Documentary examines possibility of US dollar collapse

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116 Responses to “Documentary examines possibility of US dollar collapse”

  1. zuzu says:

    it’s like nobody has ever been through a recession before… All this fear mongering is getting a little out of control.

    I know people love their anecdotal evidence, especially in an economic discussion. But the concern here is pretty straight forward. From about 2001-current the United States has funded a comprehensive restructuring of domestic government agencies (i.e. Homeland Security) with new and far-reaching “anti-terrorism” programs (e.g. Federal subsidy of enlarged state and local police, USVISIT, etc.), funded an invasion and ongoing active occupation of Iraq (at a cost of about $1 billion per month), while at the same time cutting taxes, and in September 2007 Congress raised the debt ceiling $9.815 trillion. The U.S. Government went from an ostensibly balanced budget in 1999, to a mind-boggling increase in spending, while at the same time collecting less revenue (i.e. taxes). How do they afford it? They increase the supply of money and credit through the Federal Reserve. This is a stealth tax. By debasing the fiat currency of the dollar, they spend the new dollars on the military-industrial complex to “keep us safe”*, which dilutes the value of the dollars we save in our bank accounts (or that we negotiated with our employers to earn in our paychecks), but all of the other goods and services are still just as scarce, so more dollars are needed for the same value to exchange for them, which is inflation.

    (*Recently “keep us safe” has been extended to including bailing out financiers such as Bear Stearns and soon Lehman Brothers.)

    The “Three Trillion Dollar War” or whatever you want to call it was all paid with inflation, which explains why the price of gold went over $1000/oz, why oil and food prices are up, but people are still generally acting as if dollars are worth what they used to be worth before the new money was created. (Arguably his is also why the Federal Reserve ceased publishing M3 data in March of 2006, and why the Department of Labor and Statistics has redefined the Consumer Price Index (CPI) to exclude energy (i.e. oil) and agriculture from its “basket of goods” estimation of dollar purchasing power.)

    The economic crisis the United States can no longer ignore is the unwinding of this inflation. However, economists who speak on television or for politicians will tie themselves in knots and circular logic to avoid ever saying the word “inflation” — it’s like a taboo. So first they pitched this problem as a “sub-prime mortgage crisis”, until now the problem is obviously not contained to just that market sector. Recently I’ve heard people start saying “contagion” like when the Asian Tigers melted down from their inflationary bubble in the 1990s.

    But the crisis is simply that the Bush-Cheney administration has spent more money than God by borrowing and printing it (i.e. creating inflation), which in the central banking system of fractional reserve multiplies several times over into even more inflation. This creates an enormous market bubble — that so-called “economic recovery” Bush has claimed in his speeches of yore. So this bubble didn’t even feel like a bubble so much because the “improvement” was marginal over the pre-existing recession from the previous dot-com bubble and housing “foam” created by Alan Greenspan. But soon all of that inflation is about to collapse.

    Think of inflation like those Warner Bros. cartoons where Wile E. Coyte runs off the edge of a cliff, and he can keep running and running on the air as long as he doesn’t look down and realize that there’s no more dirt beneath him. But eventually he looks down and plummets until he hits real dirt. That’s what a correction for inflation is like.

    And we’ve had this inflation/recession building up for approximately a decade now. It could take at least that long to get back out of it. So I would not chalk this up to “fear mongering”. Fear mongering of the phantom menace called “terrorism” is what got us into this hole.

    I’m reminded of an episode of Duckman (1994):

    Once again, the U.S. is spending millions to oust a puppet they spent millions to get into office. They’ll spend more millions on the coverup to hide having spent those millions and even more millions to discredit members of the media who report otherwise. It’s a good thing they print their own money.

  2. billy says:

    hi. please don’t come to canada.

  3. Antinous says:

    Zuzu,

    Are you an economist? By the way, I nominate your last comment, #27, for the front page.

  4. eclectro says:

    Lots of armchair economists posting to this thread. The fact of the matter everything has a relative value. So the dollar tanks and we all start to learn how to barter and only accept gold dust as payment. The fact is, a car will likely always be worth more than a handful of carrots.
    That said, I too am disappointed in the state of the economy. And how, amazingly, the democratic candidate that represents business as usual is sucessfully gaining traction with a win at all costs strategy.

  5. ill lich says:

    I don’t understand the economy except on the most basic levels, but “market fundamentalists” who insist on the market not being regulated at all, are (I suspect) just romantics. Sure, I’d love it if we could let the market run wild and free like a force of nature, but that doesn’t mean it’s going to work like a well-oiled machine, more like monsoon season: bigger booms and bigger busts.

  6. mizerock says:

    Seems to me, aside from oil and gold, everything is still cheap. Inflation is (relatively) low. Assuming that’s going to change soon, what should I be buying?

    I wanted to buy gold and Euros over the past year, but I’m with Sharebuilder and was “forced” to buy stocks that proxy those markets instead. I bought NEM (Newmont Mining) and ADRU (Europe 100 Index Fund) – they are both down since November. I guess I needed to do more research, or just have bought gold and Euros directly. Too late? It sounds like, maybe not.

  7. businessmen_R_ok says:

    should I qoute DEVO here?
    Doubt anyone here would get it…
    her is the deal folks, get your head out the sand, learn to plant your own garden and you better get a gun and learn how to cook with rodents.
    I here gold will be up to 1000 an ounce REAL soon,

    IMPEACH BUSH!!!!!!!

  8. Ugly Canuck says:

    Tomorrow the Euro starts to fall, the dollar goes up, as commodities continue to de-leverage. (Fearless prediction.)

  9. Jamie Sue says:

    Oh wow. This is the most civil and “grown-up” comment thread I’ve ever seen on boing boing. And what intelligent discussion!!!

    Now here comes the part where a know-nothing flake (played by myself) asks a stupid question because they struggle to understand how the economy functions and the issues at hand.

    Can someone help me understand: If the problem was caused by printing too much money … then why can’t the problem be solved by removing bills from circulation?

    (FYI: Nope, I’m not blonde. Just confused.)

  10. ianm says:

    [Just to add a little to this great thread, I thought I would repost a response I wrote to the thread "Having a Bad Hair day" at "Dr. Leo Strauss'" bunker. Roubini is very well respected Harvard graduated economist who operates a frequently updated, highly technical blog at his company's website. He has recently been lauded by colleagues as being months (years) ahead of predicting these structural flaws, but was largely ignored - until recently.]

    Just finished reading Dr Nouriel Roubini’s always informative blog at RGEMonitor (who has been months ahead of his colleagues in predicting our current crisis) which gives a sketch of just such a plan. He is advocating for a carefully managed nationalization of vital sectors of the mortgage and capital markets to prevent a total watershed of homelessness and an incapacitation of US financial functionality.

    Debate rages in the comments about the viability/constitutionality of the plan. Most contention hinges on which will promote/preserve greater freedom: nationalization and the risk of a planned economy encroaching (a la Hayek), or the piecemeal approach currently underway by the fed inducing a negative feedback loop that would sink markets well below their inherent value and thus decapitate American finances. The laissez faire proponents are favouring the latter to the former, hoping this option would maintain American ‘liberty’ but fail to note that the excesses of capitalism remain intact as an anchor firmly tied to a drowning man’s neck. Dr. Roubini is emphatic that,

    A market solution to this crisis does not exist; those who believe in such markets solutions are deluding themselves as markets left alone will melt down and enter into the mother of all meltdowns, margin calls, cascading collapse of asset prices, massive credit crunch and liquidity seizure and severe economic recession.

    [emphasis mine]

    Either way, neither Dr. Roubini nor the commenters recognize that this ambitious, perhaps necessary, prescription requires – as you rightly note – above average management and leadership. Only in a fantasy world could one imagine ‘the Warlord’ and your hobbled federal government to even recognize a viable plan should it come to their attention, let alone capitalize on it and effectively put it into practice.

    Link: http://www.rgemonitor.com/blog/roubini/250488#readcomments (unfortunately, the comments are behind a subscription/paywall-thing) but they speak very precisely to the topic you raise here.

    Some quotes from Roubini from behind the paywall:

    Thus the piecemeal approach to crisis management taken by the Fed, the Treasury and other financial authorities is going to fail miserably. A severe recession and a severe financial crisis cannot be avoided at this point. Only much more radical government action will limit the financial meltdown and start to put a floor on the financial markets collapse. [emphasis mine]

    “Such radical policy action includes a government plan to purchase – at a significant discount to minimize its fiscal cost – hundreds of billions of dollars – possibly trillions – of mortgages, effectively a nationalization of mortgages. Once purchased by the governments at a significantly discounted price these mortgages could be restructured to reduce their face value, reduce the interest rate on the mortgage and allow distressed but solvent borrowers to avoid foreclosure.”

    “This plan would also include the closing and/or nationalization of banks and other systemically important financial institutions that will fail in droves during the current financial crisis (they can then be privatized again after proper restructuring as many countries did after their banking crises). Again moral hazard distortions can be minimized by wiping out 100% the shareholders in these institutions and firing – with no sweet severance packages – all the reckless senior management that created this mess.”

  11. Thesulliv says:

    Not to nitpick or anything, but #55 the comment about LTCM….The NY Fed did not bailout LTCM with tax-payer money…it organized a bailout of LTCM with contributions from 14 private firms… not quite the same thing….personally I think this kind of intervention is appropriate and good for the overall system.

    As a side note Bear Sterns decided not to participate…read what you will into that.

  12. Swizzlestick says:

    Yes, the dollar will gigalapse, just like the Internet did.

    Just like computers will all stop working on 1/1/2000, airplanes will fall from the sky, nuke plants will explode.

    Just like 9/11 was a hoax. It was all done by the NSA. With holograms.

    Just like JFK was killed by the trilateral commission, in concert with the greys.

    Just like Ron Paul isn’t an ignorant wacko.

    I want to believe.

  13. Ugly Canuck says:

    Ah but the housing market doesn’t say “inflation” does it? Price of US houses going up lately?

    How about the price of information? That been going up?

    Outside the US the dollar is cheaper than ever. Doesn’t seem like inflation to us – US prices are way down.

    Maybe the magic word is “deflation”. That’s what the US Thirties were, in contrast to Weimar inflation.

    You would think that all that government borrowing would crowd out the private sector by causing an increase in interest rates. What’s been happening? The opposite.

    The Fed has been using Repo agreements, not printing money – the Banks do that by lending, something that has decreased (try to get credit lately?).

    Problem is deflation isn’t something that the Boomers have EVER seen. Problem is steadily falling prices don’t seem like a problem, and that perception IS the problem …

  14. Brandon Abell says:

    Markets. . .

    In the first week or two of any college-level public policy course you learn that for a market to work there must be certain conditions in place:

    1. Information must be accurate and available. Well, guess what? Lately it has been neither. Fraudulent accounting practices, government rigging of established economic health indices, etc. have thrown this condition out the window.

    2. Agreements and contracts must be enforced. Corporations are going bankrupt and those that aren’t are being bailed-out leaving investors (many of them small investors and the soon-to-be-retired) high and dry, or bilking the taxpayer for this money.

    3. Common and reliable currency. We all know this is over. We can’t rely on the value of the dollar anymore and people are moving to other currencies like the euro.

    The market is broken.

    So what do we do? Well, we don’t let a broken machine continue to operate as-is unless we’re complete idiots. . . So those problems with the market *must* be fixed before it will function properly again. The market can only fix itself when the underlying assumptions about it are true. And they no longer are.

  15. Stefan Jones says:

    #71: “why can’t the problem be solved by removing bills from circulation?”

    I would be happy to dispose of any bills that bOING bOING readers would like to part with.

    There’s a 25% handling fee, but I will guarantee that 75% of the bills sent me will be shredded, burned, mixed into Plaster of Paris blocks and thrown at the heads of mortgage bankers.

  16. JIMWICh says:

    Me, I’m good to go, on account of having made the wise decision some time back to convert all my personal wealth into giant stone Yap Island coins.

  17. Sandpiper says:

    coaxial:
    You’re confusing the trade imbalance problem with the public debt problem. After the great depression throughly discredited the Laissez-faire Austrian school economists, Keynesian theory pointed out that issuing public debt can be a useful tool for the government to control economic growth and check inflation by being able to widen or tighten the money supply on command. Though the total public debt is quite colossal as a gross figure, much of it is purely internal debt (i.e. securities owned by American citizens) which doesn’t adversely affect the economy because the money is staying in the country. External debt is much more significant economically but the U.S. is actually better off than even most so called first-world countries. Japan, Belgium, Italy, France, Germany, The Netherlands, Canada and the U.K. for instance, all have substantially more foreign debt as a percent of their GDPs than the U.S. does.

    The foreign debt [i]does[/i] influence exchange rates, however the trade imbalance is probably the
    biggest factor devaluing the dollar. Last year the trade imbalance was almost -800 billion dollars. That means that 800 billion dollars physically left circulation in the U.S. economy in a real way making us collectively poorer, and thus devaluing the currency. This has the slight benefit of helping (now cheaper) U.S. goods in export markets, a sort of negative feedback loop. But it also brings us that much closer to the collapse of the dollar as a major world reserve currency which could cause the U.S. Gov’t for the first time in living memory to actually have to deal with real money shortages… Here’s to Victory in 3008 and make those tax-cuts permanent while we’re at it! *rolls eyes*

  18. EdT. says:

    There are only two things I hate; those who are intolerant of other people’s cultures.

    And the Dutch.

  19. Dustin Driver says:

    Hello,

    I just wanted to repost something ZUZU posted in the Amsterdam currency exchange post:

    The sliding value of the dollar is the result of increasing the supply of money and credit to pay for the invasion and occupation of Iraq starting in 2003 without raising a war tax or selling war bonds. The military-industrial complex was paid with created money, which then filtered into the general dollar-based economy. Now that’s come home to roost.

    So a big chunk of the crisis can be attributed to borrowing money to fund an unpopular war. Even worse, the return for investment in this war is less than zero. The only measurable return on the war “investment” is control. War funding sucks resources from social programs, leading to a populous that is poor, desperate and controllable. It’s straight out of 1984.

    I know I’m over-simplifying, but I can’t help it. I was trained to be a journalist, a knowledge distiller.

  20. C12 says:

    For US-tourists in Amsterdam the weak dollar already causes some problems since smaller money exchanges try to avoid the US-Dollar because of its fluctuations in the last days
    http://209.85.135.104/translate_c?hl=de&langpair=de%7Cen&u=http://www.spiegel.de/reise/aktuell/0,1518,542543,00.html

  21. Stefan Jones says:

    Something I daydreamed while walking the dog this morning:

    Every time a bill is passed for emergency war funding, each citizen is issued a bill for an equal share.

    That’s every citizen. Every newborn, every 90 year old in a nursing home, Bill Gates, and the crazy guy living under a bridge. No exemptions.

    The bill would be payable within a month to the office of your local congress person.

  22. Dustin Driver says:

    Me, I’m good to go, on account of having made the wise decision some time back to convert all my personal wealth into giant stone Yap Island coins.

    134 laf points awarded. Thanks, this thread needs more posts like yours.

  23. Thesulliv says:

    I suppose its part of the human condition to extrapolate short term movements into longer term trends. Afterall that’s what got us into the mess to begin with, first there was the tech bubble….and then the housing bubble…both grew on the idea that recent price appreciation would continue forever. Now if only to prove that optimists don’t have a monopoly on tunnel vision pessimists proudly shout from the mountain tops the demise of the dollar, the U.S. economy and in some cases civilization in general.

    Yes there are problems and there will probably be some painful decisions in our future. That’s how the whole thing works, some like to call it a market cycle. It’s probably not the end of the world. Although note, I did say probably…

  24. mad_prophet says:

    Coaxial,

    This mess has almost a century in the making, going back to the coin clipping…I mean Federal Reserve Act of 1913. Although Reagan and that Congress certainly didn’t help matters in that regard.

    I cannot see how allowing a cabal of bankers to manipulate money (in the wider sense) at the pleasure of politicians cannot fail to lead to trouble. Compound that with a “war” that’s going to wind up flushing trillions down the toilet, the USA will become as bankrupt as the USSR. Come to think of it, flushing a trillion dollars down the toilet would be a wiser move.

  25. zav says:

    Why this scares me.

    Observe these ratios I ran yesterday.

    National Debt to National Budget.
    9.3 B to 3.1 B

    National Debt to GDP
    9.3 B to 13.1 B

    Per capita GDP to per capita National Debt
    44,000 to 30,900

    The National Debt is 1/3 the National Budget.
    The National Debt is 3/4 of the GDP.
    The per capita National Debt is 3/4 the per capita GDP.

    What does this tell you?

  26. Purly says:

    Spinobobot: ever seen THX 1138?

    I’m in favor of free choice.

  27. mad_prophet says:

    Ugly Cannuck,

    Inflation is creating money at rate faster than goods and services are created. Deflation would occur if the amount of goods and services increased while the supply of money remained the same (or decreased).

    Money, a.k.a “money in the wider sense” is more than the currency in circulation. It is also the creation of credit which can be used in lieu of physical currency or bank drafts.

    The reason the dollar is doing poorly compared with other currencies is that it has been devalued through inflation. The housing bubble is a different but related phenomenon that was fueled through reckless credit expansion.

  28. jesterx says:

    I was once skeptical. But not I know that there is doom and gloom coming. Expect this recession to get bad and for america to enter a depression in the next year or so!

    Yes I said depression! Dont worry there are ways you can profit big time from it. My friend from austrailia has been helping people.

    http://youtube.com/watch?v=AdRBcAmzlLI

  29. Sam says:

    This fear mongering has to stop.

  30. Dustin Driver says:

    THESULLIV wrote:

    Yes there are problems and there will probably be some painful decisions in our future. That’s how the whole thing works, some like to call it a market cycle. It’s probably not the end of the world. Although note, I did say probably…

    I see economic downturn as a great opportunity to reexamine the political/social/economic systems. I mean, we’re doing it right now in this forum. Recession also provides a chance to improve efficiency at all levels of society. Scarcity and tough times have a way of breeding innovation. I mean, my great grandma learned to cook a mean opossum gumbo during the last Great Depression. Oh, and she also learned how to shoot a hobo who broke into her farmhouse looking for a meal. Just thing of all the opportunities!

    Seriously though, tough times tend to get minds working. That’s one positive aspect of hardship. Anyway, the world won’t truly end unless a gamma ray burst strips away the atmosphere, an asteroid or comet smashes into the earth or some hothead geezer president pushes the button and plunges the earth into nuclear winter. Oh yeah, and there’s alway a super-virulent and deadly strain of the flu that wipes out 80 percent of the population. If none of that happens, you’re golden.

  31. Tom says:

    So far there’s only been on mention of the US dollar as the dominant reserve currency for world commerce (Sandpiper @30), unfortunately coupled with some mythology about the Great Depression having proven anything much about economic theory. Different schools offer contradictory hand-waving “explanations” of the Depression, but if anyone had ever been able to actually prove anything about it the debate would have been settled some time ago.

    In my view, the current state of the US dollar has more to do with the rise of the Euro as an alternative reserve currency to the USD. It even looks vaguely like Keynes’ proposed “Bancor” scheme.

    A reserve currency is a currency that people prefer to hold their spare cash in. The reserve currency for the world has historically been associated with the dominant political empire. Back in the day, it was the pound. At the moment it is still the dollar. Soon it will likely be the Euro.

    Reserve currency status adds demand, driving the value of the currency up. This makes it harder for the reserve currency nation to export goods, and easier for them to import. Manufacturing tends to move elsewhere. Then, as the winds of politics and power shift, as they inevitably do, and people’s reserves move elsewhere, the country is left high and dry with a weak manufacturing base and a less valuable currency. Pain and suffering ensues until the economy re-equilibrates itself relative to the new reality.

    There are lots of elements converging in the current mess–the dead-weight-loss of the Iraq war being a stand-out–but the declining status of the USD as the reserve currency is a major one, and it is pretty much out of the hands of domestic policy-makers.

    And so far, the current mess is not even close to the post-Vietnam, post-oil-shock, post-unpegging mess that swept the world in the ’70′s. Oil’s run-up has been relatively smooth, with a doubling time of two or three years, and we are now much more prepared to deal with it. Moderately useful industrial metals like gold are no where near their record highs. Gold at $2000 is something to write home about. Gold at $1000 is less than half of it’s historical maximum.

    Will there be some painful economic displacements in America’s near-future? Yes. Is the world about to end? No so much.

  32. gypsydoctor says:

    I’m starting a new commodities investment fund.

    It will invest in guns, ammo, land mines etc.

  33. Takuan says:

    why Cheney will bring America in to a war with Iran

    Iran to OPEC: Stop Oil Sales in Dollars

    4 days ago

    TEHRAN, Iran (AP) — Iranian President Mahmoud Ahmadinejad is urging OPEC members to form a joint bank and stop pricing oil trades in U.S. dollars.

    According to the Iranian government’s Web site, Ahmadinejad told OPEC Secretary General Abdalla Salem el-Badri the cartel “should establish a joint bank as well as having joint currency.”

    Oil is priced in U.S. dollars on the world market, and the currency’s depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.

    Iran has repeatedly urged OPEC members to shift sales away from dollar. But Iran’s proposal to trade oil in a basket of currencies is not supported by enough OPEC members, which include staunch U.S. allies such as leading producer Saudi Arabia.

  34. Shawn Wolfe says:

    Consider my stool officially loosened.

  35. Stefan Jones says:

    #81: “she also learned how to shoot a hobo who broke into her farmhouse looking for a meal”

    Did your great-grandmother leave you any recipes for hobo?

  36. zuzu says:

    @30 Ugly Canuck

    Ah but the housing market doesn’t say “inflation” does it? Price of US houses going up lately?

    Um, until very recently there was that severe housing bubble, and arguably houses are still overpriced.

    Outside the US the dollar is cheaper than ever. Doesn’t seem like inflation to us – US prices are way down.

    Are we arguing semantics here? “Inflation” refers to the rise of prices due to the increase in supply of dollars. Some financial analysts will refer to this same phenomenon as the “deflation” of the value of each dollar, however.

    That’s what the US Thirties were, in contrast to Weimar inflation.

    The 1930s “great depression” in the USA and Weimar hyperinflation were essentially the same phenomenon. However, you’re looking at two sides of each of those events. The “hyperinflation” for the USA was the expansion of money and credit by the Federal Reserve in the “roaring” 1920s by the Hoover administration. The correction was deflation, beginning with when the Fed finally stopped feeding the inflation bubble — which is when the run on banks happened (i.e. a “liquidity crisis”).

    You would think that all that government borrowing would crowd out the private sector by causing an increase in interest rates. What’s been happening? The opposite.

    Because Ben Bernanke and the Federal Reserve are trying to artificially delay an inevitable contraction. Most of that borrowing that has already occurred was malinvested into projects with no return on investment, such as blowing things up in Iraq or pork and barrel for home state contractors. So they go back to the well for more credit.

    The Fed has been using Repo agreements, not printing money – the Banks do that by lending, something that has decreased (try to get credit lately?).

    Because all of the easy money has been spent, and people are realizing that they cannot keep this inflation game going much longer. The reluctance to issue even more inflation to follow the old inflation is what has created this “liquidity crisis”.

    Problem is deflation isn’t something that the Boomers have EVER seen. Problem is steadily falling prices don’t seem like a problem, and that perception IS the problem

    Deflation is both necessary and not a problem, generally. Deflation is painful to borrowers, but beneficial to savers. The real problem is that an inflationary monetary policy has fueled rational action into a nation of debters. The fundamental problem of this inflation/deflation aka boom/bust aka the business cycle is that the Federal Reserve sets interest rates by centralized command (and specious “forecasting”). Distributed natural interest rates between lenders and savers would eliminate this problem.

    But for now, with most people in debt because of an inflationary bubble, it’s like a heroin addiction. We know we should quit, but the withdrawal symptoms are so severe that we take more smack to procrastinate. But that just makes our addiction that much more severe. The longer we wait, the harder it will be. Of course, the real lesson is that we never should have started to begin with, but no one seemed to want to listen to that in 2003 when people earnestly talked about “yellow cake” and “aluminum tubes” as if we were in some kind of danger.

  37. mad_prophet says:

    Sandpiper,

    How did the Great Depression discredit the Austrian school of economics? The consequences of excessive credit expansion have been detailed by their economists, especially Menger and Mises.

  38. zuzu says:

    I don’t understand the economy except on the most basic levels, but “market fundamentalists” who insist on the market not being regulated at all, are (I suspect) just romantics. Sure, I’d love it if we could let the market run wild and free like a force of nature, but that doesn’t mean it’s going to work like a well-oiled machine, more like monsoon season: bigger booms and bigger busts.

    Again, the “market” is just emergent spontaneous order from when people interact with each other. Read The Use of Knowledge in Society. It’s only a few pages long, but explains this pretty well.

    The booms and busts you’re referring too are formally referred to as the business cycle. The question to ask is why does this occur? What causes it? Please investigate this for yourself, but I personally find the Austrian model the least contrived and most convincing:

    Government control of the money supply through central banks and regulations allowing Fractional-reserve banking disturbs this equilibrium such that the interest rate no longer reflects the real supply of and demand for investment capital. Austrian School economists conclude that, if the interest rate is artificially low, then the demand for loans will be higher than the actual supply of willing lenders, and if the interest rate is artificially high, the opposite situation will occur. This misinformation leads investors to misallocate capital, borrowing and investing either too much or too little in long-term projects. Periodic recessions, then, are seen as necessary “corrections” following periods of fiat credit expansion, when unprofitable investments are liquidated, freeing capital for new investment.

    If you accept the Austrian model, then the problem is caused by distorting the market signals in the first place.

    @71 Jamie Sue

    Can someone help me understand: If the problem was caused by printing too much money … then why can’t the problem be solved by removing bills from circulation?

    Most money doesn’t exist as paper bills. Most of it is recorded in account databases (i.e. book-entry settlement). Also, there’s no way to backtrack a recall; just like there’s no way to get pee out of a pool. Again, I’d like to underscore that the issue isn’t so much about the social artifacts (i.e. capital) themselves, as it is the way they’re exchanged as signals for social coordination. Taking away money is as disruptive as putting it in; the ideal is to not disrupt/distort the natural ecology of the market.

  39. Antinous says:

    US prices are way down

    You don’t do the grocery shopping, do you?

  40. alternative says:

    Dady, please help me: “Is there an alternative to a disappearing dollar?”
    Dear son, “Our new private alternative is called $euro, our new private central bank is called independency and our public debt is just becoming world fraternity.”

    By Duric Aljosa, Crom Alternative News

  41. zuzu says:

    If you accept the Austrian model, then the problem is caused by distorting the market signals in the first place.

    An analogy for this might be using a laboratory instrument. Consider the pH meter. If some external force were causing your pH meter to drift to values it was reading from a sample other than the “true” values of that sample (but perhaps these distorted values would be ones you’d prefer to see for your experiment), how would you know that the values are “off”? How out-of-whack would the results from your pH meter have to be before you recalibrated it? The recalibration would be the “correction” in the market. And the purpose of an experiment is lost if you falsify your data to match the expectations of your hypothesis.

  42. zuzu says:

    This fear mongering has to stop.

    I wish people would have been so eager to say that in the aftermath of the World Trade Center destruction, or when the wardrum was beating leading up to the invasion of Iraq in 2003. (and still they tried to beat that wardrum again for an invasion of Iran!)

    We’ve sewn the seeds of unconscionable deficit spending on war and a police state; now it’s time to reap its grim harvest.

  43. linenoise says:

    #37

    Had you stockpiled ammo in your basement, you would be *cleaning up* right now.

    http://www.boingboing.net/2008/03/19/documentary-examines.html

  44. coldspell says:

    The news (and bloggers) spend much time theorizing about the causes of these economic problems, but I haven’t read much about what the future looks like. How can a regular Joe with a mortgage and a 401k protect his assets for the next 10 years?

  45. zuzu says:

    @76 Dustin Driver

    So a big chunk of the crisis can be attributed to borrowing money to fund an unpopular war. Even worse, the return for investment in this war is less than zero. The only measurable return on the war “investment” is control.

    Cowicide mentioned Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill) by David Cay Johnston; in that vein I’d also recommend Confessions of an Economic Hit Man by John Perkins and Whistleblower: Confessions of a Healthcare Hitman by Peter Rost. This is the problem of corporatism, or what used to be called fascism; when a government-business partnership is formed to undermine the distributed authority of consumers in the marketplace. How this corporatism occurs is examined under the rubrick of public choice theory. Corporatism is essentially a really obfuscated method of conducting theft.

    Corporatism != Capitalism. Please don’t shoot the messenger.

    In fact, it’s really only the power of markets to calculate costs and returns on investment that reveals in stark clarity that war is unaffordable. (c.f. La Guerre Future)

  46. noen says:

    Brad DeLong:
    Nouriel Roubini on the Need to Regulate

    A century ago we had banks. They created systemic risk. We decided to regulate them in order to limit the systemic risk they could create. That was wise. Now we have non-banks. They create systemic risk…

    I just want to know what I can expect to happen. You can’t seem to get that anywhere. Should I be stock piling food, guns and ammo? Seriously, some folks, and not the crazies, have been suggesting that.

    If you watch the second part of the Max Kleiser video on the Death of the Dollar it does seem to really be that dire. As in your dollars in your purse will be as worthless as confederate dollars. That’s some scary shit.

  47. linenoise says:

    #44 bonds, physical precious metals and perhaps hedged indexes like SKF or UDN. SKF tracks twice the inverse index of the Dow (so if the dow goes down two percent, skf goes up 4) and UDN tracks the inverse of the dollar-euro (a dollar shorting fund).

    If things get worse, start edging out of SKF, UDN and into things like mason jars, toilet paper, ammunition and aero gardens.

    Oh. And the person who chose the fund selection for your 401k was probably an HR suit. :)

  48. zuzu says:

    I concur with Mad Prophet in disagreement with Sandpiper. If anything the 1970s stagflation discredited Keynesianism (which fundamentally confused correlation with causation), while the Austrian Theory of Money and Credit and lays a solid foundation for explaining the causes of money and the business cycle.

  49. manchild says:

    There are a number of good resources out there for people who want to understand more about the the current downturn in the stock market and what role the federal reserve should play

    http://blogs.wsj.com/economics/2008/03/18/volcker-feds-extreme-intervention-raises-some-real-questions/

    http://www.portfolio.com/news-markets/top-5/2008/03/14/The-Bear-Facts

    http://krugman.blogs.nytimes.com/2008/03/17/forbidden-swedes/

    As for the falling value of the dollar, this is a separate issue. On the one hand, other countries are more likely to purchase U.S. goods (imagine how nice that NYC vacation looks to the French) and on the other hand, it more expensive for us to buy foreign goods (au revoir foreign wines).

    If you are interested in understand our economic well being, the value of the dollar isn’t necessarily the place to look. The current drop fixes the trade imbalances that economic pessimists have decried. There is less opportunity to spend U.S. dollars abroad; those dollars go towards domestic purchases.

    See economist Dean Baker (via Economist’s view) for more:
    http://economistsview.typepad.com/economistsview/2007/11/dean-baker-down.html

    While caution is good in the current economy, there is a lot of alarmism without factual basis here. Remember, the dollar, the stock market, the debt to GDP ratio, government spending, our overall wealth, inequality etc… are all different issues with different measures and different implications. The whole economy can be fine while any one of those items is out of whack and the manner in which they interact is far from clear.

  50. desiredusername says:

    Zuzu, information is more liquid now too, because we are exchanging even right now, but the datum that is the simplest possible “full” explanation will travel the best and I think you are doing a great job by using analogies to that end.

    I probably possess <5% of the reference education that you do. Still I don’t see how fed action is an artifical indicator. At the bottom limit the govt has to remain solvent or else it stops functioning. More to an equilibrium the political appointments occupying the govt represent whatever interests they represent in net form, so they are as just as similar to the emergent spontaneous order as “the market” is. How is this not contrary to the fed as false signal producer, when in fact it may be as natural a signal as frost is for oranges growing industries? It is perhaps more so since we can assign political origination to it. On the other hand I understand that to read that you disagree with the current actions of the government is a natural maket signal too.

    I admit I am a neophyte so I don’t understand how liquidity is negative either. My understanding is that liquidity helps a market find more fine grained prices so that it in turns undergoes fewer corrections like the pH balance one’s you mention. Is that an inaccurate understanding? How does liquidity become artificial? If more liquidity causes the dollar to sink then doesn’t that mean that the dollar’s value was inflated but not deflating fast enough previous to the new liquidity? I’m just trying to wrap my head around these contradictions.

  51. desiredusername says:

    That suks. Half my comment got eaten. I’m not sure I’m going to rewrite that.

    Boo.

  52. dculberson says:

    It sure does sound like Chicken Little to me. I’m not able to know for sure, but for everyone’s sake would love to have been proven right a year or two down the road.

  53. Fran Six says:

    I have to go through the process of updating these charts, but they are enjoyable for the moment:

    http://www.flickr.com/photos/11747277@N07/

  54. zuzu says:

    It sure does sound like Chicken Little to me. I’m not able to know for sure, but for everyone’s sake would love to have been proven right a year or two down the road.

    What I think differentiates this from “the sky is falling” is that in this case the “damage is already done”, but now we’re feeling the fallout.

    It’s like we’ve contracted a disease. We’re only now starting to feel the symptoms, but the infection happened a long time ago — that part is not in doubt. We will get sick. How badly is debatable, but it’s proportional to exactly how much inflation was injected into the system. That’s what’s troubling about the rate cuts and “stimulus package” — that’s the hair of the dog.

  55. catfishncod says:

    I would like to take exception with the statement that bureaucracies are economic problems, while unregulated and unmanaged free markets inevitably provide correct signals for optimum economic resource allocation.

    I believe Zuzu would agree that the problems of economics are basically information-based, that is, regarding the knowledge of what is scarce, what is plentiful, what is expensive, what is cheap, what is useful, what is useless, et cetera. These data are translated into prices that individuals and groups may use to allocate and acquire control of resources. Without information flow, markets cannot exist.

    Now, it is true that (historically) bureaucracies have historically bad at managing market information flow — because they can be slow, and because they are susceptible to lies and distortions. This is the basic reason that the Soviet economy became first inefficient, then ridiculous, and finally Kafkaesque — Bureau A was lied to by Office B, who didn’t pass a memo to Desk C in time, resulting in 12 million Kazakh melons rotting a thousand miles from Moscow.

    However, in the complete absence of government or other action, laissez-faire markets are vulnerable to a cognate problem — charlatans and liars. Enron and the subprime crises are two good examples. In each, complexity and deceit were used to obscure relevant market data regarding price, quality, content, and risk. Without a countervailing force, the minds behind such tricks are capable of distorting market forces and amassing resources sufficient to prevent investigation of their ill doings. Indeed, several major financial disasters have been based on just such problems — for instance, the Tulip Bubble (based on futures contracts for delivery of goods that never existed) and several land speculation bubbles (based on bogus surveys).

    As long as humans (and their creations, such as computers) are willing to lie and cheat, risk calculations will become distorted by successful liars. Lies, once discovered, cause sudden risk reassessments and rapid credit re-allocation. Thus removal of government regulation of credit will not end the business cycle. In fact, forces which encourage or enforce collection and dissemination of accurate market data reduce the severity of the cycle by reducing the time and scope of economic lies.

  56. Ugly Canuck says:

    When asset prices fall I call deflation. This so-called “inflation” will stop and reverse with commodity prices.

    The destruction of billions perhaps trillions of Capital (the current “credit crunch”, financial instruments leveraged off creted debt ie mortgage-backed securtities -more disappears than just the mortgage)) is hardly inflationary.

  57. Spinobobot says:

    Let me try to keep this brief, and respond to this claim of Zuzu’s based on a paper by Hayek:

    [T]he “market” is just emergent spontaneous order from when people interact with each other.

    Let me grant the basic point that the decentralized nature of markets gives it epistemic advantages over centralized planning institutions like government bureaucracies. I think there’s evidence for this based on how badly command economies have historically performed.

    However, this only gives us a prima facie reason for letting markets do their things. In deciding upon what regulations are appropriate, there may be other considerations beyond the epistemic which matter (fairness, the value of having genuine common goods, conservation of the environment, public health, etc.).

    One type of regulation which preserves many of the goods of the market but which has the added benefit of potentially promoting other goods is the incentivization of certain types of behavior. A relatively uncontroversial example would be having the state (not the market) punish individuals who don’t “play by the rules”.

    Slightly more controversial examples are attaching a financial penalty to heavy polluters or imposing a tax on goods like cigarettes which consumers may want but which endanger their health (the attention to human psychology that behavioral economics emphasizes reminds us that economic agents are not purely rational).

    Measures like these keep choice in tact, but modify the values of the different options to influence economic agents (both producers and consumers) to promote other goods which a democratic state deems valuable. Various financial disincentives provide a source of revenue for the state which can then be used to fund incentives for other behaviors.

    Assuming that the incentive system is based on values which are decided upon democratically, I don’t see how one could object to this general schema. It can be a tremendously powerful tool that fosters closer ties between self-interest and common goods without eliminating choice.

  58. Fran Six says:

    Lets get off the inflation/deflation bandwagon I-say-tomato, You-say-tomayto. Deflation is the contraction of credit. This is not happening?

    With the collapse of the dollar from ~$1.20 – ~$0.72¢ prices will continue to advance in $US, but perhaps not globally.

    Peter Schiff is a bit of a martinet, so why not take in this video short:

    http://www.youtube.com/watch?v=zmyvEhU-gmw

  59. Ugly Canuck says:

    Thank you Fran 6 for the charts.

    Zuzu’s Monetarist Orthodoxy is showing.

    Last time we had double-digit inflation (paying for Vietnam) – the late 70s and early 80s-the interest rates were also double-digit. They blamed the inflation on unrestrained wage demands – and prices for housing were leading the way up..

    Japan on the other hand has just had ten years of close to Zero percent interest rates after their real estate price boom of the eighties – commonly called a deflationary situation.

    How are super-low interest rates “painful to borrowers and beneficial to savers”? Inflation benefits the borrowers hence the “inflating away” of the real value of the US’s Vietnam era debts. It just isn’t going to work with th Iraq/Afghan War Debt – the World has a long memory.

    PS its a little iNFLATION that’s both harmless and useful. Deflation is the active destruction of the Value of Capital and is always harmful.

  60. zuzu says:

    I admit I am a neophyte so I don’t understand how liquidity is negative either. My understanding is that liquidity helps a market find more fine grained prices so that it in turns undergoes fewer corrections like the pH balance one’s you mention. Is that an inaccurate understanding? How does liquidity become artificial? If more liquidity causes the dollar to sink then doesn’t that mean that the dollar’s value was inflated but not deflating fast enough previous to the new liquidity? I’m just trying to wrap my head around these contradictions.

    Um, first, know what fiat currency is.

    Instead of getting into basic accounting (cashflows, liquidity, solvency, etc.), let’s look at how fractional reserve banking works. In the central banking system, the government permits banks to loan out more money than they actually have (in its reserve). This itself is also an inflationary policy, the “credit” part of “expanding money and credit”. (So by definition, all fractional reserve banks are actually insolvent. It’s a Ponzi scheme.) The problem comes when so much debt that a bank takes on goes bad (i.e. bankruptcy), there’s not enough real money to back up the debt, and the bank itself goes bankrupt. (People don’t like this because they probably don’t realize that putting your money in the bank is an investment in loans to other people — like in It’s a Wonderful Life, but a bankrupt bank means you lost your investment.) So this is when a bank gets bailed out with printed money from the Federal Reserve (more inflation).

    The problem with all this inflation was summarized in the paragraph I quoted on the Austrian model of the business cycle. Basically, there’s a delay between when new money and credit are created, and it’s not until after it’s spent that everyone else can catch on to the fact that now there’s more money in the pool. So people are malinvesting — because it’s a kind of fraud. It’s like if we still used barter, and I agreed to sell you a dozen eggs for a stick of butter, but when you got home there were only 10 eggs in the package. But with fiat money, those “two eggs” disappeared in between you trading labor for money and trading money for food. And actually, those “two eggs” were “free” to whoever received the newly created money in the first place.

    This is where I think if (as a nation) we’re going to have a discussion about the “two Americas”, we need to look at “Wall Street” (i.e. bankers) who have a license to print money, and everyone else who has to earn money through trade. A license to print money is essentially a license to steal. Trade creates wealth; theft destroys wealth.

  61. aluxeterna says:

    may I be the first to say it: *poop*

  62. Oceanconcepts says:

    In deciding upon what regulations are appropriate, there may be other considerations beyond the epistemic which matter (fairness, the value of having genuine common goods, conservation of the environment, public health, etc.).

    Great discussion, and I do have questions:
    Many of these examples seem to be instances of markets not working fairly because of externalities. A factory that (in a totally unregulated environment) is allowed to dispose of its waste by dumping it into a convenient river that also happens to be the water source for the next town downstream is, in one sense, being allowed to steal the downstream town’s access to clean water. That would surely be a distorted market from the downstream town’s point of view.

    One role of government (We the People) can be to enforce increased fairness in markets by attempting to ensure that the true costs of economic transactions are borne into by those voluntarily entering into them, rather than being passed on to involuntary participants. This has been done imperfectly, often very badly, but isn’t there just a fundamental tension between the desire to have efficient, unregulated markets, and the need to avoid the destruction of the commons that can result when acting in accord with individual advantage can result in collective harm? This is not intended to be rhetorical- I really want to know what some of the participants here think.

    I live in an area that has steep terrain and a lot of rain. I’d like to enlarge to my house. The county won’t let me, because of regulations that govern how much of the forest can be eliminated and replaced by impervious surfaces. Too much impervious surface causes rapid runoff and flooding downstream. Of course, MY addition would have a negligible effect. But I recognize that if everyone did it- I am particularly concerned about those uphill from me- there would be problems. So I give up some freedom for living in a rather crowded place.

    There is a social tension between freedom and regulation that we can never get completely right- I have trouble with the fundamentalists on both sides. I can support public financing of vaccinations and water safety programs for public health. I would have problems with individual compulsory weigh-ins and nutritional monitoring to prevent obesity. Politics seems to be where we define the limits. When politics is corrupt or manipulated the process fails in important ways.

    I read ZUZU’s comments as highlighting unfairness in markets brought about by the ability of some groups to manipulate the levers for their advantage- perceived or real. But I may be missing a lot of this. Please continue the illumination.

  63. Spinobobot says:

    “Free choice”? Gimme a break. There are so many unquestioned presuppositions in that formulation. What is it that makes a choice possible? There are a lot of complex social relationships (many of which are not matters of “choice”) that must occur for us to be able to make the kinds of decisions as consumers that we do.

    Why suspect that freedom is always valuable? Isn’t it possible to have so many choices that you feel disempowered? (That’s how I feel whenever I try to buy toothpaste.)

    Moreover, why do we want the things that we do? Those desires that constitute the basis of our choices don’t come out of nowhere. The ubiquity of advertising by marketers who are guided by extensive knowledge of human psychology produces results that we are seldom directly aware of. Desires are manufactured even more extensively than shoddy consumer goods. We would probably be much better off having fewer desires with fewer possibilities of being dissatisfied if we don’t obtain things that we don’t actually need and which often do us little real good.

    The kind of atomic individualism that so much of contemporary social science (including economics) depends upon is so fraught with difficulties because of its reductionistic oversimplification. We are not isolated beings operating in some kind of social vacuum, and the more time passes, the more we become interconnected and dependent on other people all over the world.

    Freedom of choice is not real freedom. It is an illusion that perpetuates the status quo of unjust, unequal power relations.

    I certainly don’t have all the answers of how we might better live together in the world, but it is a mistake to view the current arrangement of society as somehow “natural” or “necessary”.

    (The reason I make the move to AI is because I think we need a dramatic restructuring of social relations and superhuman artificial intelligence is perhaps the only force powerful enough to effect such change, and to have any hope of doing so in a way that doesn’t just make things worse. But, really, this is almost a religious view for me, and certainly one that is unrealistic now. I believe it largely for the sake of generating some hope about the future.)

  64. VagabondAstronomer says:

    I want to say that this is perhaps one of the most fascinating threads I’ve read in a long time (Zuzu, et al… wow).
    Compliments aside, as someone who has never had a head for money or markets (I grew up on a farm, live off the salvage stream and do mostly cash-only transactions), I’m gravely concerned about all of this and how it will effect my family. As is always the case, it seems to me that when they choose to act it is always too late.
    I agree – we’re screwed.

  65. Cowicide says:

    Aside from the dollar collapse…

    That background music in the beginning (and continued in other parts) is swiped from The Bounty – one of the only Mel Gibson movies I really, really love with a kick ass performance from Anthony Hopkins, Liam Neeson and it was made in 1984!!

    http://en.wikipedia.org/wiki/The_Bounty

    I think the same guy that did the soundtrack for The Bounty also did the music for Bladerunner too.

  66. Antinous says:

    What’s with that music. I kept expecting an announcer to say, “In a world…”

  67. Mark Frauenfelder says:

    If it matters to you that people give a shit about what you say, Aluxterna, I suggest you elucidate your one-word critique.

  68. akbar56 says:

    Cowicide, you are correct. Vangelis did do the music for “The Bounty”

  69. Dustin Driver says:

    Innovation is one way out of this mess. New technology to increase energy efficiency and harvest renewable energy would be a good start.

    Any other ideas?

    Seems like we’ve really got a handle on how we got here, now let’s start planning and adapting.

  70. RJ says:

    @2
    Yep, Vangelis did both soundtracks. Nice catch! I thought it sounded familiar, but couldn’t place it.

    As for the US dollar, the signs of impending recession have been there for years. I think we all know it’s just a matter of time before we hit a crunch comparable to the gas crunch of the late 70′s.

  71. Kieran O'Neill says:

    Yeah, I thought that was Vangelis. Heavy, dramatic stuff.

  72. desiredusername says:

    In case you think it is the right thing to do you can open an account on E-Trade.. or with Barclays and hold it in a different curency. I’ve looked into it but I’d rather keep my money in looking for market bottoms. I’m pretty sure it will get easier to keep other currencies with more financial firms though. The value of that market has become obvious to more people. I would watch for currency/commodity bubbles.

    If you are keeping money in a different currency you still have to use dollars to buy American goods, I doubt with oil permanently above $100 that shipping will be cheap enough to make buying overseas worth buying goods in a different currency. However if you find yourself on the other side of the shipping cargo gaps you can probably get great deals. Shipping containers to China from America are supposedly extremely cheap (since they are going there empty anyway) but you are right back to buying American goods. Still following this logic you may be able to find the ideal of buying in a strengthening currency and cheap shipping. Canada?

  73. Kieran O'Neill says:

    Hmmm … need to see if this is up as a torrent somewhere.

    Yep, yep. A whole lot of US citizens are in for a very, very big shock sometime soon.

    The question is: how far will the world’s greatest military power be willing to go to maintain its economic dominance?

  74. Lenny Tumbarello says:

    I speak to many groups about our addictive over use of consumer credit. Many of them understand there may be a problem in the future but about thirty percent say I’m too pessimistic. They simply are in denial.

    Those of you that are old enough to have been driving a vehicle in the mid-eighties will remember the gasoline prices jumping just as they have in the last couple of years. We were screaming and yelling about it.

    This time it seems to me we’re taking a more passive approach. We’re aware of it but it’s not as big a deal as it was back then. I think the main reason it’s not is our use of credit cards.

    Twenty years ago if you had a gas credit account, it had to be paid when the bill arrive. There wasn’t a revolving account tied to the gas credit card. Using a bank credit card for gasoline was not as readily available to most of us. Today, we’re not feeling the pinch of the rising prices because we’re simply charging it.

    After all, everybody does it. ESPECIALLY our federal government.

    I imagine the Asian investors that are in the know, are sitting and watching our television channels thinking what fools are they? – these Americans. They spend and spend and consume and consume without realizing people like me are buying their country.

    How can we possibly insist on government responsibility concerning our money until we as individuals and families get our personal finances in order?

    Lenny Tumbarello
    Author of
    No Balance Due: Tired of Being in Debt Up to Your Eyeballs?

  75. coaxial says:

    We’ve been set on this course of collapse for 28 years. Ever since Reagan, as Rush Limbaugh so ironically put it once, “gave us a debt we can never repay.”

    Sure we righted the ship a little bit under Clinton, but that just meant that we weren’t borrow just to stay afloat. We still have, as of right now, a $9 trillion debt.

    Of course we’re told that national debt is irrelevant, but that just doesn’t make any sense. Debt is relevant. It’s relevant. It’s relevant because people own loan you money when they think you can pay them back, and given the sheer amount of money that we owe, our regressive fiscal policies, and the amount of debt owed at all levels of our society, it’s just a matter of time before it collapses.

    Of course, I’m just talking down the economy because from any objective measure I want gay muslims to swim the Rio Grande, marry, and then blow up a grade school with a suitcase nuke.

    We are so fucked.

  76. zuzu says:

    PS its a little iNFLATION that’s both harmless and useful. Deflation is the active destruction of the Value of Capital and is always harmful.

    Wrong. Inflation and deflation are defined by the money supply. More money equals inflation. Less money equals deflation.

    Deflation increases the purchasing power of your money; inflation dilutes it. (Simple supply and demand.) With deflation, if you’re a saver, having money and then getting more for it is a benefit. If you’re a lender, you have to work more to pay back the same numerical debt. With inflation, the reverse is true, which is why an inflationary monetary policy encourages debters and transfers wealth from savers to whoever receives the newly created money (namely “Wall Street investors”).

    How are super-low interest rates “painful to borrowers and beneficial to savers”?

    It’s a kind of price control. Interests rates below the natural interest rate means that savers are not getting the return on investment for lending their wealth to borrowers would naturally yield, while borrowers receive loans artificially cheap, which leads to malinvestment.

    Zuzu’s Monetarist Orthodoxy is showing.

    I am not a monetarist. More than anything I’ve argued that government should stop manipulating the money to benefit the politically well-connected with access to the money creation. Monetarist theory calls for government rigging the money as the sole tool of market interference. I would argue that governments must remain independently solvent to exist just like every other organization of economic action.

    I like Mises and Hayek, but I also like Coase, Simon, and Williamson, as well as Kahneman and Thaler.

    If other readers are interested in learning more about economics, an excellent introduction is Friedrich A. Hayek’s Use of Knowledge in Society. Economics is all about how we use price signals (i.e. messages) for distributed coordination of independent actors. It’s how we figure out what to do without a boss commanding us to do it (which also begs the question of how the boss knows what to do). i.e. human action.

  77. millman says:

    Incredibly many commentators, including this guy, who knows better, imply that America makes / exports nothing and lives off of investment dollars (or tribute if you want my leftist slant) from other nations. This is not true – we are the world’s #3 exporter after China and Germany. We *do* consume far beyond our means and that is certainly financed by foreign investment. In terms of earnings per capita we should be as wealthy as western Europe and living a slightly poorer lifestyle due to our poor social safety net and mediocre infrastructure choices. But the end of the world this ain’t.

  78. zuzu says:

    @Spinobot

    In seriousness, I simply don’t understand why some people trust “the market” to solve all of our problems. This quote particularly got me: “You can’t expect bureaucrats to know better than the market itself.”

    Read Use of Knowledge in Society. It’s an epistemological problem. The “market” is just the emergent spontaneous order from individuals interacting with each other.

    Why suspect that freedom is always valuable? Isn’t it possible to have so many choices that you feel disempowered? (That’s how I feel whenever I try to buy toothpaste.)

    I think you’re alluding to the Paradox of Choice, which Chris Anderson refutes by citing searches and ordered lists in The Long Tail.

    The kind of atomic individualism that so much of contemporary social science (including economics) depends upon is so fraught with difficulties because of its reductionistic oversimplification. We are not isolated beings operating in some kind of social vacuum, and the more time passes, the more we become interconnected and dependent on other people all over the world.

    You sound like you’re ignoring anthropic bias in terms of conflating scale, and I think your argument is essentially normative. Distributed cognition is a fascinating field of study, though.

    Freedom of choice is not real freedom. It is an illusion that perpetuates the status quo of unjust, unequal power relations.

    Then what is “real freedom”? I think we’re fast appraoching Isaiah Berlin‘s Two Concepts of Liberty.

  79. Jeff says:

    The spice must flow…I mean the Oil must flow. Don’t worry, for every Dooms Day forecast, there is another that predicts a healthy adjustment, then a rebound. Pay no attention to the man behind the curtain: he’s a currancy trader that has lots of money riding on the falling value of the dollar.

  80. zuzu says:

    http://www.youtube.com/watch?v=zmyvEhU-gmw

    I like this episode of People & Power.

    Lets get off the inflation/deflation bandwagon I-say-tomato, You-say-tomayto. Deflation is the contraction of credit. This is not happening?

    Apologies to Ugly Canuck / Fran Six, I got a bit turned around writing while multitasking. Yes, when credit dies in bankruptcy, that’s a deflationary action.

    How are super-low interest rates “painful to borrowers and beneficial to savers”?

    The “painful to borrowers and beneficial to savers” part was meant to apply to the deflationary correction. Sorry if I was confusing in my responses.

  81. billy says:

    this can only affect the forehead tattoo market positively

  82. certron says:

    #3: The way things are going, the better phrase might be “20 minutes into the future…” It seems like the only people making money on this are those who are buying up the severely beaten-down (but possibly still overvalued) companies whose stock has trended towards zero.

    The better question is what commodity should we buy with our declining dollars that will hopefully maintain some reasonable value during the possible upcoming collapse? My money is on, or rather in, bottle caps.

    Just imagine if the wrong person says the wrong thing about China and the Olympics and China decides it doesn’t really want to own quite so many dollars. The whole thing makes me wish I had threatened to move to Canada and then actually followed through.

  83. simplehuman says:

    You won’t see a Germany post-WWI style crash, but you will see massive contraction, especially in the high end consumer markets (luxury cars, McMansions, less of that) with more focus on efficiency.

    Look at car advertising for clues. Five years ago it was all “POWER” and “TAME THE ROAD”, now the bulk of ads are talking up better gas mileage, fuel efficiency. The market acknowledging that people want more bang for their buck, that’s something.

    Look, the truly rich and truly poor aren’t going to see alot of change. The people who credit-card financed their dreams, bouaght into the notion that 0% down on a mortgage, a leased car and 5 cards in your wallet was a good thing, the people in the great middle? That’s going to be where it really stings.

    The definition of wealth needs to change. Cutting up credit cards, turning away from consumer culture (over-priced hunks of plastic that need to be replaced with more expensive hunks of plastic) and focusing on building sustainable, reliable weatlh for yourself and your family. The American Dream either changes or ends.

  84. Ugly Canuck says:

    I think that what the Fed’s been doing with interest rates would be inflationary but for all the deflation (destroyed Capital) out there already. One hopes that they’ve got access to the most accurate numbers available.

    The market is so huge compared to the Fed…remember King Canute.

  85. Hunty says:

    It’s hard to take a warning of impending doom seriously from someone named “Goehber X”.

  86. joemo says:

    it’s like nobody has ever been through a recession before… All this fear mongering is getting a little out of control.

  87. Stefan Jones says:

    Something to keep in mind, RE hoarding-guns-and-ramen scenarios:

    Situations like this mess, Y2K, and the Bird Flu scare bring out people who are in the business of selling fear and selling with fear. They do it to sell books and videos and lectures, for personal aggrandizement, and to grind ideological axes.

    You know the type, right? Grim, authoritative, good at getting Rotary Clubs to get the newsletter or check out the website. They get their fifteen minutes and then are only remembered when you see their books at Goodwill.

    Put another way: Panic and fear empower assholes and opportunists who will make things worse, not better.

  88. Carter says:

    This is serious. No country goes forever without a dangerous economic crisis. There’s no such thing as overdue, but there’s no reason on earth to believe it can’t happen here. And quite honestly, I fear it could be nearly Wiemar bad.

    An angry scared hungry america would put an actively Authoritarian (as opposed to dormantly so like now — which is a big difference, nearly unlimited police rights aren’t too unusual in the world, true East Berlins are — if you were upset about the patriot act, wait until anyone not in total lockstep really does need to be checking the wiring of their home. It so so so can happen here.

    Oh and we have a giant minority who have as little legal protection as blacks did in the jim crow south.

  89. haileris says:

    Instead of looking at fucking conspiracy theory shit, let’s see what billionaire investor Jim Rogers, former partner of George Soros thinks:
    http://youtube.com/watch?v=wXUU_lyb0Lc

  90. pavlov says:

    I’ve seen this argument before. I don’t know for sure what will happen to the dollar, but it is a good idea to remember that we are actually around 30th place in the hierarchy of debtor nations.

    True, in absolute dollars we are the number one debtor nation, but relative to production we are 30th.
    When you look at it from this perspective, we are no worse off than many European countries.
    In fact, Japan is actually the number one debtor nation globally relative to production.
    The island analogy is a bit too simplistic.

  91. zuzu says:

    I think that what the Fed’s been doing with interest rates would be inflationary but for all the deflation (destroyed Capital) out there already. One hopes that they’ve got access to the most accurate numbers available.

    In terms of our earlier disagreement, I think what we need to make clear is that capital isn’t really created with inflation or destroyed with deflation. It only seems that way because people are buying (or borrowing) dollars based on what they used to be worth before the supply of money and credit was expanded. This deception is the basis for malinvestment, which is how real capital is destroyed rather than created through exchange.

    (The keyphrase here is “non-neutrality of money“.)

    Furthermore, if you’re saying that you hope the Fed has “access to the most accurate numbers available”… the problem is that the Fed does “forecasting”. They’re trying to set the future lockstep based on the estimates of the past; but markets are necessarily more adept at adapting to a (necessarily) uncertain future. This is why the Fed is compared to a command economy institution; making a guess for everyone instead of letting the distributed actors of the market figure it out for real amongst themselves.

  92. Robbo says:

    I’ve said it before – I’ll say it again: Teach your kids to read the Koran in Mandarin.

    And move to New Zealand.

    Cheers.

  93. zuzu says:

    Put another way: Panic and fear empower assholes and opportunists who will make things worse, not better.

    Yes, there is time for people to assess the fundamentals and draw up what kinds of questions they need to ask next to protect themselves.

    I doubt that the stock market will crash tomorrow, but this problem’s been brewing pretty hard for 5-6 years; it’s starting to percolate.

    Also, I’m fairly sure, as with the bi-partisan “economic stimulus package”, politicians are eager to use dirty tricks to delay all the bad news until the political season is over. So, try to get your house in order before November. Don’t panic, but thoughtful action is required.

  94. Cowicide says:

    Not sure Operation Three Trillion Dollar War is helping too much, either…
    Link to video, transcripts of video, audio, etc.

    BTW, this isn’t some wackos… it’s Nobel laureate and former chief World Bank economist, Joseph Stiglitz, and Linda Bilmes (Professor of public finance at Harvard’s Kennedy School of Government).

    While we are at it:

    Robert Kuttner on the “Most Serious Financial Crisis Since the Great Depression”
    Link to video, transcripts of video, audio, etc.

    How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill)”
    Link to video, transcripts of video, audio, etc.

    Subprime Mortgage Crisis Causing African Americans to Experience Greatest Loss of Wealth in Modern U.S. History.
    Link to video, transcripts of video, audio, etc.

    Yah, yep… I smell trouble… yep, I smell it.
    Been smellin’ it for quite a while, but it’s getting stinkier and stinkier. Haven’t even passed the dead skunk on the highway yet…

  95. scriptedfate says:

    Alrighty, let’s start with #71 whose poignant and relevant comment fell by the wayside.

    So, the question was:

    Can someone help me understand: If the problem was caused by printing too much money … then why can’t the problem be solved by removing bills from circulation?

    First, a slight adjustment: “removing bills from circulation” is not entirely correct, anymore, as about 90% of the Money Supply is only numbers on pieces of ledger paper or on disk drives in network operations centres. So, we’re really talking about changing a few numbers so they’re less. It’s essentially the same effect, but you don’t have to worry about finding a place to store all those greenbacks you’ve taken from other vaults.

    So… why can’t we decrease the money supply to fix this problem? I’ll assume that the problem we’re talking about is the rise in prices (ie, inflation) proportional to the amount of money that the Federal Reserve (NOTE: not the government. The Fed. Very important difference that I’ll not get into in this post because it may frighten people if I don’t go through it all at once) has inserted into the system to try and bolster growth.

    Well, the problem with that is that prices don’t tend to go down. Ever.

    For prices to go down, the people who own these things with prices would have to take less money for them and earn less. Essentially, this feeds through the system and requires everyone to take a wage cut.

    How likely is the chance that you would take a wage cut? Not very? That’s the same probability that prices would go down: slim.

    So. Inflation (price increases) is basically irreversible. In short, that’s why we can’t solve the problem by reducing the money supply.

    This is bad. But not for you. You’re asking questions which means you are either intelligent, or on your way to being so. This means that when you see a price increase, you know enough to negotiate for a proportional wage increase. This also means that you’ll likely have enough worth to enough employers that if your current employer doesn’t respond positively to negotiations, you can take your skills elsewhere where they will.

    I said this is bad. But if it’s not bad for you, then who is it bad for?

    :Those who cannot negotiate for higher wages (minimum wages, under-the-tables) and do not have transferable skills will pay for this.

    So, as is usual, the poor get poorer and the rich… well, they get poorer, too, but not as fast and not as much…. and ‘poorer’ refers to their total purchasing power, not the numbers in their bank accounts.

    But, the interesting thing is that inflation isn’t even the real problem.

    If inflation was the real problem, don’t you think the Federal Reserve would be increasing interest rates and lowering the money supply (This won’t reverse inflation, only stop it) instead of lowering interest rates and increasing it? All indications, from their own announcements, is that they’re prepared to do it again? But why the risk?

    Because there’s a bigger fish to fry: economic slowdown. Recession. Decrease in output leading to negative growth.

    That’s what’s got the Head of the Fed missing sleep, not inflation. So really, instead of lamenting the increase in prices, we should be tackling the *real* issue: the sub-prime mortgage fiasco and how stupidity is causing the Global Capital Markets (which didn’t exist, really, 10 years ago) to fail.

  96. zuzu says:

    @87 Noen

    I just want to know what I can expect to happen. You can’t seem to get that anywhere. Should I be stock piling food, guns and ammo? Seriously, some folks, and not the crazies, have been suggesting that.

    Because no one knows. See, the whole “what should we do?” question is exactly why we have markets, because the future is uncertain, so we try to maximize utilizing all of the knowledge we have as soon as we have it to make the best decisions we can, and then adjust as we get new information. (Again, this is what The Use of Knowledge in Society covers.)

    The problem with central banking and inflation is that a significant amount of information is masked or distorted, so now people are making less informed decisions.

    For you personally, I hate to sound pedantic, but you’ve kinda gotta figure it out for yourself. What do you have that’s at risk? What do you think are the best ways to invest against those risks? I think it’s safe to assume that the dollar has much farther to drop in value. So accordingly, others have recommended investing in shorting the dollar or holding commodities such as gold and oil.

    If you’re concerned about disaster of survivalist proportions, a stockpile of guns, ammo, gasoline, food, and water is probably a good idea in general. A very well stocked liquor cabinet is probably also a good idea, especially if you yourself drink anyway. Some people buy bags of silver coins that are only marginally more expensive than the value of the silver itself.

  97. aluxeterna says:

    #4 Mark,

    I’m sorry. I should have elucidated my admittedly-ambiguous one-word review, which was not intended to be a critique of the well-produced and thoughtful short film presented here, but a critique of the dire situation most of us now face. I had intended to follow up the first posting with something slightly less childish, but got sidetracked, and at this point there is little remaining to be said that hasn’t been said already. Fortunately the internet is Forever, so my comment will likely remain in infamy.

    Back to the topic at hand: this crisis has been a long time coming, and maybe is a necessary “correction” as some people like to cheerily point out. That fact doesn’t make it any better for the people who are going to get screwed in the process. Hence: *!*

    Cheers.

  98. klaver says:

    just FYI:

    Although this documentary was recently rebroadcast in light of the current dollar trend, it originally aired on the 20th of November 2005.

    http://www.vpro.nl/programma/tegenlicht/afleveringen/24877874/

    URL and it did happen.

  99. zuzu says:

    People & Power – Rigged Markets- 20 May 07 – Part 2

    This video was excellent. I think I’m in love with Max Keiser. Thanks again to Fran Six for reminding me about People & Power.

    The Plunge Protection Team is a nickname that’s grown up around for the working group or for the manipulation of the markets that is believed to be occurring underneath the governance of the Working Group on Financial Markets.

    After the 1987 stock market crash there was a group formed in the United States called the President’s Working Group on Financial Markets. What their role is is to give government a role of intervention in the markets to assure that, from their point of view, that markets remain orderly. However, government intervention tends to be disorderly to the market rather than orderly because the market needs to move in any direction in order to satisfy the sellers and the buyers at any given moment in time. Government intervention tends to stop that and work in an unnatural way in terms of market intervention.

    Fair enough, right? I mean, nobody wants another great depression, and so what if the U.S. government steps in and tries to stop it by being the buyer of last resort? Then there was Long-Term Capital Management (LTCM), the hedge fund of hedge funds, the über hedge fund, the hedge fund that couldn’t fail. With over $1 trillion under management, advised by a sweet couturier of Nobel winning economists and financial geniuses, but their bets went wrong, Long-Term Capital Management did fail, and under President Clinton, the Federal government used tax payer dollars to bail out private investors! 60 years earlier such collusion between banks and government and the private sector would be called fascism.

    Companies should be allowed to fail. Failure is a part of the market process. Some companies succeed, some companies don’t. When a company is not allowed to fail, that’s actually disruptive to the market process.

    We’ve recently had a stock market rally and the leader of the stock market rally has been General Motors. This is interesting because General Motors has no profits; it’s doing terribly, which everybody who drives a car knows why. And so the question has been how can a company that has been making no money lead a stock market rally? And the speculation has been that the Plunge Protection Team is supporting General Motors, and just as an investment banker I can’t come up with a hypothesis on why General Motors stock would be up other than that there’s intervention, but of course the mystery is always then why?

    When we consider that the Plunge Protection Team, or the organizations that make up the Plunge Protection Team, are in the markets, whether it’s the futures market, whether it’s the stock market, whether it’s a commodities market, and they are in influencing outcomes in these markets, this all reeks of central planning.

    The Soviet Union fell because of central planning. You can’t expect bureaucrats to know better than the market itself. And what we’re doing in the States whenever there is central planning it is disruptive. One could argue that the Soviet Union was a command economy controlled by bureaucrats. In the United States we have a command monetary system controlled by bureaucrats at the Federal Reserve. It probably won’t end up in a positive way. There’s going to be problems as a consequence.

  100. Moon says:

    The inflation is caused by two things, mainly:

    The price of oil has gone up because China’s developing economy has been burning oil like Elliot Spitzer spending money on hookers. Scarce oil doesn’t just cause gas prices to go up, it causes the price of almost EVERYTHING to go up, due to the added cost to shipping.

    The price of food has gone up because oil prices have gone up and corn is being used more and more for fuel, rather than food and feed for beef.

  101. OldScot says:

    #6, #14, #17
    I hope you’re right. A 70s style recession, not so bad, a 30s style recession, that’s lampshade time.

    #8
    There are no limits.

    #12
    There is no where you can go. When the dollar collapses it will take all the dollar holders (most other countries) with it.

    As for timing, wouldn’t it be ironic if the US decided it could afford universal health care only after the dollar collapsed?

  102. catfishncod says:

    I’m sorry, Zuzu, but I can’t let you keep using cheap debating tricks without rebuttal.

    Zuzu@91:

    So by definition, all fractional reserve banks are actually insolvent. It’s a Ponzi scheme.

    No, a Ponzi scheme allows you to go on expanding your empire without limit. Fractional reserve banking (when not being cheated on as our investment “professionals” have been doing) means the first loan cannot be more than 90% of the original deposit, the second 81%, and so on in a convergent series. You can predict the maximum amount that credit will expand.

    The alternative to fractional reserve banking is full reserve banking. That means one government office — be it the Mint or the Fed or the Office of Engraving and Printing or the Lord High Financial Executioner — gets to try to use a bureaucracy to guess the demand for dollars and control the money supply that way. I think we are already in agreement that this is a Bad Thing. I wish we had a market scheme to set minimum wage; the minimum wage arguments this century mirror the gold standard and bimetallism arguments of last century, and are about basically the same thing: the foolishness of asking Congress, which is far too slow, to manage the economy.

    My usual answer to people who complain about the evilness of bankers who have license to print money is to tell you to join a credit union and/or own bank stock. In either case the profits get redistributed back to you, and you get to fire incompetent bankers who screw up.

  103. weewillie says:

    Everyone I know is planning on divesting of USD investments – I’ve already sold all my USD investments…

    I’m buying land in Canada instead. Hope that holds me over.

    And gold…

    and child labour farms producing cheap cars for China’s middle class – yeah – THAT’S the new goldrush!

  104. Razzabeth says:

    Anyone ever read “Making Money” by Terry Pratchett? :)

  105. kgb196464 says:

    The commentary makes great points and we as a nation need to make changes to avert this catastrophe, if it is not too late already.

    The point that the rest of the world should consider is “what if the American people don’t choose to take this lying down?”. It was a very witty comment about China exporting their bicycles for the Americans so the Chinese can drive their cars.

    Americans, despite being the most powerful country in the history of mankind, has used its power to a very limited degree. Should they, as a nation, be pushed against a wall, I am reasonably certain that they’ll not accept it and a global war over resources may follow and the rest of the world is likely to come out on the short end.

    Those of you who say the Americans have had enough trouble controlling the Iraqis should consider that they’ve attempted to deal with minimizing civilian casualties. Should it become a situation of American survival versus that of the rest of the world, you may see devastation unleashed on a scale never seen before. I pray that this never comes to pass, but don’t discount the possibility. Survival has a funny way of affecting people.

  106. Spinobobot says:

    My plan to move to Japan is looking pretty good after all…

  107. Dustin Driver says:

    So, no ideas? Zuzu, what do the economists say about recovery? Or better yet, do you have any ideas?

  108. consideredopinion says:

    My goodness, so many things to explain it can’t possibly fit into one comment box!

    Firstly – definition of “collapse.” There are *many* stages of realignment the US economy can undertake before we all become extras from “Road Warrior.”

    Secondly – the impact of realignments will be felt unevenly across the economy. The super-rich will, by in large, remain insulated from these changes. The highly-educated (with marketable skills) will remain the most globally competitive, and barring labor movement restrictions should compete evenly against the best anywhere in the world for any currency. If the realignments can be ‘dialed in’ slowly enough, skilled industrial laborers should do better in the US … but I don’t care to think what this will mean for unions and the ILO.

    Thirdly – a lot of this ‘realignment’ need not come at extreme depredation of living standards. Fewer SUVs are not a loss of a standard of living, so long as good substitutes are enplaced (more efficient cars, non-car alternatives under relevant circumstances).

    The challenge is to consider how much money it’s going to cost to recapitalize the country to the new realities. This, at the very time when energy & commodities will be more expensive than a recession should “normally” warrant.

    What the Bear Sterns bail-out really presents is the federal government again repeating its role of final guarantor. So much for all that ‘free market’ philosophy. Even Republicans act like neo-Keynesians in the crunch.

  109. Purly says:

    My understanding of inflation is as follows:
    Creating money for the purpose of paying off existing debt causes our dollar to devalue against other dollars because suddenly the same amount of goods coming overseas are being exchanged for less value from us.

    If we want to stabilize our situation, we need to:
    a) Pull out from the war (and stop spending elsewhere to stop increasing the debt)
    b) Produce all basic needs locally
    c) Export more to other countries than we import

    After stabilization, if we want to increase the dollar in value we need to:
    a) Change the world’s perception of our nation for the better.
    b) Leave a lasting impression of the quality that ‘Made in America’ items have
    c) Do A and B honestly, so that that have a real impact.

  110. Fran Six says:

    Hi, thank-you for posting my charts. I’ve been working on them for quite some time, so in order that they are explained, I would like to provide the following article:

    Captain Hook:

    http://www.safehaven.com/article-9714.htm

    This one is so well written that I can’t resist posting the link:

    http://www.safehaven.com/article-9732.htm

    We are in a deflationary boom after a stock market bust. A similar deflatioary boom occurred after the 1873 market bust. This ended in a gold rush in the 1890′s.

    One salient feature of modern times is the credit derivative. Outside of the U.S., you have Contracts For Difference (CFD) traded by people all over the world, using the internet tied to futures markets.

    Within the U.S. credit derivatives obligations and credit derivative swaps, mostly controlled by a monopoly syndicate of brokerages on wall street.

    This has led to a runaway futures market completely dissociated from the fundamentals or any underlying equity value.

    Recent liquidity financings by the Fed to facilitate the takeover of Bear Stearns was meant to prevent losses in the unregulated Credit Derivatives market, but also provided huge advantage to monopoly brokerages control over futures markets against operators like Man Financial, or MF Global.

    I have provided an update to charts posted on flickr:

    http://www.flickr.com/photos/11747277@N07/

  111. Dillo says:

    Which brings up the question:
    Supposing, hypothetically, one had a few thousand Euros(cash) laying around. Do you:

    A. Shove it under your futon/mattress/rock. When everything falls apart you can use it to bribe your way onto a plane or across the border somewhere.

    B. Give it to a friend you trust who can deposit in a Euro-based bank so that it stays in Euros.

    C. Find some way to open a European bank account and deposit it there yourself.

    D. Deposit it in a US bank when 1Euro=$20K US so you have enough to buy a loaf of bread on some fateful afternoon in the not-too-distant future ?

    I’m basically think ACBD. Anyone else ? Bueller, Bueller?

  112. Spinobobot says:

    Wow, so regulating the market is both fascist and communist? That’s doubly un-American!

    In seriousness, I simply don’t understand why some people trust “the market” to solve all of our problems. This quote particularly got me:

    “You can’t expect bureaucrats to know better than the market itself.”

    This market fundamentalism in which any economic woes are blamed on attempts to regulate and interfere with the economy is as unfalsifiable a position as the that of Marxists who maintained that the Soviet Union and other Communist nations weren’t _really_ Communist, because a _true_ Communist nation would be successful. As though we didn’t already see the fallout of total laissez-faire in the 19th Century.

    I take your point about the problems of bureaucracy and I definitely think that market processes which are response to things like supply and demand have their benefits. I don’t want to see the elimination of markets by any means.

    But we need to put constraints on markets, establish certain kinds of incentives that exercise a general direction for how things will go. What I really don’t like about unchecked markets is the way that they destroy common goods. Self-interest is not the only viable human motive.

    Now, I’ll admit that I’m not an economist but a simple philosopher, so I don’t understand all your technical language and I won’t be able to argue on that level. But for me, the most compelling part of that video was the analogy about the Asians and the Americans on that island.

    Talk all day if you like about corrections to the market and make all the predictions you care to about inflation and deflation or whatever, but the fact of the matter remains that there is something ethically _wrong_ about the way economic activity is organized in this world.

    I benefit from it as much as you or the next person and don’t want to live uncomfortably–and I may in fact move to Asia someday, who knows?–but isn’t it insane that we have the means to address issues like poverty and inequality but we don’t?

    My alternative proposal is not yet feasible, but I want to see economies run by smarter-than-human artificial intelligences that can overcome many of the problems of bureaucracies while still insuring that some degree of fairness (I’m not talking enforced mediocrity or absolute equality; I’m a big fan of merit and the motivating power of being able to enhance one’s status) is operative.

    Right now, this plan is a fantasy and grossly oversimplifies the complexity of the problem. But a more realistic policy I think is to find a balance between free markets and other forms of social organization. Efficiency is not the only form that rationality might take.

  113. kirkjerk says:

    This isn’t a strong counter-argument but yeah, a lot of this talk reminds me of Y2K chatter circa 1997-98 or so.

    DISCLAIMER: I’m one of those great unwashed who haven’t studied this very much (in part because the subject is so complex, I don’t trust my ability to tell legitimate dispassionate analysis from well-written axe-grinding quackery)

    But random thought:
    I just got back from a lovely 2 week visit in Japan. They kind of feel like they’ve been in the doldrums since their boom. Been wondering how their history relates to where we are now. One thing is, they seem to employ a LOT of people for menial jobs, like people posted just to warn others away from construction sites to people who yammer and yammer about products inside and outside of stores. I don’t know if that’s a cause or effect of their doldrums, and hope it’s a difference that’s positive for the USA

  114. coldspell says:

    Spinobobot: I was with you until the AIs…

  115. DE_Prodigy says:

    Purely too many people. Unless we come upon another Green Revolution, it will become very apparent in the near future that we are currently beyond our means, food, energy, fresh water will all become even more hugely important. Just look at the increases in the sizes of the worlds deserts while comparing it to the losses in fresh water, hell just look at the differences in the number of fish caught compared to the increases in people depending on fish for protein. We all need to stop thinking as individuals and start thinking as a global society on issues that concern us all. Things that are important to us all should be handled as if they are important to us all, not as if they should be exploited for the most profit. Not like we need to hold hands and agree with each other constantly, but the factions and greedy bastards that exist just hurt us all. All multi-cellular life exists because of symbiosis, perhaps we should take the hint and work together sometimes.

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