monitoring the abyss

So, I have been monitoring the meltdown of the world financial system.  Same as you.

I don't read much intelligent discussion, because most pundits do not address the underlying issues to a(ny) monetary system.  Proposed solutions are about like using leaches to cure cancer.

...

You are, of course, reading zerohedge.com and I recommend this post regarding the neo-liberal forces at work.  But again, as an "investor" blog, zerohedge does not address the fundamental issues, which I have touched on in previous entries.

When you take "money" out of the system, you see what the global productive capacity is.  Forget about "who owes whom".  Globally, humans can support 6 billion starving people and 1 billion fairly affluent ones, along with a handful of "titans" for whom money is no object.

And ... this is all done with vast unemployment and underemployment.

To return to a theme, human productivity (at present) vastly exceeds the needs of the human population.  This has been true since, oh, around or before the time the great pyramids were built.  (Elsewise, how were the Egyptians capable of mobilizing armies of humans to engage in the completely useless task of building pyramids?)  It's fair to say that human productivity and efficiency has greatly improved since ancient Egyptian times -- but then again, most people still work as wage slaves, so where did all the productivity advances disappear to?  Obviously, they did not go to benefit the greater public.

In any event, there is (at present) no physical bar to society meeting the needs of the planet's human occupants.  Nevertheless, there are giant webs of psychological constructs that make vast swaths of humankind miserable and desperate.

Sadly, it would appear that in recorded human history, no progress has been made whatsoever in addressing these destructive social constructs.

Now, if you look at the zerohedge article I linked, you have the description -- in monetary terms -- of what is going on in the Eurozone, and therefore, globally.  Vaguely, "neoliberalism" and "neocolonialism."

The fundamental question is, "what do you do with the vast overproductivity?"  So, we see that Germany's wealth (and indeed, that of exporting nations) is based on the concept of producing stuff for consumption by strangers.  Since Germany is vastly more efficient and productive than its trading partners, it is a one-direction trade.  It is not a "barter" where the junior trading partner offers something in return.  Rather, it is basically just giving "free stuff" to strangers.  Because, after all, you would not want to just make free stuff and give it to your next door neighbor.

The whole construct is based on stupidity.  Let's look at the basics.

Most German workers are engaged in making "free stuff" for less productive, less efficient strangers.  This means that they are engaged in the rough equivalent of building pyramids in Egypt.  You might analyze this as follows:  instead of making stuff for strangers, they could work a one hour work-week and STILL HAVE EVERYTHING THEY NEED TO SURVIVE. (It might not be a "one-hour" work week, but you get my point ...)

However, a productive person wishes to "profit" by his/her productivity.  Moreover, people of wealth and power look for ways to subjugate productivity and turn it into further personal wealth and power, especially as they are disinclined to do actual productive labor themselves.  This translates into (mis)allocation of capital for things that can be traded elsewhere.  Choice (a) would be to toss the excess Mercedes into a landfill.  The German population would nevertheless still have enough to eat, a place to live and a viable infrastructure.  Choice (b) is to "trade" the excess Mercedes to people who have nothing to trade in return.

Pursuing choice (b), the world's people of wealth and power "monetize" the excess productivity, extracting vague promises for repayment at sometime in the future.  This is entirely a fiction, because the trading partners do not presently have anything to "barter" and absent some massive change in the future, also will not have anything of equivalent value to return to the mercantilist in the future.

In other words, the productivity is "real", but the monetization and (mis)allocation of the production is totally a web of self-deception. Furthermore, it is self-perpetuating.  Although the unemployed are not needed in order to produce the goods necessary to their own prosperity, they are nevertheless excluded from partaking in the production (except through various "charitable" routes).  To participate, society requires you to be "productive" -- even though your productivity is neither needed nor wanted.

And thus we have enough food globally to feed billions of starving people in a "charitable" manner, but without any avenue to join into "affluence."

Human psychology creates great distortions and great misery.  The "solution" (apparently) is inevitable upheaval and loss of productivity.  Destabilized societies have greater difficulty maintaining infrastructure and productivity, therefore requiring more human labor to meet ongoing needs.

The primary defect is lack of an intelligent mechanism for allocation of capital and labor.  Central planning has not proven better than market capitalism (with its inherent corruptions and control of government).  We remain as humans, bound by our own pyschology -- and part of that psychology is the co-dependency between the populace and the psychopaths who become "leaders," -- which is to say, self-appointed stewards of capital and labor.  I compare this to the division of authority in a band (herd) of horses:  There is a lead stallion who  is nominally "in charge" and an "alpha-mare" that determines the band's day-to-day existence.  The arrangement is genetic, that's just how it is.  Those stallions who cannot obtain a herd of mares of their own are pushed away as food for predators.  That's just the way it is.  Especially to a male who might not necessarily rule a herd of mares, this system might seem a tad "unfair."

Thus, we are faced with two questions:  (a) as individuals, can we use these observations to improve our own personal existence within the rubble of economic policies over which we have no control?  And (b) can society ever evolve to a point where smarter/more ethical allocation of capital and labor occurs?  Keep in mind, in the 60s we worried in the U.S. about what we would do with all of our future spare time!  But then, our leaders reallocated the division of resources so that the "benefits" of productivity and efficiency were directed to a tiny .1% of the population.   Voila!  Problem solved -- no spare time for anyone but the wealthy and the unemployed.  Americans have the most work hours and the least vacation time of any of the industrialized nations.

There is no requirement that a given power structure allocate capital and labor away from the working class -- or let's say, away from the broad base of society.  Some psychopathic leaders, once their own personal needs for Mercedes, etc. are met, allocate resources for the improvement of their societies.  Of course, this is unacceptable and these leaders and nations are often squashed like bugs to avoid spread of such heretical choices.  This is naturally done at the cost of massive environmental damage, huge death and carnage, targeted destruction of the country's physical infrastructure and permanently lingering psychological toll.

So goes neocolonialism.

Now, for the bonus discussion -- is social security a Ponzi Scheme or not?  That is "definitional," so I won't attempt to answer.  But, once again, let's analyze by taking "money" out of the equation.   At any given time, there is only so much available capital, labor and services.  When "we" decided that people 65 years and older (along with various classifications of disabled and disadvantaged people) will be supported at a specified level without doing work themselves, the work they are not performing for their own sustanance must come from somewhere.  So, it comes from those who are presently working.

In a society with no over-capacity, this would not be possible.  But, society has VAST over-capacity and the question is how that over-capacity shall be allocated.

The initial allocation was to support a smaller generation by the work of a much larger generation.  To offer the larger generation the same quality of life in retirement on the backs of a much smaller generation, there must be a change in allocation of productivity.  It is conceivable that the productivity gains of the intervening years are sufficient to sustain a continued "social security" system at the same social levels of retirement and productivity.  (But how do we measure?)

Nevertheless, it's safe to say that necessary allocation of resources has NOT OCCURRED.  In fact, the increased productivity has been allocated entirely to the most wealthy .1% of society.  The public has largely seen a loss in quality of life, not an improvement.

In a way, this may be a "better" rather than "worse" result, for this reason:  Misallocation of wealth to the wealthy, if reallocated, would spread the "pain" of change over a much smaller group; and with very little impact on their qualities of life.  Had productivity gains been allocated to the general public, then re-allocation to support a larger retired population on a smaller working population would be a more wrenching event.

Those that evaluate all this in terms of "how much money has been set aside" (or not set aside, as the case may be) are ignoring the point that money and financial accounting is purely and entirely psychological fiction.  If there is increased competition for the production, or if there is less production thereby increasing competition, the nominal prices go up and whatever has been "set aside" is no longer sufficient.  The monetary construct will create reallocations (of some sort) regardless of political blustering.  Unfortunately, if the focus is on "dollars in the bank" rather than on the desired end result, the reallocations will not necessarily align with the desired outcome.

These comments are not reserved for "social security."  The same is true of the vast pension and private retirement systems and investments.  Again, however those investments are "dollar denominated," their purchasing power will re-adjust to reflect the society's actual productivity and allocation (or misallocation) of capital and labor.  Investors in long-term capital might have a better hope of retirement: eg., a retired person with three homes can rent them out for retirement income.  But, with distortions in the marketplace, this "value" is easily lost.  With the ongoing downward adjustment in real estate values, it's safe to say people who invested in real estate may be expecting a much smaller retirement "nest egg" than they had previously expected.  "Defined benefit" retirement plans are much more generous on paper -- but can the public or private entities that entered into such bargains actually meet the obligation if the allocation of resources is not such to make it possible?

In a generation being followed by a much larger generation of workers, over the course of times with great increases in productivity, the monetary reflection of these substantive issues will be reflected as "great monetary prosperity."

Unfortunately, we have hit a time where various forces -- some of them voluntary, such as misallocation of capital and labor -- some of them involuntary, such as population demographics -- are changing the equation to reflect great lack of prosperity.

But sadly, those in control of political and economic policy neither have appropriate motivations, nor do they correctly analyze the underlying situation.  Economists rely on clearly disproven "Keynsian" or other economic theories, engaging in fiat money manipulation and wars that only worsen the misallocation of capital and labor.