that the Gleissberg minimum around 2030 and another one around 2200 will be of the Maunder minimum type accompanied by severe cooling on Earth…..We need not wait until 2030 to see whether the forecast of the next deep Gleissberg minimum is correct. A declining trend in solar activity and global temperature should become manifest long before the deepest point in the development. The current 11-year sunspot cycle 23 with its considerably weaker activity seems to be a first indication of the new trend, especially as it was predicted on the basis of solar motion cycles two decades ago. As to temperature, only El Niño periods should interrupt the downward trend, but even El Niños should become less frequent and strong.” ~ Dr Theodor Landscheidt just before his death in 2004. Seems his prediction is coming true given the longer and deeper than expected solar minimum between Solar cycles 23 and 24 as well as the record cold temperatures of late.
So how would this trigger the collapse? Plunging temperatures globally means increased fuel and food costs as well as increased disruption of economic activity due to the bad weather, i.e. blizzards and all the rest of the severe weather conditions associated with colder temperatures. The fuel part everyone understands (the spike in fuel prices in 2007-2008 is what triggered the collapse of the housing bubble, IMHO) but food part I think is what really is off everyone’s radar (except for the farmers). Colder temperatures equals less food production. For all the talk of the threat of global warming and increased CO2 in the atmosphere the reality is that plants love it. A large part of the increase in crop productivity over the last century, IMHO, has been the warmer temperatures and increase of atmospheric CO2. The increase in food production worldwide has supported the increase in the human population. If the globe cools as Landscheidt predicts (which means less atmospheric CO2 as the cooling oceans will begin to absorb/retain more of that ‘evil’ gas that plants need to grow) then trend will reverse and there will be a lot less food to eat. With 6 billion plus mouths to feed. One prediction for the cooling scenario is a 15% decline in food production. Do we have that much of a cushion? I think not. The classic supply and demand curve will kick in and there will be a spike in food prices. Increased food costs equals less money for other things. Less food to go around equals greater social unrest which translates into increased disruption of economic activity. And a vicious cycle of events is triggered in which ‘dog eat dog’ and ‘every man for himself’ thinking takes hold. In a world armed with nukes.
Combined with the increase in fuel costs a lot of folks are going to be penniless, cold and hungry. And pissed off. Read your history books. Bad things happen when the globe cools. Interesting times.
My biggest concern when the bailouts and Stimulus began was that the whole CDS-CDO-MBS charade was being replayed, only with the Lender of Last Resort as the bag-holder instead of investment houses like AIG-FP, Lehman and Bear Sterns. Bear and Lehman bought the farm, along with hundreds of billions in assets. The problem now with Fannie & Freddie having direct access to the Treasury is that the mortgage problem is not being solved, it’s being transferred to the government, which is not in any better position to solve it.
I wish the government actually had to take the time and trouble to print the money it is creating, and will create, to prop up the mortgages here and the other bad decisions that people made over the past decade with what was essentially free money. Printing a trillion dollars at a time in hundreds has to take some time, after all. Just being required to physically create the money generates a storage, transfer and resource headache that might dissuade someone from actually doing it. As it is, trillions can appear with a few keystrokes and the flick of a pen.
In medicine, there are some abscesses you can treat with antibiotics, some you can drain with a catheter, and some where you have to take the patient to the OR, make a big hole, cut out the dead tissue and flush everything clean. I think our financial issues rise to the level of the make-a-hole abscess. Unfortunately, it seems like the physicians in the White House and Congress are telling the patient to eat more milkshakes and candy and hoping a miracle happens. This is the wrong road, and has been for a while.
Art Laffer has been thinking about it for a long long time, and he has concluded that as crazy as it may sound, every handler of other people’s money –most especially including politicians –should be paid strictly on commission.
I don’t have Laffer’s details –maybe he doesn’t either –but certainly he means to peg the commission to financial/fiduciary performance. Probably against a formula-derived basket, such as a pro rata share of the economy in play (county, state, muni, or fed), by growth, debt, productivity, and so forth.
One thing for sure, that would keep pols from pulling forward sugar-high growth and letting the bill come due later after their *term limits* are over and they’re safely out of office.
Just pay the commission over a lifetime and any bombs the pol has left for the next guy, will cost him out of his say 50% of earnings in 10 year escrow (at interest, of course).
I dunno –talk to Art –
Is it obvious to anyone else or do I have special powers? The majority of this lot are no longer working for nor have the interest of “the people” in mind. Unless you consider “special interest, lawyers and lobbyists as “the people”…..
Tarnsman makes some important points. All stable stars have a radiation cycle caused by the process that produces starts. Our sun’s period is I believe to be around 500 years. The last trough was from 1600 to around 1780. Crops failures led to famine in England and France among other countries. The French Revolution was caused in part by the crop failures. More French people would have died were it not for the policy of growing potatoes advocated by a public minded aristocrat.
The sun now in a cooling phase.
Leo Linbeck III @ 56 said:
> Economic recovery rests on these five points:
>
> ….
> 3. Cheaper oil, around $35 a barrel in 2006 dollars. The key is natural
>gas, not oil. Aggressively drill in the Marcellus shale. Create thousands
>of jobs in Pennsylvania and New York and the midwest, good jobs, and built
>lots of new gas power plants. We have 100+ years of supply domestically,
>near the population centers. Don’t let the radical environmental movement
>screw up this opportunity just because of their pathological hatred of “Big
>Oil.”
I agree with Leo that natural gas is a good short term solution. Apparently methane based fuel cell technology is starting to come together and that has very exciting implications. The obvious problem with methane is it’s a gas and not a liquid so there are storage and transport issues. Also with natural gas there is the bother of having to constantly shout down idiots over the issue of Global Warming.
On the subject of “green” alternative energy schemes, I recently read the following article and found it very interesting:
http://www.americanthinker.com/2010/02/wind_energys_ghosts_1.html
I’ve always suspected that wind generated electric energy was a government subsidy based scam and the American Thinker article confirmed this suspicion. Over at http://www.theoildrum.com , they keep repeating this wind-energy/EROEI debate and the guys promoting wind energy always come across as very slick. Too slick IMHO, like the guys trying to sell you the Brooklyn Bridge. These are people who have obviously repeated the same argument many times against sophisticated sceptics and polished their “story” to a gleaming finish.
I’ll close by reminding people that long term solutions are nuclear energy coupled with synthetic petroleum produced from coal.
Eggplant
interesting article from Andrew Walden
“Éoliennes près du Mont-Saint-Michel : trois permis de construire refusés”
http://bit.ly/bI4bZL
I’m glad that the region préfet refused wind turbines around the Mont saint Michel
Marie,
Mont Saint Michel is a place of exquisite beauty. To have built wind turbines there would have been an act of terrible vandalism.
Again, the guys selling wind turbines are sly hustlers and very difficult to argue against. The only conclusive way to prove they are wrong is to go ahead and build the wind turbines (giving the salesmen their money) and then watch the turbines fail economically.
These green alternative energy schemes need to be negotiated such that the salesman loses all of his profit if the energy scheme fails. A nightmare scenario would be for another bubble to form around Green Energy along the lines of the Dot Com bubble.
The guis selling wind turbines in EU are mostly Germans. They are supporteted by their powerful party “the greens”. Isn’t it funny that Germany being the biggest contribuator to EU subsidies, and by extention to Greece, Spain… etc, and through this green business they get their money back. Quite pragmatic the guis !
I forwarded Mr Walden’s original article to a few journalists through twitter. I hope it’ll serve them to investigate on the true costs of the wind turbines, who sponsores the business and by extension, the debt
Quite a few landscapes in Spain and in Canaria islands are ruined with a forest of wind turbines
Another word from the border. I was in Nogales, Sonora, Mexico yesterday seeing the dentist. The day before on the next block a crossfire between cartels took out two bystanders. Sonora, south of Arizona , is becoming like Juarez as the drug violence spikes. There have been over 100 killings in the last two months. The streets are full of young guys with no jobs as the building trades in Tucson bit the dust. This could get ugly in a hurry if the US economy goes over a cliff.
Eggplant #74:
Did you hear about the wind turbines they put in Minnesota? Turns out that they can’t take the cold. The hydraulic oil got stiff, they got ice on the blades and they have not generated any power this winter.
trangbang68
It looks likes it isn’t going better soon:
http://www.bloomberg.com/apps/news?pid=20601087&sid=alet_UTqF04M
Fannie Seeks $15.3 Billion in Aid After 10th Loss
Pound Could Collapse in Weeks Predicts Billionaire Financier Jim Rogers
http://tinyurl.com/ydtjhty
So the Soro gang is after it, they are waiting for the Casino money
I fell a bit contrary tonight.
We may be simply lucky and have unconsciously stumbled onto the answer to our problems. Perhaps Obama in his total ignorance of economics is doing he right thing despite himself.
We have one of the most robust economies in the world. We can take a good deal more punishment than any of our competitors. We plunge, we plunge. They plunge, they crash.
We have a housing slump and Mexicans starting killing each other and Canadian car manufacturing goes into the red. The Chinese start getting very, very nervous. The Gulf States start whining about low oil prices.
We go into a steep dive and our competitors must follow and they don’t have the power to pull out at the last moment. They crater.
Maybe a rising tide lifts all boats equally, but a falling tide crashes the more frail boats on the rocks.
Enough metaphors for one night.
One of the most frightening things about our current political class is their scientific illiteracy. You can’t have reliable energy grids that die when the sun goes down or the wind quits blowing. And no, believe it or not, there currently is no really efficient cost effective way to store electricity. That day may come but it isn’t here now.
I wish every “green” political hack like Al Gore would be forcibly relocated to a camp in Alaska that depended solely upon solar and wind power for their essential power. After one winter we wouldn’t have to worry about them anymore–they would be dead.
Better them than us.
re: energy. As Jerry Pournelle observes, the amount-of-energy-that-can-be-harnessed per $ multiplied by an individual’s (and an individual’s enterprise) freedom is directly proportional to prosperity. The more power costs, the more we sweat. We need power that costs more to meter than deliver. Where the unit of power under a citizen’s individual control is 10x-100x more than today for the same unit of work. Think megawatt months not kilowatt months. Where a (voluntary) vow of (energy) poverty may have value in the pursuit of a spiritual perfection (Thomas Aquinas et al) given the privations and sacrifice that accompany, but is not an issue for government.
re: power corrupts. I think the people want to spend 10% or less of their time on governance, and they want “not to be responsible” for others’ lives (meaning civil society, markets, etc. must allocate resources, not we-the-people). The anger today isn’t about a specific government issue, it’s that the federal (and many state) governments are so broke we have to stop what we are doing and pay attention.
Where we are so broke now (dysfunctional and bankrupt) that we’re likely to get at least a third of the population willing to do what it takes to put this beast back in the cage our founders’ conceived (and that’s roughly the same % of the population engaged/enraged that it took to succeed at the America revolution). Rather than a Band-Aid, we need to (re)create a distributed, layered, robust, system of governance that builds up from the local (rather than being dictated from the top) and disempower the center with a new Constitution that strictly limits the highest level of government to the common defense, a stable dollar, and a court-of-last-resort, with a framework that (continually re-)creates states of the average size of the original 13 (so we’d go from 50 states to a > 1000 states – redrawn regularly against changing populations and interests). Include a citizen’s, their enterprise (a form of assembly) and a state’s bill of (negative) rights. Insure tax and regulatory competition between the states, with the citizens having an absolute right to vote with their feet to reside in a states that appeals to their interests. With only a few constitutional constraints on how a state can choose to govern themselves (if the Amish have 300K citizens in a few geographic areas, they can create their own theocratic state if they so wish).
D.C. will become a shadow if its former self, similar to the hollowing out of most corporations in the 70s and 80s as the headquarters’ staff learned that if the divisions did not have a use for them, the CEO did not either. There are a lot of details to work out for a transition, to see that the common defense is adequately funded and accountable, and that the current debt and obligations are handled as a proper bankruptcy. Perhaps w/ these unfunded promises and obligations turned into notes that the new states can buy at severe discounts presuming they agree to meet the essence of the intent of the commitment (i.e. in return for liquidating a federal obligation for pension rescues and a bankrupt social security system, the new states offer to set up work farms, and public hospices for the infirm to house those that today’s government has abused by writing contracts that can’t be met). Not quite what these citizens’ expected, but far better than being homeless on the street with a worthless piece of paper from today’s bankrupt federal government (or the terrible alternative, future generations enslaved to contracts they did not write or sign).
I think this is what the tea party is about. It’s not about republican v. democrat, conservative v. socialist, it’s about 1/3rd of our citizens thinking “I’m as mad as hell… that the system has gotten so screwed up… and yes, I’m even angrier since I know my inattention (and at times selfishness) has contributed to this” and “I don’t want to have to deal with this again for another 200 years, so let’s fix it once and get back to the business of America” – which is a free people focused on their (free) enterprise more intensely, with more personal satisfaction and reward (which by definitions means personal responsibility – no “big sis” other than a voluntary helping hand from a concerned neighbor – Samaritan) than any other system for organizing society and its efforts ever seen before or attempted now in this world. Where this miracle document is no longer than the founders’. A statement of guiding principles very tightly written and easily measured against. Perhaps even a framework that can be simulated and tested against our past and current crises to test if we’ve met the intent of this century’s revolution, the return freedom (and it’s conjoined twin, responsibility) to the citizen, their enterprise and their voluntary associations.
Which suggests a federal government uniquely and supremely powerful in a way no other country can match (other than those organized similarly or who have joined our “clan’) in those things that absolutely must be done, and can only be done by the top of the pyramid. Where everything else is either “tough luck if you can’t manage it as an individual” or civil society (voluntary efforts of individuals organizing to accomplish something that can’t be done as individuals or purchased from their enterprise, but all without any power to coerce – a power reserved for the states), local institutions, neighborhood associations, etc.. where pretty soon we’ve reached the 300K sweet spot that’s the new state (which interestingly has the wealth and productivity of 10-100x the colonial state). Imagine trying to implement special interest pleading across 1100 states… if someone can get an issue raised and passed in 1100+ states, it’s not a special interest. Where a state can be non-contiguous (a union of interests).
Note each of these new states likely qualifies for a UN seat (given autonomy, degree of self-government, wealth and reach). Then if it turns out we need some form of world governance & concurrence to meet a global threat, bring it on.
#59 asked, “Does everyone in Europe get free dentures?”
Anyone in America can get cheap dentures at their local Dollar Store, but all that’s offered is buck teeth.
Back on Topic, there may be possibilities for enough political change if the growing tendency to call out self-absorbed, self-serving, untrustworthy politicians regardless of party continues to advance. As the basis of voter preference, replacement of political party affiliation with individual candidate adherence to traditionally esteemed principles, appears to have spontaneously emerged beginning in 2009.
Local Tea Party organizers in the Sacramento area remind us of three core principles: Small Government, Fiscal Responsibility, and Adherence to the Constitution. Those elegant concepts seem to be both definitive enough and flexible enough to keep wholesome the many detailed, pet issues that individuals bring to the Tea Parties.
I’d like to see more emphasis on honesty in the utterances and writings of political candidates and office holders, as a key condition of their acceptability for office. Much the same attitude toward media and political advocacies such as the environmental ones is also overdue for blossoming among the public. Mediocrities and liars need not be accepted any more, and increasingly, they aren’t. It’s catching on, and may it grow to be dominant.
Marie Claude,
http://www.dailymail.co.uk/news/worldnews/article-1253791/Is-man-broke-Bank-England-George-Soros-centre-hedge-funds-betting-crisis-hit-euro.html
I recently pointed out to a friend who had often been suspicious of all things Russian dating back to the Cold War how many assets Soros acquired on the cheap in the former USSR in the early 90s. This time my friend was eager to listen with a sympathetic ear. For example, Vladimir Lisin, the latest richest man in Russia, a steel magnate, had to purchase one of his biggest mills in Siberia from a consortium led by Soros (the report did not say who else) several years ago. How Soros got it, who his partners were, and how many pennies he paid on the dollar for what he eventually sold it for also went unsaid. My point is that Soros had some kind of kryshe (to use the Russian slang for ‘roof’ or ‘patron’) when entering the Russian market in the 90s, so he didn’t have to worry about other oligarchs allied with the local mafia stealing his investment like a lot of others who lost their shirts and got out by 1998. Why?
Certainly unlike with the Pound in early 90s one would not need insider information to bet against the Euro, per the story above. But I often wonder if Soros’ bet against the Pound was not a payment in kind for services rendered to some government or governments. The last time I checked the Wiki entry on Soros it said he donated to fund the first Internet ‘telephone’ between the USSR and the outside world, from Moscow to San Francisco, all the way back in 1984. The Open Society NGOs were active behind the Iron Curtain by the mid-80s too. You get what I’m driving at here. Soros denigrates gold as the last bubble then buys more, so one has to pay attention to what he does and NOT what he says. Meanwhile, you read National Review, The Weekly Conservative and even David Horowitz Frontpagemag and it’s crickets for what Soros does with his money outside the U.S., they only care about MoveOn.org (!) when that’s a small fraction of his ‘philanthrophy’. The idea that there might be a common thread between what Soros has been pushing in the U.S. and in Russia is the one you dare not speak – namely that Soros wants a weak America AND Russia reduced to exporting raw materials to the new dominant global power, China. That’s where his old partner Maurice Strong is supposedly plotting, right?
I think you can start to guess why U.S. media, even right-wing outlets, self-censor when it comes to Uncle George — he’s been in bed with Uncle Sam (aka les Anglo-Saxons in your part of the world) for quite some time now. The shrillness of ‘conservatives’ attacking Ron Paul (see David Harsanyi’s column for the Denver Post for a desperate example), Rich Lowry’s bizarre fondness for ‘helicopter’ Ben Bernanke that would have earned him a swift kick in the rear if Bill Buckley were still around- these have made me very suspicious of the ‘house’ cons in Washington. They all at times, particularly when it has come to Russia, must shut up and do what they’re told.
Turning weakness (rather than ignorance) into strength for the dollar by taking down the euro might buy Washington some time since Russia and China will have to diversify into commodities rather than alternative currencies, but probably not as much as the hedgies allied with Soros think – just a few more months to bid on fortress islands in the Caribbean and well-stocked farms in New Zealand to hide themselves from the angry mobs…
Revelation 6:16 “And said to the mountains and rocks, Fall on us, and hide us from the face of him that sitteth on the throne, and from the wrath of the Lamb”
LL3 @ 44:
Used to be 1 month per $10k in salary. Now I think it is running around 3 months per $10k. And that folks bodes very, very badly for the “recovery” of The Zero.
Pete P @ 53:
I thought that defined highway robbery. That our gov’t has become the highwaymen is plain. We do have precedents for dealing with highwaymen once caught. ‘Rope. Tree. Gov’t taxman/official/highwayman. Some assembly required.’
geoffgo @ 55:
If they refuse to go quietly, see above. Just change to ‘Rope. Tree. Former gov’t employee. Some assembly required.’
RWE @ 62:
{CLAP}{CLAP}{CLAP}{CLAP}{CLAP}{CLAP}{CLAP}{CLAP}{CLAP}
Nicely said. Yup, us people who know how to do stuff will still be here. It might put new meaning into ‘Labor Day’.
Tarnsman @ 64:
Add THAT set of paragraphs to things that make me go ….. HMMMMMM?
Eggplant @ 74:
How’s about some real skin in the game. Project fails and he gets tarred and feathered. That is the traditional treatment for hucksters and cheats.
Eggplant wrote: “I’ll close by reminding people that long term solutions are nuclear energy coupled with synthetic petroleum produced from coal.”
So true it is worth repeating. It is one of very few replacements for oil that could be done on a sufficiently large scale to matter, using technologies that are already proven.
Implementing nuclear/Coal-To-Liquids would require rebuilding US engineering companies, building new steel mills, creating new fabrication shops, digging new mines — in short, creating millions of good jobs while investing some of the capital sloshing around the world into genuine productive investments. And all those new workers and industries would pay taxes, and help grow the economy out of the mess the Political Class have created.
With real un/under-employment at about 20% and the Fed’s Ponzi schemes collapsing, what’s not to like about re-industrialization?
All we need to do is to start repealing laws & regulations, holding NGOs accountable for the damage they do, and laying off government bureaucrats. Making lawyering as socially unacceptable as smoking would also help.
This is a sobering blog post and the comments reveal genuine anxiety by a significant number of people. At the very least, one can reasonably expect the future to be tumultuous and uncertain. In light of this, it makes sense to prepare for the possibility of difficult times ahead.
In the event that a worst case scenario plays out, you can maximize your chances of successfully weathering the storm by cultivating the skills and means to provide people with the things they will need in failed economy; such as food, fuel, transportation, security, and medical care. Look into the future and ask yourself “what will be in short supply a few months after the economy breaks down?” Pick something and put yourself in a position to produce it, and the rest will take care of itself.
81. Ari Tai:
….. “it’s that the federal (and many state) governments are so broke we have to stop what we are doing and pay attention.”
That’s where they’ve screwed up. No one can ignore the mess any longer, and that’s bad news for the Big Government types. Kind of like the old time gangsters – stay out of the spotlight, and you can run your scams. Once your picture is routinely plastered on the front pages of the newspaper the authorities eventually have to make an effort to take you down.
In this case the authorities are shaping up as the people who would much prefer, everything being equal, to run their own lives and keep their distance from politics. I’m guessing that for many it’s as you describe – people are mad because they’ve been forced to pay attention, and the powers that be are going to pay the price. Whether that can morph into a coherent philosophy that can lead us out of this morass is unknown, but it’s a good start.
We’ve all heard the phrase “too big to fail”, but once Government becomes “too big to ignore” it opens up all sorts of possibilities, most of which will be very bad for those in DC and elsewhere who are prospering under the status quo.
Abolish Federal Reserve and return to REAL money. I mean, gold and silver coins. Bank notes should be in circulation only so long as the bank that issue them is solvent and trusted.
Eggplant: “I don’t know what to do. I can see [the collapse] coming but have no clue about how to prepare…stockpiling bullets and whiskey are not practical answers.”
Au contraire–bullets and whiskey are among the *best* things to have on hand WTSHTF.
I could be wrong, but I always thought Keynesian theory was during economic downturns, the government loosened monetary policy, and stimulated the economy through increased spending or lowering tax rates. Deficit spending. And printing some money.
When the economy started recovering, the government would trim back spending, and try to manage money supply growth to prevent inflation.
In the long run (“we’ll all be dead- guess who said that), the government maintained a balanced budget. Money supply grew as a function of population and productivity.
I’m not sure it is an indictment of this type of Keynesian economics on principal if the government of the country (or most of the worlds countries) maintained loose monetary policy and deficit spending, good times as well as bad. Things like putting bad credit risks into risky mortgages through government pressure, things like that. “Too big to fail”, government backup meaning businesses had a distorted risk/reward model.
Now, Keynesian economics may be doomed to fail because politicians always want to prime the pump more, and can’t be trusted to do it right. Beyond lag times and central bankers missing signs, meaning there will always be occasional recessions and inflationary periods, usually fairly mild. Flat out vote buying with irresponsible spending and socialism.
Like socialism worked well when it was entirely voluntary. See the early Christians in the Acts of the Apostles. They chose to share according to their abilities. But its doomed to failure when it is imposed by the government, because the lazy will not do their share, and the productive will be punished until they have no incentive to produce.
First American colonists learned hard way that socialism does not work even when chosen voluntary. Piligrims tried community land ownership and voluntary contribution to its cultivation, inspired by Apostolic example. After half of them starved to death in winter, they dropped this policy and divided the land among families. Only then the parents began to work hard enough to save their children from hunger, that is, from sunrise to sunset.
The same story repeated in Israel kibbutzes: founders were socialists, but their children dropped this nonsence almost everywhere, and now the only socialized kibbutzes are industrial, not agricultural, and most of the arable land is in private ownership.
Al Gore: We Can’t Wish Away Climate Change
The truth about the climate crisis, inconvenient as ever, must still be faced.
A fiat currency requires either a responsible government the people and markets trust OR a government coercive enough to force its acceptance. The developed world is quickly crossing the line. The Euro is not fiated (is that a word) by s central government sufficiently powerful to force its currency down the throat of the PIIGS or the French and the German banks.
England does have a government strong enough to force the Pound for now but whether the English will remain docile is hard to predict. They are a people very slow to rouse but once inflame far more truculent than most.
In the US we have a population quicker to inflame but very trusting of its politicians. The problem is the ones in charge now are not operating by the old understood rules. They don’t care about poplar opinion and they are not concerned with winning reelection. Half of the governing party are idiots and the other half are comitted far left ideologues eager to transform our politic and culture by promoting a crisis from which they think the will emerge in charge either with a permanent majority or with a sufficiently powerful and coercive central authority that they can rule as they please.
There is no good outcome to this unless we can turn back now and I mean right now. We are headed not just for inflation but for hyper-inflation and a government to continue functioning once that happens will have to use massive force to compel the citizenry to a worthless currency in payment for actual goods and ser and to suppress black markets.
What has happened in these bubbles is not the failure of the regulators to regulate the financial industy but rather the result of government regulation. If FannieMae and FreddieMac had not been created and staffed with political hacks in a revolving door of greed and graft and if Congress hadn’t paaed the Community Reinvestment Act and mad mortgages and second mortgages such a tax favored investment we would have been spared the housing bubble. But of course we weren’t and now the regulators cure is going to be much worse than the disease because AIG, Goldman, and the rest of them are too big to operate by normal market rules and instead get to reap the returns of their invests amply shared with Barney Frank, Chris Dodd, and Obama while their loses are socialized and passed on to the boobs out there who are still clinging to their guns and religion.
The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.
The Grapes of Wrath
wretchard@41 – “The real growth of the world economy has been falling.”
Actually I would argue that it is impossible to tell if the real growth of the world economy has been rising or falling because there is no stable yardstick. It is a problem of valuation and how you measure it. Because we are all using fiat currencies the actual future supply of money is a total uncertainty therefore you cannot be sure what the sack of goods and services you have slung over your shoulder will be “worth” tomorrow.
Lets face it a lot of things are difficult to attach a value to anyway. The radars Britain built prior to the war won the battle of Britain and saved Western Civilization. Hard to put a price tag on that but had there been no war they would have been worthless expenditures. However it gets even more difficult valuate less esoteric things like say a car manufacturing plant if you have no idea what the money supply and replacement costs will be a couple decades down the road.
Money itself not the bankers or the markets or even the regulators is what is failing us now and the more the issuers of this fiat money are distrusted the deeper the crisis will become and the more oppressive the issuers of the fiat currency will become. Many a politician not currently intent on becomming a tyrant today wil in fact become one tomorrow.
“The
bankgovernment is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.”The Grapes of Wrath
There. Fixed.
My regret that I missed a good thread.
Doug @ 92: “The truth about the climate crisis, inconvenient as ever, must still be faced.”
The piece you linked to–by Al Gore in the oh-so-unbiased NYT–is a masterpiece of misdirection. I have no problem facing the “truth” about climate change, but Gore’s article certainly didn’t come remotely close to providing it.
Gore claimed that in the millions of pages of “data” published about AGW there were *only two errors*: The claim that Himalayan glaciers would vanish by 2050, and a claim Gore said was “provided by the government” of the Netherlands regarding how much of that nation was below sea level.
So those are the ONLY two errors you can find, Al? No fictitious ‘hockey-stick’? No “trick to hide the decline”? No removal of weather stations in colder regions from later data sets? No refusal to reveal computer routines ostensibly designed to “correct” actual temperatures to “better” ones?
What a load of rubbish. Hell, it’s so crappy that it almost makes you suspect he stands to make millions if governments around the world adopt massive carbon credits/allowances!
Leo Linebeck III, from your post#44:
“The number of employees of US Dept. of Transportation with a salary of more than $170,000 per year in December 2007: 1
The number of employees of US Dept. of Transportation with a salary of more than $170,000 per year in July 2009: 1,680
If talented people[my bolding] continue to be recruited out of the wealth-producing private sector into the wealth-reducing public sector, we will never be able to achieve the growth levels we need to sustain our economy.)
In other words, we need to do pretty much the exact opposite of the legislative agenda of the Obama Administration.”
I agree with your conclusion, but I seriously question your assertion that the 1680-fold increase in bloated-salary employees for a Federal Department is any indication that the government has been sucking the talented ones from the wealth-producing private sector. If anything, they look for the ones who are seeking a job devoid of risk, with guarantees and tenure, in return for unquestioning conformity to the dictates of their union, party, and dogma. It is their constant pummeling – officious demands for redundant paperwork, reports, regulatory meddling and bullying, and other forms of bureaucratic sand in the gears that bleeds white the private sector.
(apologies for the promiscuous mix of metaphors…)
A century ago the Titanic sailed with only a fraction of the lifeboats needed for the souls on board. It would be interesting to correlate the capacity of lifeboats to the number of 1st class berths. America – The USA – has grown its own aristocracy, who regard themselves as the natural-born leaders, deserving of all the 1st-class berths… the privileges of celestially-bestowed command. Busy preparing their own comfy retirement plans, these suppurating bubos do not concern themselves over the survival or privations of the rabble.
Years ago a friend who was a world-ranked amateur close-up magician acquainted me with the principle of mis-direction, and helped me see how it is a fundamental tool of human transactions, politics and statecraft not the least. Magicians Penn and Teller remind their credulous audiences that if they can be tricked by a known illusionist, how much more vulnerable they are to the sleights-of-hand of an unscrupulous and powerful government.
Those insights help a body make sense of the long con currently in progress under o.
Mad Fiddler,
I’m picking up what you’re putting down. I certainly wouldn’t want to imply that a drain of talent is the only, or even the primary, way in which the public sector hurts the private sector. But I do think that if you’re a mid-level manager who is laid off by your corporation, and there is an opportunity to work in the public sector at nearly the same current comp and superior benefits, you’ll take it. Feeding your family comes first.
Since you’ve offered a metaphor cocktail, I’ll continue by also adding that necessity is the mother of invention. That same manager might play a critical role in a small or medium size business, or even a startup. Make the path more attractive and less burdensome than a civil service job, and we’ll see an explosion of new business formation, and that can save our bacon.
Cheers,
L3
“if Spain is in deep trouble, it will be difficult to hold the euro together…and my own view is that Spain is in deep trouble.”
Let’s hope so. The EU is the self-proclaimed “counterweight” (meaning always in opposition) to the United States. Evils should be fall them, as befitting their status as our enemies.
It’s so much fun talking about the future, making predictions, and judging harshly failures which haven’t yet occurred. So if the date of doom arrives and Johnson and Boone are as accurate as say, Paul Erlich or William Miller, will they suffer the same scorn and shunning that Erlich suffers today? (Oh, wait….)
If americans didn’t want these things – cheap money, tax preferred status for housing, etc. – then we wouldn’t have them. What could be greater than putting next to nothing down on a house and then deducting the huge interest payment off of your taxes? IMO a lot of this investment madness is driven by people unwilling to save for retirement, believing hyperinflation would eat up any savings they do have.
Ed,
There is no political will to raise taxes / cut services on large swaths of the population. As long as the dollar was the reserve currency we could party like it was 1999.
Leo,
Your point about the civil service sucking bright yet risk adverse people out of the productive sector got me thinking. I think that we should demand this of any worker: you get to pick two from job security, high wages and good benefits. What about our political class? They have relatively crappy wages compared to the importance of their job. IMO this makes a post political lobbying job more attractive. Basically these are people thrown out of office still making policy, on behalf of the same corporation/ngo that owned them when they were in office.