monitoring the abyss

You think I know the answer?  Ha.  I don't even know why I write this stuff. 

...

I just read a Paul Krugman article that laid out how far away the "recovery" is.  He analyzed (a) the true job loss since 2007, the last time the US economy added jobs; (b) the peak number of jobs added EVER in a year; and (c) how long it would take to recover just the jobs that we have lost, not to mention the jobs NEEDED.  The net result is that IF there were a recovery in the offing, it's results for most people are a very long way off.

A lot of people who were not historically poor are going to be miserably poor for a long time to come.  The US will resemble every other 3rd world nation: a small upper class that lives what we think of in the US as a "normal" life; and everyone else.

The policies that maintain such an upper class are inevitably ruthless and essentially immoral.  If one is in a position to choose where to land, it is a Hobson's choice, no?

In any event, my analysis of money and monetary policy -- expressed in this blog -- leads me to some startling conclusions, including some suprising ones:

(1) vibrant economies require deficit spending of one sort or another;

(2) taxation may be largely unnecessary for the governmental entity that controls monetary policy.

Which, interestingly enough, goes some distance to explaining the bubble economies of the recent past, as well as the current deplosion.

Basically, my hypothesis is that use of money is the result of a genetic quirk of humankind; and that as a result, monetary policy exists and can be easily exploited.  So, much of modern history is simply the history of monetary manipulation, which itself is the history of the achilles heel of humanity, it's genetic pre-disposition to the use of money.

And if you were to happen to be reading this and had not already dismissed me as a n0n-economist, you would be saying, "ok, prove THAT."

Well, I won't.  It's just a hypothesis -- but one that I think fits the facts.

Let's start, as I always do, with the observation that human beings are hugely over-productive.  Most of human activity is devoted to activities that have nothing to do with survival (eg., food, shelter, medical care).  That is due to the fact that the amount of human effort required to provide food, shelter and medical care is basically "de minimis" compared to the needs of a whopping, ever-growing, planet destroying population.

The problem is that we are not individually "massively over-productive".  We are only massively overproductive working in concert.  That requires two things -- motivation to work together; and allocation of the resulting goods produced.  If most of us are not  involved in producing food, then how do we get any share of the food that is produced in massively abundant quantities? How are we induced to participate in the production of that abundant food?

The first aspect is genetic:  We are pre-disposed to "collect stuff."  This has the benefit of accumulating tools and goods, which is useful to survival.  But, society has had many thousands of years to abstract this genetic trait well beyond its usefulness for individual survival.  So, we evolved the willingness to collect "symbolic stuff" -- or that is, money.  For the most part, we are not motivated to help each other on an ongoing basis with out personal reward.  Yet most projects do not generate anything that is personally of any use to us.

Enter "money" -- which is just a symbolic abstraction.  "Gold" is no more meaningful than "fiat money" -- each is a useless object to which we attach value.  It is nevertheless "of value" to us provided society at large also attaches similar value to the same object(s).  We can trade fractionalized quantities of it for stuff we need (food and shelter) and everything else (consumer items).

To makes this work, and create the productive society that monetization leads to, someone has to inject money into society.  And, it has to be one in a way that society excepts the money as valuable.

Much of this works in an unconscious fashion.  If we somehow all agree that one "Hour-al" sort of generically represents one hour of work, then the "government" can issue Hour-als in return for work, which once launched into society can be traded between citizens, we  now have a working monetary system.  In addition, up to the point at which society can absorb hour-als, the "government" gets free work.

It is thus that I hypothesize government could function without any taxation whatsoever. Society is able to absorb an ENORMOUS amount of Hour-als.  That's why economists keep screaming, "More Stimulus, More Stimulus."  The idea being, up to the point at which excess money causes price inflation, the additional injection of fake capital ought to fuel more productivity.

Except economists work for the economic elite upon which their paychecks rely, and as a result they are unable or unwilling to distinguish between constructive and destructive uses of economic stimulus.  Demand rises if more people have access to capital.  BUT THE ERROR is in thinking that if you give Goldman Sachs more money, you have somehow stimulated anything.  As I argued in "cash for elderly cats," economic stimulus only occurs if you give the money to a broad base of people who will actually then launch into economic transactions, producing jobs and work.

At this point in our economy, the result has nothing to do with pouring more money into the economy.  It has everything to do with the percentage balance of money.  So, when you inject money into the system by giving it to a few elite banks (whether or not they actually lend it out) you are concentrating wealth -- or in fact, doing the opposite of stimulating the economy, by shrinking the value of the money held by everyone else.  Before the stimulus they could not afford to participate in the economy; after the stimulus they are even less able to participate.

Since by law (existing debt) everyone's entire work productivity is already pledged to "repay" existing loans, making more money available "to loan" cannot produce more work.  It will inevitably migrate two places: (1) "safe" investments, which drives up the cost of raw materials, reducing productivity by taking them away from those who could work those assets; and (2) risky investments doomed to failure.

US monetary policy has been in this ethereal land for so long, it is most likely well beyond any hope of recovery in my lifetime.  In addition, the interests of "elites" and "non-elites" are hopelessly intertwined as the result of pension manipulation.  Anyone who has had a decent job in the recent decades has their entire retirement future tied up in governmental and quasi-governmental investments, which are largely in the stock market and in ridiculous "derivative" assets that have no value whatsoever.  The necessary steps to fix the economy necessarily require destroying the fake value that has been parked in these assets, which means wiping out everyone's retirement.  This is all well and good if you are 30 and can build new retirement.  But, if you are a baby boomer and already retired or nearing retirement, it is a non-starter.

So, instead, the government engages in never-ending bubble speculation that involves steps to keep the stock market and derivative markets afloat, fearing the fallout the ultimate collapse will lead to.  Unfortunately, as is true with every bubble economy, bubbles inevitably collapse -- and the more you stave off the collapse, the worse the collapse will be.

Timing is everything, so the question is how long the current machinations can keep the smoke and mirrors of the present US government and financial institutions afloat.  As it stands now, we are simply pushing more and more people off the Titanic in leaking lifeboats.  The present approach is somewhat akin to putting a frog in boiling water -- he doesn't know he is being boiled alive until it is too late.  Those already discarded are sinking and the rest of us do not properly realize we are next.

But, once again, as timing is everything, one cannot individually start building a life for future conditions because it is impossible to predict when those conditions will arrive.  Should you save?  Save what?  It's virtually impossible to predict what will be a valuable asset and/or a protectable asset when the economy finally sputters to a stop.

Instead, we are witnessing a slow devolution of society and the question is whether it will devolve slowly enough that the majority accept the consequences.  Possibly so.  Vast numbers of people now accept torture, whereas I grew up in a western world that considered torture unacceptable anytime, any place.  That was an amazing rapid change.  So, perhaps large numbers of people will "accept" their new-found and permanent poverty without much of a whimper.  After all, not only are human beings vastly overproductive, they are also resilient and can "survive" on far less than western society accepts as minimal conditions for civilized society.  One need only look at the few billion people who "survive" under conditions the typical US citizen would consider inhuman.  Not only do they "survive," they "thrive" -- if one views ever-increasing total numbers as the indicator of what it means to "thrive."

Not quite the future we envisioned.  How many will we watch sink in faulty lifeboats -- and will it be better to go down on a lifeboat or on the Titanic?  As long as it is sufficiently slow-motioned, we will never notice it "happened" -- though the economic numbers are telling us otherwise.

Welcome to Hobson's choice-land.

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PS -- my view is that a moral government would take the following steps:  (1) reverse the stimulus so that it is shifts wealth toward consumers, vastly stimulating job opportunities;  (2) strengthen social safety nets, so that those whose pensions and health care disappear will nevertheless be protected from becoming a vast army of homeless baby boomers; (3) allow all banks and other "too big to fail" institutions to fail, replacing any needed services with possibly temporary governmental entities that are properly regulated and (4) get rid of the Fed and the ridiculous fiction of "borrowing" in order to print money.  Any nitwit can see that this is the precise opposite of the present policies of the US and state governments -- though state governments cannot much be blamed, as they do not issue their own currency.  (Don't know if they legally CAN issue money, but if they have the option -- or have the option to issue something that is "like" money but officially not money, such as warrants -- then they ought to consider doing so. Appropriate steps would be necessary to insure some reasonable form of full faith and credit to give the new currency value.)

Depending upon the extent to which the economy can absorb more currency, a lot of this can be accomplished by "deficit spending" rather than taxation, which is counter-productive.  Some taxation may be necessary to maintain the value of currency.  (I have not yet decided whether it is likely a system could be sufficiently self-sustaining solely thorugh issuance of currency and without taxation.   But, when you factor in the vast amount of fake currency pumped into the system to-date and the fact that failing banks will eradicate vast quantities of money because of their leverage, then it may be possible.)

Probably it would be smart to quit calling government spending "deficits" and be more honest -- just call it "monetization."  The absurdity of "deficits" is that unless population goes down dramatically or some other event justifies less money, you can't reel the money back in without sinking productivity in any event.  There is some interesting anecdotal evidence, such as I read once of communities in Asia that were using US dollars as currency -- found out it was counterfeit -- and continued to use it anyway, as they didn't have any other money to use.  That is the weird reality -- there is virtually no difference between counterfeit money, bank "created" money and government issued money.   Once it circulation, it all serves the same purpose and we are all "fine" economically until too much fake money has flooded the system. The only distinction is, "who gets free goods and services" when the money is first put into circulation.  My suggestion is that it ought to be the public who benefits and not select individuals.

Of course, any such changes just present vast new opportunities for corruption and theft unless "the public" chooses to pay more attention and excercise more   oversight.  Unfortunately, history proves you cannot herd c ats.