Thursday, April 8, 2010
Musings on the Economy
Hummas and tortillas up to four dollars a pop? Hell, no! Making my own for next to nothing....freeacre
I debated on whether to talk about the economy (in this country and the world) due to the overwhelming amount that is already circulating through the mass media and the internet. Due to what seems to be obvious in data and commentaries, I have been finding it difficult to make sense out of it all because of contradictory claims of authenticity.
The economic crisis that appears to be unfolding right now seems to be divided into two categories; the deflationists and the inflationists. Perhaps more simplified than it deserves, deflation means lowering of prices in real money, (more goods than is in demand) and inflation means rising prices in real money, (the chasing of too few goods with too much money in circulation). No, I am not defending fiat money as being real but only talking about what those dollars will buy.
We have been experiencing at the street level, a combination of the two. The absolute necessities such as food, water, housing (although that area is now in deflation) and fuel have been generally going up in price. Some say this is inflation, others say this is just cost of distribution and production going up due to scarcity. Notice that these items are not included in the cost of living indexes for some reason (which would indicate inflation) and thus the non increase of things like social security payments that are tied to inflation index since excluding them indicates that there is no inflation. We have also been experiencing deflation (lower prices) in imported commodities like electronics machinery and tooling. You can, with careful shopping now, buy a very good computer for less than $400, or a nice thin line HD TV for less than $500. I suppose yachts might fall into this category too, although I have no friends that are thinking of taking advantage of the situation.
One person that I follow carefully is Charles Hugh Smith in dealing with the economy. His book “Survival +” is an excellent primer and if you are not following his blog site, you ought to read his stuff for some different perception and conclusion about the economy. His site is at; http://www.oftwominds.com/blog.html
Charles has provided good evidence that the Fed is unable to print enough money to cause inflation. And, even if they tried, they would have to distribute somewhere in the area of $10 trillion in cash to the bottom economic 90% of the population to have it be effective in creating inflation. Not likely to happen I reckon. The reason that this is not possible is because of the mammoth debt structure (private, commercial and governmental) that we all know about. The fed simply can’t print enough money to cover this, in the realm of multiple tens of trillions of dollars. See his April 2, 2010 article on the subject. A quote from the article:
“But we all know the Fed isn't going to print $10 trillion and give it to U.S. households; it will print trillions and give it away to banks, in a futile attempt to recapitalize insolvent, fraudulent firms which should be forced into bankruptcy. The trillions of "free money" (courtesy of ZIRP, zero interest rate policy) will sit in the banks where it will fund speculations in stocks, bonds, commodities and foreign exchange. A trivial sum will be lent to insolvent consumers with much ballyhoo, and the consequences of deleveraging shoved forward one more election cycle (extend and pretend).”
The inflationists are pointing to the massive amount of money that the printing presses are churning out. Charles points out that with little exception, this is all digital money, not the paper bill we talk about when we refer to the printing presses. And, all of this digital money is being poured into financial institutions to keep them afloat, since it appears from the data I have seen that they are all bankrupt, that is, have more debt than assets due to the implosion of the debt structure, to the tune of hundreds of trillions of dollars total worldwide. In perspective, more than the total world GDP.
The principle problem with the inflation idea is that this country and most of Europe and Asia have become consumerist debt economies, depending on imports and exports to supply the needs of the country. Since, with very few exceptions, the unwinding of all this bad debt structure would take more money that the printing presses could turn out, inflation is impossible. Saw an interesting documentary a couple nights ago on Peru that is following this economic paradigm and has a booming economy, at least for now. But, since it is now obvious that this paradigm is not sustainable, that country will also experience similar economic problems that Europe and the U.S. is experiencing, down the road.
Now, what does this all mean to us as individuals trying to keep things going in our lives? Depending on what analysis you think has the most substance will determine how you deal with it. If you buy into the deflationist concept, then cash will become king, the dollar will not significantly depreciate and you’ll soon be able to buy what you want at vastly reduced prices as the over production of consumer goods tries to unload inventory. That’s also taking for granted that you have a stash of cash to draw on.
If you buy into the inflationist concept, then you need to get whatever cash you have into hard goods now, because the price will only go up, and to put money into inflationary hedges like precious metals.
Do you understand my confusion now? Accumulate hard goods now, or sit on cash and wait for prices to drop even more.
So far, all the supposed money thrown into the financial system has not made a dent in the rest of the economy and there is no real projection I have seen to think it ever will. Banks are not lending and the velocity of money flowing through the economy is not happening, as it was promised it would. Sort of like the Reagan trickle down economics that never really materialized. Instead, capital has simply accumulated at an ever increasing pace into the top 1% of the elites with wages either decreasing or remaining stagnant for the rest of us.
At this site, we have people that have withdrawn from the greater society to the extreme. We also have people that have gone to low population density areas and are promoting community self sufficiency and interdependency. Then we have a population that is trying to stick it out and have a retreat to escape to if things go extreme. Others are already planning to escape to other countries. We have local friends that are planning to do just that, that is, if they have time left to implement it. Due to the new Obama laws just enacted, taking money with you could be a very iffy proposition.
Preparing and attempting to lessen the chaos that will affect us all, for which we all seem to agree is coming, is a real problem. I had an acquaintance just a couple of days ago, tell me that he just bought 1000 rounds of ammo so if things get tough, he could take what I have. I was astounded. Think I would ever even think of trusting this guy on anything? The dude is relatively wealthy and seems to think that he can take or buy anything he wants. I’m sure most of you have had experiences with people with similar attitudes. In my opinion, this is going to be the challenge we all face, how to deal with this on a most personal basis if/when things get really dicey.
It appears to me that there will be no significant changes in how the economy is being managed and exploited. It definitely will not change by working within the system. There simply is not enough popular movement to accomplish this and would have to be by a national uprising, probably revolution. I anticipate that the only significant change is going to come about by a flat out economic collapse and something different in a paradigm comes along that people find helpful in daily living. Of course, I have my own thoughts on what that different paradigm would look like. I can say with some degree of certainty that any paradigm that includes the government being of beneficial nature, especially in dealing with money, will in the long run be another disaster. Putting our faith in the benevolence of government is a vastly misplaced faith in my opinion.
Interesting times we live in.