Need an economist on money creation?

[Buffy]

We'll see. Interesting times hey?

You can say that again! :D

 

Oh, no. That's just perfectly normal paranoia. Everyone in the universe has that, :hihi:

Buffy

[Eclipse Now]

I think the market meltdown is beginning to illustrate my point about this being an unsustainable economic model.

 

Yes the "car" was being driven badly by Bush running 2 wars, and America having to import oil and most consumer goods didn't help their account deficit. However, what I'm talking about is the economic model being destined to fail.

 

The "Car" isn't just being driven badly, it has a fundamental design flaw and will crash. There are no "brakes" —*the economy has to go forward until it crashes into the ecological life support and resource limits of this planet. And every indication says it will happen in the next 20 years, starting with oil, then with runaway global warming, peak metals, etc.

 

Why oh why isn't there a sustainability index to GDP growth? When are we going to hear the phrase, "Oh no, the American economy grew at 2% last year, and we will have to adjust this by XYZ strategy to get back to last July's sustainable consumption index".

 

I heartily recommend Dr Chris Martenson's "Crash course" for anyone concerned about why the economy is so close to collapse. He is also going to release a "Creative Commons" DVD of his "Crash course" which will be copyable. The worst is yet to come!

 

The Crash Course | Chris Martenson

[HydrogenBond]

The economy is a sine wave. The appearance of this current "collapse" is merely the downward part of the cycle. This collapse in the stock market appears to be connected to a readjustment in the subjective wealth created beyond the real value in terms of equal worth of physical resources.

 

For example, the gasoline prices in the US were $1.50/ gallon higher two months ago. This change was not proportional to changes in supply and demand for gasoline, with both supply and demand roughly steady. The inflated and deflated prices do not reflect the physical or real volume. It is more of a subjective value added. This current economic adjustment is getting rid of the subjective fluff so it is better in proportion to physical reality.

 

Speculation or future's trading bets on the perception of the future rather than the tangible reality. If everyone wishes to make believe more value than what is real, we can make wealth, without there needing to be any physical reality backing. The past so many years inflated the subjective wealth index, now it is adjusting back to reality proportions.

 

For example, if a bunch of people buy a given stock the price of the stock will go up. The company doesn't have to change anything in terms of physical value, in the short term, to be valued subjectively higher. The subjectivity of the speculation is making magic wealth. The push toward retirement savings created a lot of money to inflate the value of all the investments due to demand.

 

The collapse of the housing market worked with this subjective affect. Banks were speculating on the housing futures. Banks don't loan money to lose money. They were speculating an inflated housing value market. Even if my house costed me X, and I added no additional real resources, it was suppose to be worth Y, for y-x=Z wealth without resources to back it up. The magic Z value, could then be used to refinance. This allows the homeowner to make magic money. The banks were increasing demand for housing with all the easy loans, inflating value across the board.

 

The banks were then suppose to get their magic money back with more guarantee of less default since people will fight for the extra magic Z. But the magic money didn't pan out, with the housing market draining the magic accounts. Now house values are closer to reality resources and banks have less magic money to loan. This came out of the retirement, magic. What we have now is a more realistic connection to actual resource value away from enhanced subjectivity.

 

I am not saying this is good but it reflects the reality of subjectivity. The Great depression also used magic money but it was done differently. We can't do that anymore. The system got creative and figure out new ways to make magic money wealth. It exceeded the safe amount requiring a reality check. The next up cycle of the economy will make more magic money.

 

Part of the problem is making magic money has become an art form. Every middle man that touches resource A adds cost or value to that resource, without the amount of the physical resources having to increase in direct proportion to the wealth created. I start with a yard of cloth. To inflate that with subjective value I can add a small piece of cloth with a designer label and now the subjective value inflated to double with only 5% more cloth. This subjectivity is being hit the hardest, with people having less magic money to buy product high in magic value. The downside of the economic sine wave appears to be a reality check in terms of physical resources. The up cycle will add new worth.

[Eclipse Now]

Yes, I get the subjectivity of the stock market and it bugs me.

 

But that's another issue.

 

My question is this: does the very means by which we create money create a demand that the future economy be bigger?

 

We buy a house worth $400 grand but the repayments over the life of the loan might be worth $800 grand. Where does the extra $400 grand come from if everywhere and everyone is doing the same thing? Why, that money is also loaned into existence, because ALL money is loaned into existence, with interest.

 

So what we have is a small toddler's wading pool's worth of money in the system, but the debt on that, the expectation of new money on the current money, is an Olympic swimming pool. That means that the future must be bigger than today, period.

 

That means that we have an unsustainable money system, because exponential growth in a finite system will one day hit the limits... and given we are about to hit our first big limits (the volumes at which oil, natural gas, coal, and metals can be extracted... all peaking in the next few decades starting with oil very, very soon), then isn't it time we invented a financial system that rewarded STABILITY? Why on earth do we always celebrate the economy growing by 2% a year? That means it has to go up by a factor of 4 times in one human lifetime!

 

Would it really end civilisation if we kept the economy at, say, last July? Does it HAVE to grow? Will we lose our lives if we froze economic growth at a certain percent?

 

If we don't decide how to do this soon, nature will do it for us.

[charles brough]

I see a strange parallel in the current economic crisis with that of the 1929 depression. I know this sounds absurd, but bear with me and you may perhaps see something practical to consider.

 

Continuously, since the depression, the government has instituted ways that enabled the money supply and the quantity of debt, public and private, to expand. Then, during the Bush administration, with the huge tax cuts and the equally huge increase in spending (on wars), the inflation-type cycle increased. The price rise started to really accelerate. However, there was the housing bubble of 2005 which was the worst we ever had. It was like the South Sea Bubble a couple centuries ago, the Tulip Craze and the John Law Inflation all in one!

 

So, let us say that 2005 corresponds to the beginning of 1930 when the Depression began (the Crash came very late in 1929). Consider the bottom of the depression to be the beginning of 1933. That is a decline of 3 years. IF we apply that to the present situation, we would be at the bottom of our current "depression" at about the beginning of 2009. After that, I would expect a very fast recovery.

 

Here is my reasoning: I think we are experience much the same thing as occurred in The Depression except that it is muted and distorted by the immense growth of printing press and debt money. Only the timing remains the same---3 years down. . .

 

This is my opinion, my forecast: the stock market has seen its lows and it will rise steadily from here. Meanwhile, economic conditions will grow worse for the next almost six months. Each leg down, however, will bring about more government help to the economy---meaning an accelerating growth in the money supply. So, with residential real estate prices having dropped about one third, the general price level higher, and the economy awash with new cash, debt will also begin to grow again and there will be an unusually fast recovery---unlike the slow recovery from the Great Depression. I expect this will soon turn into hyperinflation. Then, rationing.

[Overdog]

I see a strange parallel in the current economic crisis with that of the 1929 depression. I know this sounds absurd, but bear with me and you may perhaps see something practical to consider.

 

Continuously, since the depression, the government has instituted ways that enabled the money supply and the quantity of debt, public and private, to expand. Then, during the Bush administration, with the huge tax cuts and the equally huge increase in spending (on wars), the inflation-type cycle increased. The price rise started to really accelerate. However, there was the housing bubble of 2005 which was the worst we ever had. It was like the South Sea Bubble a couple centuries ago, the Tulip Craze and the John Law Inflation all in one!

 

So, let us say that 2005 corresponds to the beginning of 1930 when the Depression began (the Crash came very late in 1929). Consider the bottom of the depression to be the beginning of 1933. That is a decline of 3 years. IF we apply that to the present situation, we would be at the bottom of our current "depression" at about the beginning of 2009. After that, I would expect a very fast recovery.

 

Here is my reasoning: I think we are experience much the same thing as occurred in The Depression except that it is muted and distorted by the immense growth of printing press and debt money. Only the timing remains the same---3 years down. . .

 

This is my opinion, my forecast: the stock market has seen its lows and it will rise steadily from here. Meanwhile, economic conditions will grow worse for the next almost six months. Each leg down, however, will bring about more government help to the economy---meaning an accelerating growth in the money supply. So, with residential real estate prices having dropped about one third, the general price level higher, and the economy awash with new cash, debt will also begin to grow again and there will be an unusually fast recovery---unlike the slow recovery from the Great Depression. I expect this will soon turn into hyperinflation. Then, rationing.

 

If that's what you believe then you should invest in commodities. Hyperinflation is a devaluation of the currency, and when this plays out commodity prices will shoot up. I don't think we'll see rationing unless the government fails to abort deflation, but in theory they should be able to print enough money to bring back inflation. So in my opinion some of the best investments are in mines. Gold, Silver, Copper, Aluminum, Coal, Natural Gas etc. 2 billion people in China and India want electricity and refrigerators. And they will get it.

[Eclipse Now]

But the argument from people like Chris Martenson is that the money creation system itself is at fault, and until exponentially growing debt based money system is stopped we will just move from one crisis to the next.

[Buffy]

Would it really end civilisation if we kept the economy at, say, last July? Does it HAVE to grow? Will we lose our lives if we froze economic growth at a certain percent?

Well, it has to grow if you want to have kids! We're a long way from ZPG (anyone old enough to remember that acronym?), and the economy must grow if there's going to be jobs for the additional people!

 

Governmental economic policy *is* designed to target a modest and stable growth rate, but a growth rate greater than zero and one that accurately prognosticates *future* growth. Since this ability to prognosticate the future is imperfect, and indeed, the growth of population is governed greatly by luck, there's no way to simply lock it in at 2% without running into surpluses or deficits.

 

It would be nice to be able to see the future perfectly, but quite frankly, by letting the market bet on it, we end up with about as close a guess as we're ever going to have.

 

The alternative to that is severe swings that are not survivable!

 

In spite of the Depression, or maybe because of it, folks were hungry for a good time, and an evening of dancing seemed a good way to have it,

Buffy

[Buffy]

Sure exponential growth of bad stuff is scary, but the stuff to handle it continues to grow exponentially too.

 

Many an optimist has become rich by buying out a pessimist, :)

Buffy

[Eclipse Now]

It's a race, but not between how many 1's and 0's can be pushed down a wire, but between positive and negative trends in the real world.

 

Negative trend: peak oil, peak soil, peak copper, peak lithium production, peak population, peak phosphorus (by 2030), peak metals (in the lifetime of babies born today), essentially meaning we are seeing the end of annual increases in daily production of the cheap versions these resources. In other words, exponential increases in the "good cheap easy resources" will be replaced with declining production of "scattered, hard to get at expensive resources". What will this mean? I can only think that this is more important than the number of people that join Myspace temporarily.

[Buffy]

That's what I said!

 

Here's the real issue: if you think we're totally doomed, then why worry? All you need to do is start building your own 2515! :shrug:

 

You can certainly point to the fact that costs of extraction rise exponentially, but they always do. This has been true of gold and diamonds too.

 

And who's to say that something that falls out of MySpace (Hypography?) might be the reason why we come up with technological solutions to these issues of scarcity?

 

While fossil fuels may be tapped out, maybe we figure out alternatives. Green technology is indeed the next information technology boom.

 

70% of the Earth is underwater, but is a "gold mine" (literally) of mineral wealth sure its more expensive than the "cheap and easy" but think of all the people we put to work by *spending more* on extraction! And the economic Multiplier Effect that results from it!

 

Losing rain forests? Maybe we decide it's worthwhile to start *building* them up! And think of all the jobs we'll produce in the process!

 

No evil dooms us hopelessly, except the evil we love, and desire to continue in and make no effort to escape from,

Buffy

[charles brough]

If that's what you believe then you should invest in commodities. Hyperinflation is a devaluation of the currency, and when this plays out commodity prices will shoot up. I don't think we'll see rationing unless the government fails to abort deflation, but in theory they should be able to print enough money to bring back inflation. So in my opinion some of the best investments are in mines. Gold, Silver, Copper, Aluminum, Coal, Natural Gas etc. 2 billion people in China and India want electricity and refrigerators. And they will get it.

 

Yes, gold stocks are good. I believe I have about 60,000 shares of them (very cheap ones!) I am wise enough not to buy commodities (futures)!

 

Of course, the reason the government would impose rationing might be because it could not abort inflation. And I do agree with you that the government is now printing enough money to bring us inflation when the recovery begins.

[charles brough]

That's what I said!

 

Here's the real issue: if you think we're totally doomed, then why worry? All you need to do is start building your own 2515! :cheer:

 

You can certainly point to the fact that costs of extraction rise exponentially, but they always do. This has been true of gold and diamonds too.

 

And who's to say that something that falls out of MySpace (Hypography?) might be the reason why we come up with technological solutions to these issues of scarcity?

 

While fossil fuels may be tapped out, maybe we figure out alternatives. Green technology is indeed the next information technology boom.

 

70% of the Earth is underwater, but is a "gold mine" (literally) of mineral wealth sure its more expensive than the "cheap and easy" but think of all the people we put to work by *spending more* on extraction! And the economic Multiplier Effect that results from it!

 

Losing rain forests? Maybe we decide it's worthwhile to start *building* them up! And think of all the jobs we'll produce in the process!

 

No evil dooms us hopelessly, except the evil we love, and desire to continue in and make no effort to escape from, :naughty:

Buffy

 

I would say we will continue to develop alternative sources of energy from oil and that we will still keep on our environmental consciousness, but that as our numbers keep growing, we will still fall behind.

 

I would also not say that is "doom" but that, as you say, we need to escape from all this.

 

And that requires a new approach. . . such as a whole new way of looking at the world and society, one that is "the wave of the future" and enables us all to focus on these problems with the intensity they need. "Doom" is only if we do not eventually do that.:eek: