Podcast

Alasdair Macleod: Europe is in Worse Shape Than Everyone Thinks

EU governments are getting desperate
Saturday, March 2, 2013, 1:18 PM

From his perch in the United Kingdom, Alasdair Macleod provides an update on the ongoing economic crisis in Europe, which -- while largely absent from headlines in the US of late -- continues to worsen.

Due to bloated state-run programs and extreme malinvestment, EU governments find themselves in a box. Economic growth has stalled, and no amount of intervention seems able to get it going again. So in order to keep their economies moving forward, they are becoming increasingly rapacious in extorting tax revenues from wherever they can find them.

This, of course, is strangling the private sector  -- on which the government is counting on to grow the EU out of its recession (or depression, depending on which country in which you live). And so a vicious cycle ensues. Growing taxation reduces economic activity, unemployment worsens, the wealthy expatriate -- all leading to a declining income base to tax, and growing civil unrest.

These are desperate times. And the EU governments are taking increasingly desperate, and reckless, measures:

The Keynesians don’t understand why the growth isn’t there. They are very, very disappointed. And of course, their response is, the economy is not flourishing. You have to stimulate the economy more. The fact of the matter is that the average government size in the economy in the Eurozone is 50%. So 50% of every transaction is government.

Now that only leaves the private sector of 50%. The private sector, when it comes to recovering (recovery?), is carrying a huge weighted burden on its back. That burden is trying to tax the private sector horse who's carrying it. The tax burden is so great, the way in which they are doing it in most of these countries is that they are trying to preserve the public sector ,and they are trying to get the private sector to pay for it. The result is that there is no way there is going to be any growth at all.

If you look at countries like Spain, for example -- which has come out of this massive property bubble that's really been the reason for its downfall -- the property bubble has not unwound at all. You've got huge great levels of malinvestment, misdirection of funds in the wrong direction, the market has changed, people don’t want it anymore, and the market has got to adapt. And taxes are not going to be forthcoming until it has happened.

Unfortunately, governments have gotten themselves stuck into this position where they are not prepared to cut their spending enough. They think they can get taxes by taxing the rich, ratcheting up the taxes on anyone who you think has got any money -- but then people avoid it. Like in France, they just go abroad. It is that bad.

We are not seeing any recovery. The burden on private sector is far too great for that recovery to occur. Not only that, but the economies in the Eurozone are angled towards the wrong production. It is a huge great burden of malinvestment that needs to be addressed. You are not going to get any meaningful economic recovery without that slump happening.

Given that the slump is going to happens, you’ve got a choice: Either you get it over and done with and get it done quickly, or you have financial repression in the hope that over a long period of time something will turn up. Really, they are going for the latter rather than the former. But I don’t think they have got that much time. One of the things which Europe really does have a problem with is pension costs and the cost of health care for the elderly and all the rest of it. You think it is expensive in America; it is twice as expensive in Europe, on average. 

Click the play button below to listen to Chris' interview with Alasdair Macleod (49m:35s):

Click the play button below to listen to Chris' interview with Eric Sprott (34m:40s): - See more at: http://www.peakprosperity.com/podcast/80989/eric-sprott#sthash.ok7RFfsH.dpuf
Transcript: 

Chris Martenson:  Welcome to another Peak Prosperity Podcast. I am your host, of course, Chris Martenson. With everything that is going on in Europe, it is time to refocus our attention and center on things going on there. To help us with that today, we have the good fortune of speaking again with Alasdair Macleod, publisher of Finance in Economics.org and a contributing editor of Peak Prosperity.

Given his vantage point from Europe, I am really keen on discussing his latest observations of where things are with the situation there. We have got the Italian elections. There are all sorts of things going on with Spain at this point in time; Portugal, France; you name it. It is a target-rich environment. Alasdair, I am really pleased to have you back as our guest.

Alasdair Macleod:  It is very nice to be here. Thank you.

Chris Martenson:  I want to start right at the top. I was looking at some reports recently that had come out from major brokerage firms. They were advising their clients that it is time to get back in the water, buy stocks. The crisis in Europe has been averted. Is that true?

Alasdair Macleod:  No. In one word, no.

Chris Martenson:  Great. We are done.

Alasdair Macleod:  The way I would describe it I think, Chris, the ECB (European Central Bank) did a very, very good job by stuffing the market with money, of keeping the show on the road, if I can put it that way. You can only do that for so long. The system is deteriorating quite rapidly underneath.

Your readers would be aware of the Italian election. The thing about the Italian election is that the electorates are saying, no we don’t want this austerity. It’s hardly a surprise. The problem continues.

Chris Martenson:  I was under the impression that we had a vehicle over there in which the ECB had promised that they were going to buy all of the sovereign debt as long as the nations adhered to some of their rules, austerity being one of those rules. Italy’s borrowing costs have dropped dramatically from the announcement of that vehicle and indeed, Italian debt has been finding plenty of bitters courtesy of the ECB printing up and taking a lot of that through the OMT (Outright Monetary Transactions), as I believe that vehicle is called. Now you have Italy saying thanks so much for buying our sovereign debt and the people saying and not so much on the austerity. Where does that leave us?

Alasdair Macleod:  I think you have to be aware of some basic numbers. Italy’s debt-to-GDP is 126%. Their economy is not growing. They have had two years of recession, which basically means that the GDP is dropping. We don’t have a lot of inflation, so the deflator is not that great. Now with interest rates tonight at about 4.75% for the 10-year bond, in order to pay the interest which accumulates on top of that debt, the whole economy has got to grow in excess of 4.5% to 5% in order for them to have a chance in paying that debt back or stabilizing it. And that assumes that they have a balanced budget. That is really the absolute struggle henceforth the Italians are fighting.

Chris Martenson:  Alasdair, that 4.5% to 5% growth is that nominal or real understanding that if the deflators…

Alasdair Macleod:  Really, we are talking about nominal, because if you had seen what the interest’s value is to the overall debt, broadly what happens then is, the GDP has got to grow in order to match that. Consequently, if it doesn’t, the debt-to-GDP ratio rises. It is as simple as that. Thinking about it while I am talking, it has to be real; that is the comparison that is made.

Chris Martenson:  That is the comparison. If your deflator is almost zero, nominal and real are about the same. Let’s rewind to the beginning of this crisis starting back in 2007. From 2007 to today, if we look at government debt-to-GDP across the Eurozone, Italy’s, is it higher or lower than at the start of this?

Alasdair Macleod:  It is higher.

Chris Martenson:  Higher.

Alasdair Macleod:  They are all higher.

Chris Martenson:  They are all higher. So we can make that a short conversation. Everybody has got much, much higher debt-to-GDP, with some of them really being quite staggering numbers. Greece is  over – what is it, 170%?

Alasdair Macleod:  Something like that, yes.

Chris Martenson:  It is astonishing.

Alasdair Macleod:  That is the other thing, Chris. That is officially.

Chris Martenson:  Officially.

Alasdair Macleod:   Unofficially, a bigger number – it was in excess of 170%.

Chris Martenson:  Oh, my gosh. So what happens with Italy now? If they voted for austerity, certainly it sent some rumblings across the market, which got papered over almost instantly one day later, so it was a 24-hour ripple in the market. It seems to me it should be more serious than that because of the exposure of banks to Italian debt. It is not like this is a little bit bigger than Greece; Italy is an order of magnitude different from Greece, in terms of exposure of foreign banks to Italian debt. Failure is not an option here, is it?

Alasdair Macleod:  You are absolutely right. I think the question really is how are they going to fund themselves from here? I think we abandon any thoughts of what they are going to do with their debt properly. It is a question of keeping the show on the road. The two ways in which they can do this are either (1) persuade the Germans and the other stronger northern countries to come up with the money, or (2) the ECB. The problem is, I think the Germans are going to backpedal because they have got elections coming up in September. So far Angela Merkel, has had the fortune of an economy with a relatively low level of unemployment, which is the thing that really matters in European politics. German unemployment has only been around 5%, which is about half of the average. Not only that; there is a general satisfaction or at least no dissatisfaction with the political masters, or mistresses in this case. As soon as unemployment rises, you will find the people start thinking, this is a failure. This isn’t good. We want something else.

The reason this is important is because the dynamic markets to which Germany exports are not their European neighbors. That is stagnant and a waste of time as far as she is concerned. It is really China, Russia, Brazil; all of those places. If you can imagine these newly rich countries buying Mercedes and BMWs, but also German machinery and machined goods and tools and so on, that is really where the dynamic export markets have been. That is laying down a bit. Between now and September, it is quite likely the unemployment situation in Germany might deteriorate a little bit, assuming even with stability around her in the Eurozone I think this is going to discourage Angela Merkel from actually writing any checks.

The mechanism by which the countries do this is the European Stability Mechanism (ESM), which is a huge rate fund for which Germany is the main contributor or the largest contributor. But guess what? The other big contributors are [countries] like France, Italy, and Spain. It is a ridiculous situation for the big boys in the fund; most of them are bust, apart from Germany.

Germany is rather on her own here. I think it gives her the opportunity to say thanks, but no thanks. There is not much point in us putting out money if Italy can’t match it. There is this sort of extraordinary impasse, if I can put it that way, which will potentially give Angela Merkel the excuse to pass the buck over to the ECB.

Now, the Bundesbank don’t like that because they instinctively don’t like inflation. They want to prevent and protect their savers. Really I think there is no practical alternative to the ECB funding the problems in the periphery countries. That is essentially done by bank support, by QE, by whatever they can do to get away with it. I think the principal has been established. Mario Draghi stood up not three months ago and said we will do what it takes.

Chris Martenson:  So if the ECB receives the ball and they are going to do what Mario has promised, which is “whatever it takes,” that is obviously just code speak for “printing.” You have mentioned some of the mechanisms by which they do that. There has been a lot of talk lately about currency wars. Wouldn’t a weaker euro really serve a lot of purposes, both political and structural, over there at this point in time?

Alasdair Macleod:  Well, this is the opinion of the French. They being stasis Keynesian types; they buy into a weak currency to try and correct the too-high labor costs. That has certainly got attraction for a number of these countries. And, yes, I think would support that. I think Germany has a problem with that, because she has more of a savings-driven economy, and in that category I would include Austria and possibly Holland as well.

I think this is the other feature we will probably see over 2013, but I don’t think it will come to an awful lot and that is there will be increasing agitation for Germany and Holland and whoever else wants to join to set up the right currency block as an alternative. You hear rumours about it. I know there are actually quite serious economists in Germany who want to pursue that route. That is another thing maybe to watch out for – the hope of an escape by doing that.

I think one of the attractions of going that route is that you can cast off France and the rest of them into a weaker euro and let them run their own affairs with the ECB, rather than be tied into a rather increasing the inflationary outlook.

Chris Martenson:  Are there any rumblings that there is going to be such a schism at this point?

Alasdair Macleod:  There were rumblings last year. We aren’t hearing any rumblings about it now. I did interview a Germany economist from Berlin who was very keen to do this. He is quite a serious and senior guy. He has got a name for it. The Guilder Mark – already there are people talking about this. I don’t think it is getting any traction at the moment, for the very simple reason that the political priority is to keep the Eurozone together. They want to keep this grand plan on the go. So long as that is the case, no politician is going to sanction the idea of any alternative.

Chris Martenson:  What happens if Europe doesn’t return to growth relatively soon? My understanding of most of these rescue packages were that they had very generous if not foolish assumptions on growth. I saw Greece’s rescue plan included rapid return of 3%, 4%, 5%, even 6% GDP growth starting this year, things like that, and that hasn’t happened. Are there any rumblings that they are starting to consider what happens if growth doesn’t return and why it might be that growth hasn’t returned yet?

Alasdair Macleod:  That is the big question. The Keynesians don’t understand why the growth isn’t there. They are very, very disappointed. And of course, their response is, the economy is not flourishing. You have to stimulate the economy more. The fact of the matter is that the average government size in the economy in the Eurozone is 50%. So 50% of every transaction is government. Now that only leaves the private sector of 50%. The private sector, when it comes to recovering, is carrying a huge weighted burden on its back. In carrying the burden is trying to catch the private sector, who is carrying it. The tax burden is so great, the way in which they are doing it in most of these countries is that they are trying to preserve the public sector and they are trying to get the private sector to pay for it. The result is that there is no way there is going to be any growth at all.

If you look at the countries – like Spain, for example, which has come out of this massive property bubble – really the reason for its downfall, the property bubble has not unwind and you got huge great levels of malinvestment, misdirection of funds in the wrong direction, the market is has changed, people don’t want it anymore, and the market has got to adapt.

You cannot expect that to happen until it has actually happened, and taxes are not going to be forthcoming until it has happened. Unfortunately, governments have gotten themselves stuck into this position where they are not prepared to cut their spending enough. They think they can get taxes, like tax the rich, ratchet up the taxes on anyone who you think has got money, but then people avoid it. Like in France, they just go abroad. It is that bad.

We are not seeing any recovery. The burden on private sector is far too great for that recovery to occur. Not only that, but the economies in the Eurozone are angled completely towards the wrong production. It is a huge great burden of malinvestment that needs to be addressed. You are not going to get any meaningful economic recovery without that slump happening.

Given that the slump happens, you’ve got a choice: Either you get it over and done with and get it done quickly, or you have financial repression in the hope that over a long period of time something will turn up. Really, they are going for the latter rather than the former. But I don’t think they have got that much time. One of the things which Europe really does have a problem with is pension costs and the cost of health care of the elderly. You think it is expensive in America; it is twice as expensive in Europe, on average.

Chris Martenson:  Twice as expensive on what basis?

Alasdair Macleod:  On the basis of the number or the percentage of the population that are pensioners as a percentage of the working population. In Europe you are looking at figures 27%, 33%, that sort of figure. In the U.S. it is about 21% (I am speaking from memory). Also, the level of unemployment in Europe – the average is about 11% in the Eurozone. In America, your unemployment is nearly 8%. In some countries like Greece and Spain, particularly Spain, the level of unemployment is absolutely horrendous. You are looking at 20%, 25%. What this means is, you don’t have the people working to pay the taxes to pay for these escalating pension costs.

And the reason this is important is one your readers will be aware of, in some work that Professor Kotlikoff did at Boston University. He worked out the net present value of future welfare costs and off balance sheet stuff in the year 2012 was an extra $11 trillion on the U.S. economy, which is $15 trillion. We are talking about huge, great welfare costs coming down in the lift, which is going to swamp absolutely everything.

Now, if it is that bad in America, and you take a look at the dynamics of the situation in Europe, an conclude it is twice as bad in Europe. You can see that there is not enough time to sit around and wait for the private sector to recover under financial repression. There just isn’t time. This is a big, big problem that nobody seems to be focusing on. You have to deal with it quickly and then start dealing with that problem, or you have it. That is roughly where they are in Europe.

Chris Martenson:  Sounds like it is the same as in America when we have deer-in-headlights, when you get into the big, big stuff like the pension underfundings and intolerable program shortfalls. That $11 trillion you are talking about that is accrual-based deficit that the United States racked up in 2012, according to Kotlikoff, that even the Treasury said was $6.5 trillion. Officially we reported a cash-basis shortfall of $1.2 trillion, but really we are racking up things that are compounding. Every week/month that passes, these things just get larger and larger and larger.

You have raised a very interesting concept, and I am wondering what the similarity might be in Europe to this. I get the sense here in the United States that you have the underclass – which is really what formally needs to be called the little class – contributing almost nothing into the equation at this point in time. And you have large corporations, which have figured out through clever layering how to dodge paying effective tax rates that are above 20%, it seems. The squeeze is on what they are calling the rich, but really it is middle America.

This is our productive class – small and medium businesses, people who have got a real strong entrepreneurial spirit and have worked hard. That seems to be where most of the targeting has fallen when I parse through the details of the Affordable Healthcare Act, also called Obamacare in certain circles.  I look at all of the things that have come through they are really targeting the productive class. That seems just grossly counterproductive to me. It might work in the short term, but long-term I am wondering if Europe has a peek into the future for that for us.

Alasdair Macleod:  I’m afraid the story in Europe is exactly the same as you have described it, Chris. We are trying to pursue the wealthy, and we are clamping down on taxes. In Italy they literally impound your yacht, then you have to argue about it later sort of thing. As you put it so well, it really is taxing; it is removing wealth from the productive classes. When you do that, what the productive classes do is they start bubbling about trying to make money making things, and they start bubbling about how to make money by keeping it away from the tax man. It is a complete digression of resources into something that is useless, as far as the status is concerned.

Over in Europe, there is this belief that if someone is richer than me, he should contribute more in taxes. I know that your politicians are playing that sort of game, but over here it has been like this forever. I am sure we will come onto the UK in a moment, but this is one of the problems that the counsellors – George Osborne has as he is in coalition with a left-wing party win in the sense that they are desperate to redistribute wealth from the rich to the poor. Of course, in the process you just destroy the productive capacity of the economy. That is the story all over Europe. I can see it in America as well. Therefore, there is going to be no meaningful recovery.

Chris Martenson:  All right. Well, let’s finish our two or three subjects here first before we move into the UK.

Spain. Let’s finish up on Spain here. Obviously, Spain is still, in my view, looking like they are in relatively poor shape. They have extraordinary – and last I checked, rising – levels of defaults on the outstanding book in balance at the bank. It looks like things are not at all improved there. What is going on in Spain right now?

Alasdair Macleod:  I think it goes back to the election, which was a bit over a year ago, when Rajoy was elected. He got in with a pure working majority, which gave him the opportunity to tackle Spain’s problems – and he didn’t. He sort of went at it half-assedly. That was the opportunity missed.

On top of that, Spain’s problems really go back to credit expansion, which fueled property prices. It is very similar to the United States. The fueling of property prices were even greater than we saw in the United States, but so far the correction in house prices has not been as great in the United States, which rather suggests that house prices have a lot further to fall.

Now, on top of that, the mortgage bank system, that was sort of run like slush funds for the vested interest like unions and all of the rest of it, they were unregulated and I think still are unregulated. And of course all the losses appeared in these mortgage banks. They have consolidated certainly the biggest ones into Bankia, which is a new entity, and already they have had to produce about 40 billion euros to stop that from going under. All the original depositors who were forced to accept shares in returns for their deposits have now lost a lot of money. The banking system, mostly through mortgage lending and also lending to construction companies, looks like it is going to require a total of about 100 billion euros. That has been agreed to be provided by the financing ministers in the Eurozone, but we don’t know how that is going to happen. So far, I think I might say about 40 billion [euros] have actually been provided by the ESF (European Social Fund).

Now, I think Germany is going to big her heals in on this one, in which case it is going to rescue the banks through the ECB. So the ECB will throw money at the Spanish banking system to keep it afloat, and so what’s new? Spain is a tragedy. If they had taken action early, they would have only had the property bubble and the construction industry to deal with. As it is, what they have done by mishandling it is they are effectively sinking the whole economy, and I think that is an absolute tragedy. You have got over 50% unemployment amongst the under-25s, which is a complete lost generation. As a result, there is 25% unemployment. More broadly, you are going to have a strong possibility of social unrest in 2013. Spain is still bad news.

I was talking to an economist the other day, and he was thinking that Spain will actually be the first one to create the next crisis in the Eurozone. He thought Spain was ahead of Italy and France in this. That was before the Italian election.

Chris Martenson:  Okay. So Spain is clearly sailing pretty close to the wind here. They’ve got very, very high debt levels. Their industry, such as it is – they are really going through a bubble, and they failed to just address that first while the bubble was going.

Alasdair Macleod:  What is interesting in this is that – unlike Italy and France, particularly Italy, who has always had very high levels of debt-to-GDP – Spain started in the banking crisis when the debt-to-GDP was only 40%.

Chris Martenson:  Really, 40%?

Alasdair Macleod:  It is about 100% now. It just shows you how rapidly a situation can deteriorate.

Chris Martenson:  Speaking of rapidly deteriorating situations; what are you seeing in Greece? I know we have all been reading the reports, which almost have the Fukushima effect, where we are reading less and less of it even though the stories are more and more dire – over here [in the U.S.] at least. I think the story is old or something; perhaps it has lost some interest in the media cycle. When I bother to find out what is going on there, I hear about just rampant unemployment, hunger even. People chopping down trees to stay warm. All the usual things you would see in a full-blown economic collapse. Is that view wide of the mark? Has that been exaggerated?

Alasdair Macleod:  You are absolutely right. Greece has disappeared from the headlines partly because Europe, until now, has disappeared from the headlines. Also partly because Greece is a pretty small bear compared to what is coming up in the West.

Chris Martenson:  Where does Greece go from here? I know at one point it was thought that they were going to be the trigger for the next round in the crisis because they wouldn’t be able to meet some debt payment or another. Are they okay financially for the moment?

Alasdair Macleod:  I would hesitate to describe them as okay financially. Basically they are very badly wounded. They are struggling on. Germany, I think, has provided the bulk of the funds to keep it going so far, which creates quite a bit of resentment. But Germany doesn’t want to provide very much more I don’t think. This is a problem. The Greeks are now in a position where they are having to deal with their own problems themselves. I haven’t read reports of them funding the market recently.

I think that they are probably being helped by the ECB – the ECB will help anyone. Their problem is, they don’t want the banking system to fall over. And if you get bankruptcies in the Greek banking system, there is no knowing how far that will spread. I think the answer to your question, Chris, is that Germany has helped them so far, but I guess the ECB will be taking care of their short term needs, if I can put it that way.

Chris Martenson:  Fantastic. So we are rolling over the short-term needs. Applying band-aids where necessary. Sticking fingers in the dikes. What will it take to turn this around? It has got to be strong economic growth doesn’t it?

Alasdair Macleod:  That is the only thing. As we have already discussed, with an average of 50% government-spending-to-GDP, there isn’t an awful lot of free private sector to grow these countries out of trouble. I just don’t see it happening, unfortunately, now that Germany is effectively backing off. That is not really the official line. And it is now down to the ECB. I think the inevitable outcome at some status will turn into hyperinflation.

Chris Martenson:  Wow.

Alasdair Macleod:  There isn’t any alternative. Having said that, I don’t see things very differently in most other jurisdictions.

Chris Martenson:  Really?

Alasdair Macleod:  Look at Japan. They have now effectively run out of domestic savings, so they are now printing. There is only one way that is going to go. America, same thing. When I look at the monthly contribution from the Fed into the [U.S.] economy, it is something like $85 billion a month. When I look at the pace the money supply is being grown in the States, it seems to me that is not enough.

That is a horrendous statement to make, but if they don’t accelerate the rate at which they are printing money in the States, then I think interest rates are bound rise sooner than would otherwise. Either that, or you are going to start getting some financial failures. Probably both. I don’t know. Once you get into the debt trap and the requirement to print money to keep governments afloat, to keep banks afloat, you cannot get off the cycle. I think that is what we’ve got in America; it is what we’ve got all around Europe. We’ve got it in the UK, which is, I’m sure, we will come onto in a moment, and you definitely have got it in Japan.

Chris Martenson:  The Fed was always thought to be fearing what they call the liquidity trap. I think you just articulated the real trap is that once you are printing to keep your government afloat, you are pretty much in Phase One of “game over.” Phase Two is when interest rates start to rise. We all know you can just run calculations with a crayon and a napkin and discover that even a slight rise in interest rates – just maybe putting them back at their historical averages –would really crush the fiscal situations of entire nation states at this point, let alone companies and individuals and all of that.

We have gotten ourselves in a position where we can’t survive higher interest rates. What do you do about that? How do you walk down your debt if you can’t get your economies growing, so your debts just keep growing? Alasdair, how do you get out of this?

Alasdair Macleod:  Well, I think that there is only one logical computation, and that is a complete default. You have two ways in which you can default: One is to accept reality and face that, and the other way is to try to kick the can down the road, which just involves accelerating the printing. You can print money to quite a degree until such time as your citizens decide that my goodness, this dollar or euro or whatever it is, I don’t want it anymore. I would rather have goods. At that stage, you’ve got a flight out of money into goods.

It doesn’t do your production any good, by the way. What it basically means is that the shelves get cleared out. Prices rise very sharply. It is a slippery slope, because the only thing backing a paper currency is confidence in it. Forget all of this stuff about the quantity theory of money – it doesn’t apply. If you lose confidence in a paper currency, it can become valueless very, very quickly.

I think if we look back to the Weimar inflation, the German one in 1922-23, I think true hyperinflation was probably only about five or six months. Until that time, of course, the market lost well over 99.9% of its value from pre-wartime. It was only in that last phase that people suddenly woke up to the fact that the one thing they did not want to have was paper money. They lost all hope that this inflation would stop.

At that point, the function of how long the hyperinflation lasts becomes one of a practical problem of how you deal with it. In the case of Germany, they had to write a check, they had to draw the money out of the bank, they probably had to wait. They didn’t take checks; they would only take cash. Then they had to wait for the delivery of the cash. The printing presses were running 24 hours a day to supply the demand. That took five months. Now we have credit cards; we have electronic settlements. How are we going to take a paper currency collapse? It could be a minute. It could be a day.

I do remember you mentioned Iceland earlier. I do remember that when the Icelandic crisis hit, I was following the price of the Króna on the day it happened. At one point it lost 70% of its value in one minute in the morning. It got back some of that by the end of the day. That is how it can happen. It can happen very, very quickly.

Funding our way out of the problem by printing up more money can actually bite back on you, and the game can finish without very much notice and very, very quickly. It is not a game where you are going to have time to exit. It really isn’t.

Chris Martenson:  I have thought that for a long time as well, noting that hyperinflation really only takes on meaning when there is a border to cross, meaning you can compare that currency to something. So with Japan printing like crazy, the European Central Bank printing, Federal Reserve printing, with all of these characters printing, which border do you compare yourself against?

Of course, for myself, that has always been gold. Gold has just been languishing for a long time. What are you seeing from your perspective over there on gold?

Alasdair Macleod:  It is interesting. Going back to my hypothesis about hyperinflation when people lose all of their paper money, we have a situation now where currency in the form of paper money is the only form of exchange in the markets. True money, as you and I know throughout history, has always been gold. People are not yet thinking that gold is something that they need to have to defend themselves in a paper currency collapse, because they don’t see the paper currency collapse. They really don’t. There will come a time I think when that is going to switch, and it will probably switch quite sharply.

Meanwhile, what has been happening is, we have had the deterioration in the European situation. We have had the deterioration in the American statistics. We have had the deterioration in our own here, and Japan (as I have said earlier) has run out of savers. Someone came up with a wonderful statistic within Japan that they sell more diapers to the aged than they do children now. That is not a position you want to get into. They are on the slippery slope of destroying their own paper money by destroying confidence in it.

Gold, meanwhile, has gone sideways. It has done nothing. It has been controlled as much as anything by the bullion banks who have expanded the amount of paper gold and paper silver in circulation to deflate the speculative demand in it. Meanwhile, the true demand from people who are ensuring themselves against systemic risk is there, and people have just been storing it away very, very quietly. In some countries they do this – in India, for example, they have been doing this for decades. China has just started doing it and I see that continuing and building. Russia is sending very, very clear signals that it doesn’t want anything to do with Western paper currencies with a central bank. They have been quite aggressive building up her gold holdings.

All the time now, while the situation is deteriorating, we see the gold prices being sat on. It is only a matter of time before it can no longer be controlled. The problem is, when that happens, there are going to be some very major banks in quite serious difficulty because of all of the short positions.

Chris Martenson:  Well, they almost got in severe trouble all the way back – I believe it was 1998 or 1999 it was when your own illustrious exchequer decided to openly announce a reverse auction and discard UK’s gold at bargain basement prices. I believe that was largely to protect some bullion banks that had gotten into a very, very large amount of trouble because they had been doing leasing of gold and simply didn’t have it.

Alasdair Macleod:  You’re right. There have been these few times in history where having tipped the price of bullion down below where it would naturally be a demand from elsewhere taking it away. It is a process that has taken us through the second half of the 80s and through the 90s. It was at that time, I think, when the Middle East started building up their reserves.

India has always had a huge demand for gold. It is only relatively recently, I think about 10 years, maybe more years, when officially people have been able to import gold rather than smuggle it in.  I remember going to what used to be called Bombay back in the late 1960s, and I did a very interesting exercise recently on this. I looked up the price of gold in rupees at the time, and you could buy the fabricated gold that Indians buy as their stored wealth – fairly plain jewelry for their wives, that sort of thing, and it would cost you less than 200 rupees an ounce.

Given that the tradition of India is to save into gold and silver; when children are born you buy some for the child. A son gets married, a daughter gets married, for the dowry you give them some gold jewelry to start with. The whole of the middle classes in India revolve their savings around gold. Now, if gold was less than 200 rupees when I was there back in 1968, I think it was – do you know what the price is now? It is about 100,000 rupees.

Chris Martenson:  100,000.

Alasdair Macleod:  Yes. Who has been the clever guy? There is nothing else that the Indian could have put his money in, in order to preserve his wealth, which has been so effective. And he is not about to change his habits, I can assure you.  They know what happens to paper currencies. They know what happens to the rupee. And the average Chinese guy has got exactly the same approach towards his own currency.

Chris Martenson:  I imagine in dollar terms, gold has been going sideways. But let’s turn our attention to your home country, the UK. With the pound falling so much, there have been a lot of calls for austerity being the culprit in this case, so the calls are to end austerity. How is gold being viewed in the UK right now? And then, secondarily, what is going on over there economically right now?

Alasdair Macleod:  Gold is the question first; I think the view here on gold is probably quite similar to the view in America. Complete disinterest, really. And, you know, people see that the price of it over the last 10, 12 years has risen quite sharply and they say well, it is in a bubble. A bubble only occurs when everyone has got it. Nobody has got it. It hasn’t happened. I am a gold bug, and I am in a tiny minority; I really am. I think if you ask a thousand people on the street would you buy gold as an investment? you would probably find one might say yes. It is literally like that.

I guess it is probably the same with you in America. I don’t know whether I’m right, but I just got a feeling there is complete disinterest in the subject.

Chris Martenson:  Oh, absolutely there is. We have none of the social hallmarks of a bubble. We only have prices that seem to have gone up a bit. My view on that is that those prices had to rise, because otherwise if they hadn’t, can you imagine how much gold India would be buying today if it was $280 an ounce like way back in 1999? It would be ridiculous.

Alasdair Macleod:  Oh, absolutely. I think the other way to look at it, Chris, is that it is not gold that has gone up; it is the quantity of Euros, the quantity of pounds, whatever, that is has increased so much that it actually buys less gold.

Chris Martenson:  And oil and wheat.

Alasdair Macleod:  Exactly, and all of those other things.

Chris Martenson:  Absolutely. Let’s turn now to the economics I have been reading about,  renewed recessionary fears over there in the UK, and the foreign indebtedness of the UK is actually quite extraordinary. There are some really pressing issues there aren’t there?

Alasdair Macleod:  Oh, yes. Well, first of all, the economy; last year they managed to do slightly better than break even. We weren’t quite in a recession. All of that stuff is pretty meaningless anyways. We have a budget, and the budget in the UK is a major political and economic event. It is the one time when the chancellor stands up and he arranges the taxes and gives his forecast and all of the rest of it and all the commentators get all excited. So that is on March the 20th.

Now, unfortunately we had Moody’s ratings downgrade earlier this week. Of course, that is being dismissed as well. We knew it was coming, so it really doesn’t matter; this is not news. But when you bear in mind that sterling has fallen from literally the first of January to now from about 162 down to the current level of 151 and a bit, and in the process it has broken some very important support levels that we have seen hold it in the last few years, I think we have the potential makings of a sterling crisis.

The reason that this is important is our economy actually isn’t going anywhere. The chancellor’s numbers when he comes to stand up on March the 20th I don’t think can in any way impress the market. There isn’t going to be any sudden magic elixir.

On top of that, we had with sterling falling an aggravation; that is, the price of petrol – “gas” as you guys would call it over there – has risen from round about 122 pounds a litre to just under 150 pounds per liter today – that is, literally over the last two months. I don’t know if you had, but we had this horsemeat scandal – the result is that horsemeat has been found in burgers. The effect of this scare has been to push people into better quality meat. So the result is a meat crisis here rising quite sharply. Instead of having a background of inflation that might be slightly above target, which is what the Bank of England has been forecasting, we are now looking at a situation where it is likely to be considerably above the target.

Now, the problem is that there is nothing really that the Bank of England can do about it that they would be comfortable doing. What it should do when you have the potential of a sterling crisis is to raise interest rates to take all the expectation out of the market. But we are funding a government deficit. We have a fragile banking system, which I don’t think would survive rising interest rates. Quite literally, the Bank of England is likely to try and wish this problem away. They have done it before.

A guy called Paul Tucker, who is a Deputy Governor for the Treasury Select Committee, last night was saying that the Bank of England was thinking of charging negative interest rates on balances held with it.

Chris Martenson:  I had just read that.

Alasdair Macleod:  It doesn’t affect ordinary depositors. But it does affect the banks, the commercial banks who have accounts with the Bank of England. Sort of like the Fed turning around on its excess reserves and saying to the banks we are going to charge you if you are going to leave the money here. We want to try to push it out into the economy. I do feel that this idea of having almost zero interest rates and negative interest rates for a bank is likely to accelerate the sterling crisis rather than return it. We do have potential for a sterling crisis. Unfortunately, what happens with a sterling crisis is, the interest rates end up rising until such point as the corrective action is taken. That corrective action is extremely painful.

We are in a situation here in Europe where I think we won’t be looking at what is going in Europe and thinking oh, my god, they have gotten themselves into a mess. Actually, the mess may well be triggered by the UK. The sterling situation I think does need to be watched very, very carefully.

Chris Martenson:  Interesting. Let’s talk about timing, then. This has all dragged on far longer than I thought possible. I think there has been a masterful display of printing, obfuscation, propagandizing, job owning, you name it. It has been golf clap, golf clap, very nice. How much longer can this all continue, do you think?

Alasdair Macleod:  Well, as you so rightly say, these things always drag on longer than you think possible. I do think, however, that we are very much on the last lap on this one. And I think 2013 is going to be very much the year when lots and lots of chickens come home to roost. Whether they start coming home to roost in the next two or three months, or whether it is the next six months, I don’t know. The backstop situation, in the sense that the pension problem and all of the rest of it is not making the headlines at the moment.  But there is no doubt about it; that is going to become a huge issue. I think it will become an issue later on this year.

We are now in a situation where anyone lending money to Spain or Italy or France is going to start thinking – well hold on a minute; I know they have got a short term problem, and I know the economy isn’t going very well, etc., but am I not right in thinking demographics and pensions and all of the rest of it is going to be [how] this country is going to go bust very quickly anyway? In other words, I think the market is going to start considering these things. At some stage the markets are going to take control of interest rates and the pricing of money away from the central banks. I do feel that point is not very far away.

As you rightly point out, very often I call recessions that never happen. I do think 2013 is going to be the year when we do really see a sharp deterioration in the overall position.

Chris Martenson:  If that happens, I believe that it is going to be rather disappointing for a lot of folks, largely because this will be the third iteration of this crisis. We have already been through a couple of passes of it. With every one of those, people have invested hope. Hope that the authorities know what they are doing, that they have a plan, that this will all resolve itself somehow. I am mystified that so many people, in the investment side in particular, are not looking at this and saying look, we have tried this several times. We have printed trillions of dollars, arguably, we have prevented something worse from happening. We have also not been able to achieve anything that would really look like a sustainable lift-off.

By the way, just editorially, I can’t find any records of oil being well over $110 a barrel on the world stage and having any sort of economic recovery. There is just a problem inherent in that. It just feels to me like there ought to be some sort of reckoning moment that comes with this. I think this next crisis is going to be so much harder to pick ourselves up from because so much political capital had been expended, so much hope capital will have been expended, real capital. There won’t be a whole lot left to spend, and really then at that point we have to get back to what you said before: We have to face the music.

Are you going to default by overt default? We are just going to eliminate a whole lot of these debts. Or are we going to be covert? Are we really going to be serious about the printing and really let the world know? I think that is what Japan is doing. Japan is saying we don’t care. We are going to really print this and make a substantial difference in our inflationary outcomes and the value of the end. Period. It is going to get done.

It feels to me like the pressures are building for some sort of a resolution to this. Either we go off the knife edge to the left, and it is inflationary, if not hyperinflationary. Or we go off to the right, and it is deflationary. One way or the other, it has been a bit long skating along this knife edge without a lot to show for it.

Alasdair Macleod:  I would like to make one observation though about market psychology. I would say that in a bull market, we look forward to things, we anticipate things. We look at a company and we say I think that company has a new product; sales are going to go up. The good things in a bull market get discounted ahead of time. In a bear market it works in a reverse way. Crises, basically, most of the time, are made by people who live on hope. Even though you and I as discerners might look and say oh, my goodness, we don’t like the look of this or whatever, the market sails on regardless. Then there comes a point where reality intervenes. When it happens, it can happen very, very suddenly. Of course, we cannot predict the exact moment that is going to happen. I think there is that difference between bull market and bear market psychology. I think we need to keep that in mind.

Chris Martenson:  That is a fair point. I like it a lot. I like everything I have heard so far, and that is all the time we have today. So Alasdair, I just want to thank you from the bottom of my heart for another fascinating interview and discussion about what is going on in Europe, and I hope we can do this again sometime soon.

Alasdair Macleod:  I look forward to it. It was very nice speaking to you again, Chris.

About the guest

Alasdair Macleod

Alasdair started his career as a stockbroker in 1970 on the London Stock Exchange. In those days, trainees learned everything: from making the tea, to corporate finance, to evaluating and dealing in equities and bonds. They learned rapidly through experience about things as diverse as mining shares and general economics. It was excellent training, and within nine years Alasdair had risen to become senior partner of his firm.

Subsequently, Alasdair held positions at director level in investment management, and worked as a mutual fund manager. He also worked at a bank in Guernsey as an executive director.

For most of his 40 years in the finance industry, Alasdair has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. Accordingly, his mission is to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.

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50 Comments

RJE's picture
RJE
Status: Diamond Member (Offline)
Joined: Aug 31 2008
Posts: 1369
What Austerity Professor...

I mean really, if all of Europe is in much greater Debt than 4 years ago who is kidding who?!

If Tax receipts cannot cover even the interest rates then this just gets worse, terribly worse because the GDP of all of Europe are now and for some time running negative numbers. This is madness, it really is.

Steve Keen: Jubilee? Maybe.

Alasdair for me is "statistically" a jewel of an interview here at PP. I love the dude, and the timing of this Podcast was welcome by me for sure.

Be Good

BOB

jonesb.mta's picture
jonesb.mta
Status: Silver Member (Offline)
Joined: Jun 11 2008
Posts: 101
Thank you

Chris,

Thank you for putting this podcast out for the public. I've been an enrolled member since 2008 but with retirement I can no longer justify the cost and the thing I miss the most are the podcasts, Thanks again.

westcoastjan's picture
westcoastjan
Status: Gold Member (Offline)
Joined: Jun 4 2012
Posts: 466
If ever there were....

...a reason to buy into (literally with PM I might add) the philosophy of better a year too early than a day too late, then this is it.

What a fantastic, cogent podcast. The points that have been covered here give me no hesitation whatsoever in believing that there is no way we can avoid a systemic failure of epic proportions. It might only last a short time, e.g. six months or so until some semblance of control is re-gained, but we stand every chance of a short term hyper-inflationary scenario.

I can't help but think we have inside information here and it is really important to act on it, not just mull it over.

Jan

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2346
From Orlov to Asimov.

I am with Orlov on the nature of the collapse.

It will be a step-wise decent. How many crises (Steps) have we had now? If we overlay the Limits to Growth curves over the economy and then make the curves discontinous and stepwise we get a nice fit. (Nice in the old sense of the word.)

Gold will be accepted as money by those who covert it. I am uncertain that countries outside of India, China and Russia will not find some way of circumvent the necessity of backing their currency with metal. The Emergy springs to mind.

Of cause if energy becomes abundant (Solid State Nuclear Effects) then Emergy will not work. If we solve the energy problem, and quantum computing and 3d printing produces self replicating  robotic slaves then the mind boggles. Asimov's prognostications will triumph

This is a multi dimensional problem fit for a Talosian.

.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
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Posts: 1476
Those who covet..

And I assume that you meant that word Arthur.... along with all the negative connotations that come with it;

cov·et  

/ˈkəvit/
Verb
Yearn to possess or have (something).
 
Synonyms
crave - desire - hanker - lust

If Gold can help me protect my savings against the ravages of paper money to come.. they I guess I do crave, desire, and lust after it. Of maybe I will just convert my green paper into it.

The point I really want to make is about Silver.. and the reason one should want some is because it is rightfully viewed as a form of stored energy.  I really like the way SRSRocco makes this point;

http://www.silverdoctors.com/the-forces-that-will-push-silver-over-100-2...

Silver = Stored Energy

One factor that most precious metal investors fail to comprehend is the energy nature of silver as a store of value.  Of course they understand that silver and gold are real money and in that vein… they hold a certain amount of perceived or intrinsic value.  Unfortunately, they fail to realize that the most important value attached to an ounce of silver, is the stored energy contained in each coin.

A monetary value was attributed to an ounce of silver or gold based upon the amount of energy and capital it took to mine the metals as well as its degree of rarity.  During the Roman times when silver was mined by human and animal labor, the monetary value was given based upon the amount of labor (energy) it took to produce a one ounce coin.  Basically, the free market determined the prices of goods and services in silver coin to their relative energy value.

For example, if it took on average four hours of labor to produce an ounce of silver during the Roman Empire, that coin was exchanged for a good or service of equal energy value.  In this example, a  city laborer working a twelve hour work day might receive 3 silver coins as pay.  I realize I am making a basic assumption here, but this is how a monetary value was given to gold and silver.  Of course, the market would figure out on its own the value of an egg, chicken, horse or a cow for example.  But, in the end, the more energy that went into producing a good or service, the more silver or gold coins it took to equal the energy transaction.

Once an investor realizes this energy value as it pertains to silver (or gold), you will then understand how important energy plays as a role in the production of the metal as well as its role in the overall economy.  Thus, as the energy supply of a society increases, so will its production of gold and silver as money (if the society uses precious metals as money).  On the other hand, as the society experiences a decline in its energy supply, so will the mine supply of its gold and silver.

The mining industry has been banking on the continued growth of the global liquid energy supply to be able to increase the production of gold and silver.  With the knowledge that the peak of conventional oil production is now upon us, new hope has been placed on the supposed SHALE ENERGY PARADIGM to be its energy savior.

The story continues via the link...

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
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Posts: 2346
It's Lust Jim, not Love.

I do covet silver and gold. My neighbour also covets my silver. Therefore I got rid of it before he was overwhelmed by his lust.

I bought a nice yacht.Now that is Love.

Chad Brick's picture
Chad Brick
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Joined: Mar 3 2013
Posts: 1
"The Keynesians don’t

"The Keynesians don’t understand why the growth isn’t there."

Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

http://krugman.blogs.nytimes.com/2013/03/02/self-destructive-europe/

Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
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Posts: 2346
Welcome Chad.

Good to have you aboard Chad.

I hope that you intend to put up a vigorous defence of Keynesian economics. I will stay in the peanut gallery as I have no strong opinion on the various positions, other than to say that models are designed to be destroyed.

Good luck.

RJE's picture
RJE
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Joined: Aug 31 2008
Posts: 1369
Folks, I received my copy of "The Great Rebalancing" on Friday..

...and have just concluded reading it. Michael Pettis did a terrific job in this book, and I do recommend it.

Regards

BOB

gillbilly's picture
gillbilly
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Posts: 378
I liked covert

better than covet even if it was a typo. Maybe a Fleudian Srip?

jcat3022's picture
jcat3022
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Joined: May 9 2012
Posts: 75
Chad Brick wrote: "The

Chad Brick wrote:

"The Keynesians don’t understand why the growth isn’t there."

Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

http://krugman.blogs.nytimes.com/2013/03/02/self-destructive-europe/

Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.

This is nonsense.  Keynes was a proponent of government spending in place of consumer spending during deflationary periods only if countries had little to no debt.  Last time I looked that wasn't the case for Europe & the US.  What we have today from political hacks like Krugman is Keyensinism on steroids and a total distortion of what Keynes wrote.

Jim H's picture
Jim H
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Posts: 1476
Wow... a Keynesian (New) Krugmanite visits PP.com!

Unlike Arthur, I am unable to remain in the peanut gallery.  The first thing I would ask Chad to defend is the new Krugman vs. the old Krugman.  Chad said,

You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

And I ask back, how many years are we talking about?  Those of us who read a lot know that Paul K seems to have reinvented himself of late as the uber-Keynesian... though in a past life he was more like one of us commoners... thinking they see something very devastating ahead - what follows are the words of the old Paul K;

http://azizonomics.com/2011/12/22/the-old-paul-krugman/

The crisis won’t come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

It turns out that the Martensonians do have an idea about why growth isn't there.. and it's not due to lack of enough stimulus.  It's because when you hit the limits of resources, stimulus is pushing on a string.  The harder our Keynes-inspired central bankers push, the sooner will come our (old) Krugmanite Wile E. Coyote moment.    

Wendy S. Delmater's picture
Wendy S. Delmater
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Posts: 1509
Martensonians

Martensonians. I lke that.

kelvinator's picture
kelvinator
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Posts: 106
Welcome, Chad

Welcome, Chad, to the motley crew.   I like Krugman - once met him briefly and interviewed him in person and agree with many things he says.   And I have some sympathy toward the Keynesian solution as a way of easing down slowly.  But to me at this stage of global development in an exponentially growing debt world, it doesn't seem it can actually represent anything more than a temporary, can-kicking solution anymore.   I don't know whether Krugman really believes a Keynesian approach represents a longer term solution or not.  I guess he probably does, since he's an award-winning economist, and can't really say he doesn't have a solution for the larger global economy, or only has an one that is likely to deliver declining lifestyles by traditional standards to most people.

On the other hand, I also don't think we should have followed the anti-Keynesian view and let "free market capitalism" work its wonders uninterruptedly via the deflationary collapse underway in Sept, 2008, for example, or that we should do that now.  The idea that that would have been an appropriate "market clearing event" that would have set us up for solid growth going forward seems pretty ridiculous to me.   I think it probably would have been a global-economy clearing event - the equivalent of a moon-sized asteroid hitting a heavily interdependent globalized economy and would have caused devastation and suffering on an unprecedented, worldwide scale that Treasury Sect'y Hank Paulson, someone I don't trust or like, in that case accurately predicted and warned against.

I think the best case now is to be let down slowly - some awkward combination of Keynesian printing and public projects, austerity, as recognition dawns regarding the intractability of our long term problems with resources, growth, climate, pensions, government spending, and with the shortcomings of the capitalist and socialist models themselves.  Maybe that will give time for people come to terms with the need to set priorities, conserve and be efficient, get more enjoyment out of less, and the high likelihood that government and central bank intervention is going to be persistent and heavy until economies devolve to the point that national gov'ts don't matter as much any more, or the elites have taken such full control of what's left of governments that they are free to let large swathes of the public decend into deep poverty on a long term basis, which might be kind of the same thing.  

What's missing most now is transparency, acknowledgement of reality, a public discussion of priorities and leadership, but those things seem very hard to come by.   It's like the old story of needing to hit the mule with the two by four to get his attention before he'll listen to what needs to be done - the public and the economy both still seem to need the hit by some more minor meteors before they recognize that there's very fundamental changes afoot in the cosmos they need to attend and adapt to.

RJE's picture
RJE
Status: Diamond Member (Offline)
Joined: Aug 31 2008
Posts: 1369
Welcome Chad, and I like Krugman too...

...but, Krugman calling himself a Keynesian is even streeeetttching the truth a bit. A whole lots of bits. IMHO

Regards

BOB

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Free Chocolate Cake

Chad Brick wrote:

"The Keynesians don’t understand why the growth isn’t there."

Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

http://krugman.blogs.nytimes.com/2013/03/02/self-destructive-europe/

Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.

Chad,

Pretty brave to come out of the shadows and post. I never have understood why anyone would think that Keynesianism could possibly work. When times are bad, governments should stimulate the economy to get it working again. When times are good, governments should then increase taxes to pay back the borrowing. It is akin to giving children chocolate cake when they are hungry and then being surprised that they won't eat their vegetables when they are full. Assuming the first part (chocolate cake; borrowing stimulus) ever worked, when should the second part (vegetables; austerity budgets) be applied? Isn't 80-90 years a long enough trial period to admit it failed miserably?

Grover

KugsCheese's picture
KugsCheese
Status: Platinum Member (Offline)
Joined: Jan 2 2010
Posts: 649
Anecdote regarding Debt

Chad Brick wrote:

"The Keynesians don’t understand why the growth isn’t there."

Huh? This is one of the most upside-down statements I have read all day, and could have only been written by someone who has no idea what Keynesian economics is or what its proponents are saying. You don't have to go back more than a couple days to find Paul Krugman writing the following post, which is 100% completely in agreement with what he has been saying for years.

http://krugman.blogs.nytimes.com/2013/03/02/self-destructive-europe/

Europe is doing exactly the OPPOSITE of what Keynesians suggest. Its failures are perfectly consistent with the predictions made by the Keynesians, right down to the relative changes among European nations, interest rates, and a host of other factors.

When I was in college more than 20 years ago, I was studying advance mathematics and considered also minoring in economics.   But after getting into the high level undergrad econ classes I began to suspect it was nonsense.  One particular incident convinced me to stop studying "university economics".  It was an International Finance class where I questioned my Asian professor on American debt rollover and how the interest rate could overwhelm the deficit eventually.  He simply laughed at me in front of the class of econ majors and said the US could always roll over the debt at low cost because the US dollar was the reserve currency.   I wrote the non-linear equations on the chalk board and drew examples of how these systems "explode" to help explain but to no avail.  When you see economists use nice smooth system lines, run away as fast as you can.

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searesponse
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Alisdair has this 100% wrong

I know everyone here will go mental, but please remain open to the fact that Alister has this TOTALLY wrong.

The Euro is going to survive. It will have a few more countries than it does now within 5 years. Even Jim Rickards gets the basics of the Euro right. 

The ECB print no more than needed to meet their stated inflation target of 2% (VERY tough on the PIIGS). No-one will force the ECB to print.

Many individual EU states are way overindebted, but do you really think they are going back to their 20 century currencies?

The Euro etc won't fall a lot because the Euro zone has a balanced trade account overall. There is no structural pressure on the Euro's FX rate.

Poor old Nigel Farage could be British PM right about the time the UK begs to join the Euro … Why? Because the next financial system has already been designed; CB gold marked to market and revalued  -- this will cover a multitude of monetary sins (and bring the collapse of the dollar). 

There will be a liquid, physical gold market, but in Euro only.

Once the dollar is in the toilet, the US will be allowed to buy Eurogold. 

Okay group thinkers …. release your hounds. 

But please come back and ask Alister how he got it so wrong. He seems like a good chap, but like almost all US/UK commentators has got the Euro totally wrong. 

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Grover
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Hand grenades in the hot tub

searesponse wrote:

I know everyone here will go mental, but please remain open to the fact that Alister has this TOTALLY wrong.

searesponse, Pretty brave post. Hope you can respond to my questions. I'll try to be open minded. Can you? After all, it is already a fact (in your mind) that Alister (sic) has this TOTALLY wrong (no possible chance of getting even a meager crumb correct.)

searesponse wrote:

The Euro is going to survive. It will have a few more countries than it does now within 5 years. Even Jim Rickards gets the basics of the Euro right. 

Jim Rickards is the best you can muster?

The euro was doomed upon inception. The euro founders wanted a unified europe; however, they couldn't force a fiscal union upon the individual sovereign states. In a Keynesian way, they offered the countries a little candy in the form of a monetary union in hopes that all the countries would eventually submit to a super sovereign state. For the exporting countries, the candy was a weaker currency so they could export more and grow. For the club med states, the candy was lower interest rates so they could continue to live their signature lifestyle.

Over time, the PIIGS became more indebted and the exporters were required to bail them out. Ireland allowed itself to be controlled. (I'm sure they protested at the pubs.) Greece looked like a one-off event that could be contained with a pittance of pain. The northern countries required austerity as a condition of the bailout. Greece agreed and went about business as usual. Then, the next bailout with stronger conditions and the same result. Wash, rinse, repeat.

Greece's pain can't be resolved while they are in the euro (<sarc> searesponse, I'm open to hearing your well reasoned argument of how their plight will magically become the glue that holds the entire system together </sarc>.) The other PIIGS are jockeying for position to be the next contestant. Do you agree that at some point, the northerners will realize that the bailouts are simply not worth it? If Germany wanted the southern states to rebel and exit the currency, wouldn't they insist on austerity measures tied to the loans they provide? When the PIIGS default and leave, only the strong will remain. Will a strong euro give any of the exporters a currency advantage?

searesponse wrote:

The ECB print no more than needed to meet their stated inflation target of 2% (VERY tough on the PIIGS). No-one will force the ECB to print.

This may be correct for overt responses ... so far. What happens when Spain or Italy throws in the towel? What will the ECB do when their very reason to exist (the euro) is faced with oblivion?

searesponse wrote:

Many individual EU states are way overindebted, but do you really think they are going back to their 20 century currencies?

The euro is a 20 century currency. The PIIGS will go forward to a "New" version of the old currency that they'll be able to inflate the way they always did. Anything else would require an austere budget that they are currently avoiding like the plague. The others will go back to their "old" currency because it will have cachet.

searesponse wrote:

The Euro etc won't fall a lot because the Euro zone has a balanced trade account overall. There is no structural pressure on the Euro's FX rate.

I'm reminded of a bald man with a hairy back. On average, he's got plenty of hair.

searesponse wrote:

Poor old Nigel Farage could be British PM right about the time the UK begs to join the Euro … Why? Because the next financial system has already been designed; CB gold marked to market and revalued  -- this will cover a multitude of monetary sins (and bring the collapse of the dollar). 

Why would the UK beg to join the euro? Remember the Browne bottom (in 1999, Browne sold half of UK gold.) They would be at a huge disadvantage here. What multitude of monetary sins would this cover? Why would this bring on the collapse of the dollar?

searesponse wrote:

There will be a liquid, physical gold market, but in Euro only.

Are you suggesting that only the euro will survive as a fiat currency and that it will be as accepted as equally as gold? If the physical gold market takes off, why on earth would anyone need the euro?

searesponse wrote:

Once the dollar is in the toilet, the US will be allowed to buy Eurogold. 

How will the US pay for eurogold if the dollar is in the sink? Will the US sell its 8394 tonnes of gold for euro paper? Please explain!!!

searesponse wrote:

Okay group thinkers …. release your hounds. 

But please come back and ask Alister how he got it so wrong. He seems like a good chap, but like almost all US/UK commentators has got the Euro totally wrong. 

Funny that you are posting this on a non-mainstream site and accusing us of being group thinkers. Group thinkers think the fiat system will somehow come through it all and restore faith by saving all the promises that can't possibly be paid without an intact fiat system.

You seem like a good chap, but I can't figure out why you posted this. Could you please explain where Alister (sic), almost all US/UK commentators, and most of the group thinkers on this site got it wrong?

From an obviously mouth-breathing knuckle-dragger without hounds to release,

Grover

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searesponse
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Hi Grover

Your skepticism is healthy. 

"Are you suggesting that only the euro will survive as a fiat currency and that it will be as accepted as equally as gold? If the physical gold market takes off, why on earth would anyone need the euro?"

These are fantastically good questions. I mean that. You have nailed the core issue that defines the world's next monetary system.

I've got to go out now, but will try to get back to you tomorrow on all your points

All the best 

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Grover
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I look forward to your response

searesponse,

I'm glad you interpreted my questions as skepticism and not an attack. It was intended as a way to get some meat put on your assertions. I really would like a cogent conversation with differing viewpoints. None of us have all the answers. There have been waaaaaay too many nonproductive hurt feelings being expressed on the board lately for my tastes.

I sincerely look forward to your response! Hit the high points first and we'll go from there. I'm sure others will be as interested as I am. Expect hounds to circle. wink

Grover

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earthwise
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Me too!!

Grover wrote:

I look forward to your response.

searesponse,

I'm glad you interpreted my questions as skepticism and not an attack. It was intended as a way to get some meat put on your assertions. I really would like a cogent conversation with differing viewpoints. None of us have all the answers. There have been waaaaaay too many nonproductive hurt feelings being expressed on the board lately for my tastes.

I sincerely look forward to your response! Hit the high points first and we'll go from there. I'm sure others will be as interested as I am. Expect hounds to circle. wink

Grover

+1 Grover and also to you searesponse for your lively yet civil discussion. I love the point/counterpoint jousting. I just wish I had some hounds to release.frown  My intellectual capacity would limit my contribution to something more like an anklebiting Yorkie. Yap, yap, yap, yap etc. But that doesn't stop me from enjoying  from the sidelines. Let the games begin!

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kelvinator
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Me Three, Grover

Dicussion, openness, challenge, rejoinder, recognition, aknowledgement, admission, reflection -

Thought.  The Final Frontier

- real talk, not narrowness, bias, group think, cultism, nilism, loutishism or floutishism.

I say, I say - let the games begin and never end!

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thebrewer
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Why so much disparity?

Why is the main stream media still so far apart from articles on this site? I just finish reading about France possibly collapsing and then this guy David Bianco says in response to the DOW today, "It’s been a tough four years," said David Bianco, chief U.S. equity strategist at Deutsche Bank, "but the market has finally recovered." Bianco pointed to several factors for the recent move up on Wall Street, including a calming of the eurozone debt crisis, and acceleration in Asian economies."

It's a lot of work planning for your financial future but it's even harder when your trying to hedge your bets and play both sides of the fence.

http://www.foxbusiness.com/markets/2013/03/05/dow-zips-past-record-highs/

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matt5tt
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Response?

I too am looking forward to the response, but it is now Thursday. : (

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Grover
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Let the games begin

searesponse,

I'm sure you're busy with more important things. I want to move this forward so other Keynesians can come to your rescue.

When the banks tricked the federal government into accepting fiat money as the legal tender, the banks got control of the currency and the government got the ability to borrow and spend so the representatives could buy elections. They needed some high purpose that gave them cover. Keynes' monetary philosophy was just the ticket they needed. He single handedly made it possible for government accumulation of debt to appear noble.

To be fair to Keynes, he proposed a system that would be revenue neutral. He wanted government to stimulate when times were bad and then increase taxes when times were good to pay back the borrowed stimulus. The politicians abused the premise. The economy rarely has been good enough to pay back the borrowings. The last time the federal government had a surplus was in 1961.

To make matters worse, economists and bankers have convinced citizens that economic affairs are simply too complicated for the average person to understand. Citizens who should be the watchdog of government have been transformed into consumers of government largesse. The corn syrup sweetness of stimulus has left us obese, weak, and dependent on further stimulus. The more the politicians promise to supply and the less they make the recipients pay, the more likely they are to be elected. As a result, we have huge unfunded liabilities (social security, medicare, medicaid, etc.) that dwarf the actual cash balance deficit.

So, we find ourselves here and now. We've got peak oil driving up the price of energy and limiting our ability to grow out of the problem. We're being crushed by a debt load equivalent to many years worth of all economic activity. The demographics are aging every day with fewer contributors and more retired takers from the system. The paranoid government surveils every thing they can. The list goes on and on and ...

I see it all ending in a trail of tears. The promises that can't be kept, won't be kept. The longer we fool ourselves into thinking an actual solution exists, the worse the resultant devastation will be. The sooner we admit defeat, the sooner we can rebuild from a solid foundation. That's as cheery as I can imagine it.

What I'd really like to hear is a solution of how we can escape this quagmire. I don't care if it is Keynesian based or not. I don't care if it comes from searesponse or from anyone else. If it is a Krugman type solution that requires significantly more of the same, be prepared to back up your statements. You don't need a perfectly fleshed dissertation. Just start with an idea. We'll work from there.

In the end, if you can't support your version of Keynesian religion, I hope you have the integrity to stop touting it, particularly to friends and associates who are vulnerable to its seduction. Actually, I hope you will wake up and educate your Keynesian friends.

Grover

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therooster
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Why even think of monetary policy as needing to be top-down ?

Since we're shaking the tree, why are you all looking at the apex of monetary and poltical power for an answer at all ?  Once the closure of Bretton Woods set precious metal values free to float, the stage was set for the grass roots of the market to monetize its own gold & silver in real-time. This is an ongoing process, although invisible to most. Today, you can purchase a stick of gum or a new car using fully gold backed currency, denominated in real-time weight, make exact payment with no debt and and no counter-party risk and do so in the twinkling of an eye (internet).  Because of the real-time component, the elite cannot OVERTLY support this action. The shift must remain organic (bottom-up) and market driven on the basis of preventing a sudden crash in the legacy system of the USD. The USD doesn't look to have an ultimate role as a reserve currency or a currency at all. It looks like a stop gap measure to me and the role of the USD's ultimte function is really that of a real-time measure for gold weight in a real-time gold-as-money paradigm which is here and now at this very moment, although in need of scale-up. If you reverse engineer real-time gold-as-money, you'll find the FED's footprints everywhere, particulalrly the events of Bretton Woods. We must be as wise as serpents.

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Grover
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Fight for the right

therooster wrote:

Since we're shaking the tree, why are you all looking at the apex of monetary and poltical power for an answer at all ?  Once the closure of Bretton Woods set precious metal values free to float, the stage was set for the grass roots of the market to monetize its own gold & silver in real-time. This is an ongoing process, although invisible to most. Today, you can purchase a stick of gum or a new car using fully gold backed currency, denominated in real-time weight, make exact payment with no debt and and no counter-party risk and do so in the twinkling of an eye (internet).  Because of the real-time component, the elite cannot OVERTLY support this action. The shift must remain organic (bottom-up) and market driven on the basis of preventing a sudden crash in the legacy system of the USD. The USD doesn't look to have an ultimate role as a reserve currency or a currency at all. It looks like a stop gap measure to me and the role of the USD's ultimte function is really that of a real-time measure for gold weight in a real-time gold-as-money paradigm which is here and now at this very moment, although in need of scale-up. If you reverse engineer real-time gold-as-money, you'll find the FED's footprints everywhere, particulalrly the events of Bretton Woods. We must be as wise as serpents.

rooster,

We're stuck in the fiat currency world until it fails. Look at the front of any FRN and you'll see that "this note is legal tender for all debts, public and private." If you don't accept one of these, you technically don't have a debt any more and have legally lost your stick of gum or new car. Your gold backed currency just converts the equivalent amount of gold into electronic FRNs and then completes the transaction. As long as the system works, it works. What happens to your money when the system fails?

I complain about Keynesianism because without the theory, there is no credibility to the unholy triumvirate (Fed, government, ignorant voters.) If we can dash Keynes' theories against the rocks and shatter its unfounded respectability, we can put it to rest with all the other "too good to be true" ideas. Honest money will then make a return to its historically rightful place. We then won't need to use "gold as money" websites because gold will be money.

I have few delusions of grandeur. My limitations prevent me from being a torch bearer, but I can be an acolyte. I wish that searesponse, Chad Brick, or any of the other Keynesians on this site would let me know where I've gone wrong. I'm open to debate and having my mind changed. Without it, I have to interpret silence as tacit agreement.

Grover

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gillbilly
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Posts: 378
Fizzzzzzle....

In this corner we have Grover wearing his Golden gloves, and this corner we have seare...frown

...The fight that never materialized...I was hoping for some sizzle and wound up with fizzle.

Grover, I enjoy reading all the past economic thinkers.  The problem as I see it is that all the past models of free market capitalism depend on some type of exponential growth (printing money seems to be all we have left). In addition, there is the dichotomy between the market interests of the individual vs. the collective. Not all socialism has been bad and not all free market capitalism has been good, the same is true in reverse. How do we balance the rights of the individual against the rights of others/the collective, including the environment (which we somehow psychologically and economically separated ourselves from)? Just watched  the documentary "The Unforseen." It was an interesting film on this very question.

Maybe searesponse is still jumping rope in the locker room?

Keep the gloves on, you never know when the bell might ring.

Peace

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kelvinator
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Not This, Not That

That's an old zen koan.  I used to have a book of zen koans when I was 19 & it had a lot of interesting brief little zen poems, puzzles to reflect on.   

I agree with your point, gillbilly, that we're not talking about a black and white resolution on capitalism vs socialism or keynesianism vs hard money, austerity & the austrian school.  I also agree with almost all of what Grover said in "Let the Games Begin", so I'm not really a keynesian true believer, and can't be the guy "in that corner".   But here we are over-committed to a system of subsidies to the general public, and I would add, subsidies to the FIRE (finance, insurance, real estate) economy as well - the banks are the first stop for all that new funny money.    To me, elements of the keynesian approach - printing money, maintaining entitlements while trying to limit them and public works projects have got to be part of a transition to a more real economy to buy time and cushion the massive body blow that's already just starting to land.  But the purpose can't be to return to "normal", as perhaps Krugman or others suggest.  

As we know, what's missing is real acknowledgement in mainstream thought that we're not headed back towards the old normal, so we're not really seeing planning for a journey to a more realistic future - not amongst most of the keynesian types or the austrian school types, and certainly not on either side in Congress.  Both paths lead no where, IMO, if they imagine the old models are a complete solution in themselves.   My friend just sent me a link to this video on wealth disparity at the bottom of the linked page - I can't say I like the background music, but the piece's point is unmistakeable.  

http://www.walletpop.ca/2013/03/06/video-showing-huge-gap-between-rich-a...

The notion that austerity and free markets are, in themselves the answer to when corruption is rampant, wealth so concentrated and companies are using their cash on balance sheets to keep costs low by replacing workers with automation is a complete farce, as far as I'm concerned.  The money printed out for entitlements ad infinitem is just a sop and distraction for the general public while financial concentration is in progress;  it works temporarily for the rich and poor alike, and ultimately for neither.  The rich who believe their world will be made secure by their financial "phantom" wealth aren't likely to find a happy ending either in a collapsed society.

Finding real answers is guesswork.  My impression is that the solution is along the lines proposed by David Korten, who wrote "When Corporations Rule the World" - a gradual transition to an interlocking pattern of much more localized economies based on more hard money economics but which include some kind of community safety net.   I apologize for inserting this much text, but it's from an interview transcript I can't find online:

“Well, it starts with my international experience and coming to recognize within the big picture that our economic systems were seriously failing. They were, in fact, pushing more and more people into poverty particularly in places like Asia where I was living at the time that the insights started to come. But I also realized that all around the world we were basically destroying the living systems of the earth on which our very existence depends. [eg China, the Great Global Growth Driver]

And at the same time we were increasing the wealth disparities between rich and poor and we were destroying the cultures and the fabric of community that are essential to the human health and well-being. So, it began with an inquiry into why is our existing economy failing so badly and what do we need to do to correct it. And that led in part to the recognition that they way that we designed our economic institutions is focused on creating what I call “phantom wealth” which means financial wealth.

And the waking up begins with the recognition that our money, what we call financial assets, basically just numbers on the computer hard drive and that our well-being, real prosperity depends on the real wealth of people, the health and happiness of people, of community, of the natural systems which are the foundation of all real wealth. And so that begins to lead into thinking about a wholly different framework.

One way of looking at what we’ve gotten into is we’ve created an economy that basically works in opposition to the dynamics and structure of the biosphere all in order to in a sense convert real wealth, the wealth of community, people, nature into financial assets for the richest people among us which would have to be considered an act of collective insanity, suicidal collective insanity.

So part of this is recognizing that instead of making decisions based on what I learned in business school which is maximized financial returns, we need to be asking the question “What would nature do?”

Nature has created this incredible living system of encompassing the planet that has an extraordinary capacity organizing locally everywhere to capture energy, capture water, capture nutrients and turn this all into living organisms that effectively work in the most extraordinarily cooperative systems that’s incredibly resilient, efficient all in the quest to support life of ever greater potential and complexity.

So instead of creating economies of where we convince ourselves that we’re getting richer by essentially destroying the biosphere, we need to create economies that work with the biosphere to enhance its dynamics and to maintain its vitality over generations creating ever greater possibility rather than destroying the possibility and condemning our children into lives of potential deprivation and suffering.

… we actually have two quite different essentially competing economies. We have the Wall Street economy which is organized totally around making money, around increasing financial assets, and it’s extraordinary that we have so structured our economy that virtually all of our growth now is going to the richest 1%…

Now, the Main Street economy is much more connected to localities. Properly understood, our Main Street economies are about organizing to use local resources including local labor to meet local needs. And that is basically the way the biosphere organizes. It’s local everywhere…Main Street economies that are not about maximizing returns to global financial markets but about meeting local needs and local businesses that are properly oriented, that recognize that their real purpose is to be what we might call living enterprises that function as living organisms that are part of building this community prosperity. They tend to be businesses that are locally owned by real living people who have children that the owners of the businesses would like to see have future of opportunity.”

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Jim H
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gillbilly

I have a serious question for you;  What does capitalism have to do with the underlying money system?

You said;

The problem as I see it is that all the past models of free market capitalism depend on some type of exponential growth (printing money seems to be all we have left). In addition, there is the dichotomy between the market interests of the individual vs. the collective.

As I see it, and as CM teaches it, the dependence on exponential growth is a function of the debt-based, fiat money system.  Simply put, I don't understand what it is about capitalism that would drive the need for exponential growth, nor why capitalism needs to be tied to any particular kind of money system.  

From capitalism.org;

What is Capitalism?

Capitalism is a social system based on the principle of individual rights. Politically, it is the system of laissez-faire (freedom). Legally it is a system of objective laws (rule of law as opposed to rule of man). Economically, when such freedom is applied to the sphere of production its’ result is the free-market.

Again.. nothing about the form of money.  BTW, I don't agree with that the Ayn Rand, totally unregulated form of capitalism is appropriate.. I believe that there needs to be regulation to restrain corporations from destroying the environment (which includes sending production overseas to places where destroying the environment is OK.. this would be controlled by imposing tariffs to create a level playing field)... as well as other evils, etc., etc... but the point of my post is not to try to propose what I think is the right flavor of capitalism.. .rather it is to pose the point that the root of the problem when it comes to the motivation for exponential growth is the money system, and that capitalism is an idea that does not dictate any one money system.  One could have freemarket capitalism with Bitcoins... right?  

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gillbilly
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Kelvinator and Jim,

Kelvinator, wonderful post. I agree whole-heartedly with Keton, and I've seen that video.  My favorite line out of your post is this:

So part of this is recognizing that instead of making decisions based on what I learned in business school which is maximized financial returns, we need to be asking the question “What would nature do?”

We have to ask this question of ourselves every day.

Jim,

It's a good question, but I tend to see and ask it in reverse...what does the underlying money system have to do with capitalism? Money systems have changed over time as capitalism has evolved. I guess I should also state upfront that I don't believe the civilized world has ever seen "free-market" capitalism. Just like democracy, I think the ideal is something we strive for at varying levels throughout history but never reach. I personally see our globalized world right now as more of a collection of oligarchies.

The definition of capitalism you supplied is one among many. I think it is correct when it states that it is "based on the rights of individuals." The social narrative has stressed the individual for so long at the expense of the collective (which includes nature) that our experience is telling us this isn't sustainable. Money/currency is just a socially agreed upon transaction for debt clearing or exchanging goods and services. I think that the social narrative or ideal (capitalism) in this case sits above the implementation of that transaction. As the narrative changes, money will be adapted to that change.

The short answer to your question is yes, I think anything could become a currency, including bitcoin if that's where the narrative takes us and people can have faith in that transaction (not be susceptible to corruption). It may explain why bitcoin is gaining ground, i.e. it is a reaction to the narrative being questioned and evaluated, but I don't think it's the other way around.

Therefore, I understand the mining and built-in scarcity of the bitcoin (similar to PM), but I don't think returning to a gold standard or any manifestation of it is going correct our predicaments. I don't think the narrative of exponential growth is limited to fiat money, but rather that fiat money is one mechanism within that narrative. What I hear CM teaching us first and foremost is that the narrative has to change (which includes the concept of individual rights), then all else will follow. 

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Jim H
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gillbilly

I should not have invoked Bitcoin in my post..  it really had nothing to do with Bitcoin.  I also agree that we have not had free market capitalism for the most part.  I am still looking for insight into your comment on exponential growth..   you said above;

The social narrative has stressed the individual for so long at the expense of the collective (which includes nature) that our experience is telling us this isn't sustainable. Money/currency is just a socially agreed upon transaction for debt clearing or exchanging goods and services. I think that the social narrative or ideal (capitalism) in this case sits above the implementation of that transaction. As the narrative changes, money will be adapted to that change.

I see where capitalism stresses the individual..but I am still not clear on why you make the case that this drives the need for exponential growth?  I am contending that it's debt based money that drives exponential growth.  Let me not assume that you have ever really thought about this.. I will explain as I understand it;

Money is created as debt;  A loan is made to an individual, a town, a company, a State, or the USA (as treasury debt).  That money is now spent into the system.. and ends up deposited in banks.  The easiest way to think of this is that you get a car loan, get a check from the bank, and trade it to the dealer for the car.  You drive away and they deposit the check... and.. the bank that got the deposit now has the new money and can re-loan most of it our via fractional reserve lending.  One little thing is missing in this picture.. and that is the interest you pay on the loan.  The principle was created.. but not the extra increment of money that will eventually be needed to pay it back plus interest.  Where does the interest come from in the system?  How is there enough money to pay back loans + interest?  Growth!  Exponential growth.  As long as the hampster wheel of new loans keeps happening.. the system is healthy, and most banks will remain solvent.  If no loans are made.. no new money is made.  As loans are paid off, money is destroyed.  If there were no new loans.. eventually there would be no money (save for the little bit of paper money that exists) and all banks would die. 

So.. I contend.. this embedded need for exponential growth in our current money system is the culprit.  I don't see any reason why capitalism should be to blame for this particular ill of our system.... although I would readily admit that it is responsible for other ills, at least as currenctly practiced.  Indeed, in an ideal free market system, the motivation would be to not overly exploit resources, because they would simply become too expensive.. that old thing about supply vs. demand.            

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gillbilly
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Posts: 378
Profit motive.

Jim,

I thought the bitcoin was a good example. In response to the growing lack of faith in fiat currency, the bitcoin is being seen as a viable alternative. I still have a lot of questions about bitcoin and it's still new to the world. The issue that was raised on another thread of historical significance is valid. It ultimately rests on the faith of the collective for a currency to work and there is no substitute for time.

At the heart of capitalism is the profit motive, which I believe, at its core, resides in the narrative of "individual potential." Profit is both capitalism's pro and con. No business can permanently maintain its profit above its costs. A business must grow, or it dies. Technology plays a vital role in this growth, but in the end growth is a necessity. Take that and apply it on a global scale, and you wind up with what we have now. The costs of energy are rising, making profits more difficult, this puts pressure on the entire system to grow in some capacity. This is why I believe fiat currency is the effect, not the cause.

I have to go back to Marx the economist, not the Marxist, on this one (Galbraith would probably agree). Marx's analysis professes that capitalism will eventually collapse (as it has in many countries), not because of economic reasons, but rather social ones. He saw it as socially impossible for governments to right the intellectual, ideological, and emotional wrongs that would be inherent in capitalism. Particularly, he saw it impossible for those in governments to rise above the interest of one class, and free themselves from the constraints of their own economic interests. It's hard for me to argue with this under our current conditions. I don't see smaller or larger government as being the answer since in capitalism a government is required for it to work properly, and size doesn't necessarily equate to less or more power.

What do you think? Am I off base here? Thanks for challenging me on this. It's got me thinking!

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searesponse
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Hey G Apologies. This is my

Hey G

Apologies. This is my busiest time of the year in my work, and that has been my only recent priority.
Not sure where you got the idea I support Keynes (i don't), but I will try to make time to give some worthwhile arguements soon. 

Best

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Jim H
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Gillbilly

Thank you as well for the challenging discussion.. if there is anything we have lost in the US.. it is the ability to think critically.  As an aside.. I just saw this today, and it really drilled the point home.. longish but worth it.  One of the things she says is that at the University of Delft, PhD graduates must pick five topics to defend.. any five topics.  It's not just about what you know.. but your ability to explain the logic behind it as well;

So, I agree with you that growth is a necessity.. but again, I contend that it is all about the money.  I believe that you blame all ills on capitalism, while trivializing the role that money plays.  What do you think this famous quote is speaking to? 

"Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild

You said,

. A business must grow, or it dies.

Let me be frank.. this is clearly not true.  Sure, if a business is not increasing its profits.. the stock market will punish it and it will suffer a lower P/E.. but this does not mean it dies.  This especially does not mean it dies if it is a private company.. which can trundle along in a happy state of stasis, assuming it is profitable, essentially forever.  This is not to say that businesses don't have to evolve.. they generally do. .in order to stay profitable.. but that is different than growth.  I suggest that you are so enamored with the beauty of a theory that you state things that are just not true.  A business does not have to grow to stay alive.. though it probably does need to be profitable to survive, unless you have a very good accountant  : )

Again, I am not arguing for capitalism.. although I think that the benefits of capitalism outweigh the disadvantages.. when proper regulation is in place.  I am just addressing the question of the imperative for exponential growth.  Why?  I say money system.. and you have still not given me an actual mechanistic argument for why capitalism would be at the core of this.. just the argument that, "A business must grow, or it dies", which for me is like saying, "It just does!"

Baton back to you my friend (and I mean that).     

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Grover
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Switching gears

searesponse wrote:

Hey G

Apologies. This is my busiest time of the year in my work, and that has been my only recent priority.
Not sure where you got the idea I support Keynes (i don't), but I will try to make time to give some worthwhile arguements soon. 

Best

searesponse,

I just figured you were too busy to respond. That is okay.

I'm sorry for assuming you were a Keynesian. It was Chad Brick who penned that. Several of us were chiding him for his firebomb and you got splattered with the shrapnel when you said that Alisdair has it wrong. Thanks for clarifying. I would like to hear your arguments as to where Alisdair has it wrong concerning Europe's future.

Grover

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gillbilly
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Collaboration

Hi Jim,

I watched the video. I agree with what she has to say on collaboration. Combining many disciplines to look at an issue that has major impacts on a society is what is needed. Looking at any societal issue strictly through the lens of one disciplinary silo in my opinion is also partly to blame for our current situation. It is interesting that she is using an example that lies in science where there is more predictability in behavior. I also agree that collaboration should happen more before the doctoral level, since by that time the level of speciality is high and ingrained. I don't know about you, but I'm guilty as charged in my dissertation, although it does incorporate two disciplines. 

I don't think I trivialize the role of money and I agree with you that it is a huge problem. It is as they say the "root of all evil." But what does that mean? To me, it's a moral statement that asks the question why does man create money at all? Not what effect does money have on man. The currency itself is not evil, it is how humans create and use it. I see the creation of money itself as both positive and negative. It can motivate individuals, but can also corrupt through excessive greed and the thirst for power. Where is that line between healthy motivation and excessive greed? I would guess it depends on the individual, but also it has to be balanced through eyes of society and our natural world.

You write that the example I give "a business must grow, or it dies" as not true. This statement, as I stated, lies within the narrative, and I never said narratives are true.  Most often they are not. They are belief systems that move a society in a particular direction. That statement has been used within the narrative of capitalism for centuries, it doesn't have to be supported with "facts." Logic isn't always found in narratives, so when you ask for a logical support for the argument, you might be left disappointed. People don't always and often do not act logically, which is why science will always have a devil of a time trying to study human behavior and economics.

Anecdotally, our declaration of independence is great example of the struggle to create new narratives within the political sphere. How do we logically reconcile Jefferson's "ideals" (he was trying to build new narratives)  with the realitly of the man himself? He saw slaves as lesser people and yet wrote "all men are created equal." Historians have tried to rationalize it away. Personally, I think he couldn't bring himself to face the fact that not only was he not living up to his own ideals, but the people he was enslaving created the conditions for him to be able to write those ideals in the first place. Reading of his sensitive nature, it was probably too much for him to bear. I don't think he would have had the time to write the DoI if he had had to look after Montecello himself. So, the DoI was literally written off the backs of slaves, i.e. the inequality of man. A sad but interesting contradiction!

You ask for a mechanistic example of the necessity of growth, but why? Your example of buying a car is completely mechanistic and factors out all the human messiness of motive. There is no context as to why the person needs a car.  Is it to get to work to support the family? Is it to buy a sportscar to satisfy ego? Is it both? In my opinion, these questions are more important than the mechanisms that we create to support the belief structures. The value placed on the car and the nature of the transaction changes in relation to the motives. In my opinion, changing the mechanism without changing the narratives will result in the creation of a new mechanism that supports that same belief structure. Maybe we moved to a fiat currency for the right reasons at the time, maybe they don't hold true anymore.

I hear the narrative messages constantly bombarding us on a daily basic...Growth, growth, growth, efficincy, profitability, productivity...and science and technology are the only things that will save us. Are these not the mainstream messages we recieve? If I'm wrong, please correct me. That is all the proof you should need.  I'm not saying that one can't point to numerous examples of people/corps. who are not fully engaged in this narrative, but to me at least, it looks as though the global society continues to move in this direction.  The misconception is interpreting that I think these things have to go away to correct our ills. I don't blame capitalism for all our ills ( I did say it has pros and cons), but I do think there is a paradox of progress (progress...yet another concept built into the narrative). Are we progressing?  Where is the line between enough progress and too much?  I think the narratives are slowly beginning to change which will bring changes in our mechanisms. The past 40 years has people questioning the motives of our economic theories. I question all of them. So, I'm not enamored with any one theory. I bring up Marx only because most economic theorists go back to his concepts and analysis of capitalism as a foundation for the narratives. I think Marx missed on a lot of things, the emergence of a large middle-class after he died for one...although the current disappearing of the middle class fits into his analysis. A lot of his analysis boils down to class conflict, and this is what I'm seeing now.

Wow, this is turning into a book. If you have made it this far then I'll answer your question... Do I personally think that exponential growth is required for capitalsm? No, but I do think it has been accepted as one of the primary narratives for a very long time. Interesting contradiction?

Hey, for that matter, I also think our species has survived for 93% of its existence without all of the disciplinary subjects.

Baton back to you:)

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rhare
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Government & regulated money - antithesis of capitalism

gillbily wrote:

The social narrative has stressed the individual for so long at the expense of the collective (which includes nature) that our experience is telling us this isn't sustainable. Money/currency is just a socially agreed upon transaction for debt clearing or exchanging goods and services. I think that the social narrative or ideal (capitalism) in this case sits above the implementation of that transaction. As the narrative changes, money will be adapted to that change.

The problem as I see it, is to have true capitalism you have to have monetary freedom.  The right to choose what you want to use as money.  If you don't have that choice then the system is immediately distorted in favor of those who control/regulate/dictate what is money.  The best monetary system is one is which only those involved in a transaction have to agree to use.  If I want to buy a car with chickens, gold, FRN, sea shells - as long I can find someone willing to accept those items as payment, then I can use them and it is between ourselves to decide the proper value of the goods being exchanged.

Also, I don't believe exponential growth is necessary in capitalism, it is the current forced monetary system that requires and promotes that growth because signals from nature are hidden via monetary manipulation.  Capitalism is about the arbitration of scare resources to those with the most need or highest desire via voluntary exchange.  With manipulation the signals about the scarcity of resources can be temporarily hidden but it results in misapplication of those resources (aka bubble blowing).

Government as currently configured is also an antithesis of capitalism.  If you have a party involved that can force non-voluntary compliance in addition to monetary malfeasance, then you also distort the market and capitalism.  I don't view democracy as an ideal to strive towards because it implies that the majority should have control over the minority via threat of violence.

In an ideal world I don't think there should be anything other than voluntarily exchange and agreements.  Those could be social contracts, financial contracts, etc.  For example, what if there was no laws other those to which you voluntarily agreed to abide by via contract?  I want to be part of a community then I  voluntarily agree to be part of that community (aka government) and laws are simply clauses within the agreement. This ideal is a long long long way off -- too many people desire violence via a proxy to force their view/opinions/methods onto others rather than working via reason and persuasion to form community.

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treebeard
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Give to Caesar to what belongs to Caesar

The ism's are always the problem it seems.  Jim H's definition of capitalism is one that I have not seen before, interesting that it talks about social, polictial and legal frameworks first and foremost and as almost an afterthought suggests that if the idea of indiviual freedoms is applied to economics, you get free markets.  I must confess that I have always thought of Capitalism as an economic theory, after all it is Capital - ism.

Hard to argue with the rule of law and freedom.  But things have not seemed to work out that way.  We as Americans historically have set ourselves up as the city on the hill, the most perfect example of capitalism in the world and have credited our amazing success often on that theory and philosophy.  Now that things are going down the s@&%#er, the tune being sung is that well we don't really have free markets and capitalism.  The right says that we have gone socialist and the left says that we have gone fascist.  Oh well.  More ism's.

I would argue that the rest of the industrial world being bombed into the stone age during world war II, and the fact that we were astride a continent full of fresh unexploited resources with a country full of immigrants looking to work hard for pennies a day in this land of new oportunity had a lot more to do with it.  Any governmental or social structure would have done, I have a feeling short of something demonic from hell itself.

My problem with economic theory as with most ism's is that it trys to take center stage where it has no business being.  I am all for rhare's anarchistic utopia, where laws are completely unnecessary because we all woke one morning and decided to live in a society based on mutual respect and universal human dignity.  I guess the bigger question is how will we get there as he suggested, perhaps the it's $24,000,000 question.  Although today we need to add a few more zeros, a few million isn't what it used to be.

To quote the evil Keynes, "Capitalism is the extraordinary belief that the nastiest of men, for the nastiest reasons, will somehow work for the benefit of all."  That has always been my view of capitalism as a social system, though per Jim's definition, that quote wouldn't really apply. It's the underlying assumptions and ism's that are the problem, aren't they?  Can we sweep the table top clean, cleanse the window of perception and see things fresh.  Can we challenge our deepest underlying assumptions about what it means to be human and start over again?  Is that the challenge of these times are asking of us as all of current assumptions about the order of things is being smacked down by a rapidly evolving reality?

Most of the problem is learning how to ask the right questions.  Can we free our minds enough from our own prejudices and distortions so we can begin to ask questions with a presence of mind, with an unflinchingly painful view of reality as it is, not as we want it to be?  That is the impossible question.

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rhare
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Capitalism - greed, self interest, community, charity

treebeard wrote:

I am all for rhare's anarchistic utopia, where laws are completely unnecessary because we all woke one morning and decided to live in a society based on mutual respect and universal human dignity.

Don't get me wrong.  I don't believe society will be "based on mutual respect and universal human dignity" anymore than it is today.  It will, as it is today, be based on greed, self interest, competition.  It's those qualities that keep things in check.  Most of us would not willing give out money to an entity that said I'm going to take a large chunk of your wealth and use it to bomb people you don't know and haven't done anything too you, just so others can get wealthy, or I'm going to take the rewards of your hard earned labor and give it to someone who refuses to work just so I can get re-elected.  The only difference is that you are taking actions based on your own self interest rather than be forced via threat of violence to act on behalf of someone else.

This does not mean you won't have compassion, and community, charity.  Humans are pack animals and we yearn for companionship and company.  That is where your respect and human dignity occurs - but only when it's voluntary.  When it's forced it simply breeds resentment and works to divide us.  Just look at how well all the forced compassion is working out today.

treebeard wrote:

To quote the evil Keynes, "Capitalism is the extraordinary belief that the nastiest of men, for the nastiest reasons, will somehow work for the benefit of all."

I think that is completely crap.  It's loaded with assumptions that acting in ones own best interest means being against the common good.  I view proper competition for scarce resources as allowing us to identify what is important and valuable.  It means we are better stewards of valuable things because we know they have value.  Today we have a distorted world that doesn't value resources, nature, or community because we are led to believe it can all be had for nothing or very cheap.  I also believe the governments we  set up destroy our humanity and compassion.  It lets us assume someone else it looking out for the poor or those that need help.  It's leads to the attitude it's not my problem, the government takes care of it and they bill me for it.

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Jim H
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Narratives vs. reality

Thank you gillbilly for explaining the idea of the narrative.. and I see what you mean for sure in the words vs. actions of Jefferson.  

I still believe that the reason we strive for exponential growth.. which of course brings about exponential debt growth.. is to be found in the nature of our money system, and the motivations of those who operate and profit off of it.  Of course, exponential population growth has something to do with it also... 

I find myself most in coherence with the Austrian school of economics;

source:  http://en.wikipedia.org/wiki/Austrian_School

Principles

The main tenets of the Austrian School are generally considered to be:

  • The belief that economic analysis should begin by considering the purposeful actions of individuals and then proceed to study the social consequences of such actions.[2]
  • The belief that aggregate statistical models are not appropriate tools with which to model purposeful action or to analyze the economic results thereof.[2]
  • The theory that the way in which money is introduced into circulation has real, and not only nominal, economic effects.[13]
  • The theory that the cost of any activity should be measured by reference to the next best alternative.[better source needed][14]
  • The theory that, in a free market, interest rates and profits are determined by three factors: monetary returns from a change in the sales of a good or service, the marginal rate of return on a change in production inputs, and the time preferences of the individuals in the economy.[15]
  • The belief that markets would tend to clear if prices were allowed to adjust freely.[16]
  • The view that inflation should be defined to denote an increase in the supply of money (including credit) rather than a general increase in the price level.[17]
  • The Austrian Business Cycle Theory, which states that business cycles are caused by an unsustainable expansion of credit by banks. According to the theory, excessive bank lending, at too low an interest rate, disturbs what would otherwise be a natural macroeconomic balance between saving and investment. This in turn causes businesses to make bad investments which subsequently become unprofitable and lead to recession.[18]

Why do we need money?  It's just really handy to have a type of good that we can use as a universal intermediary instead of barter... much more efficient than finding someone with a mountain bike that wants to trade it for my camera.  

Treebeard mentions the Keynes quote on capitalism.. and I don't disagree.. unrestrained capitalism is like the law of the jungle.. and you can't blame an animal for acting like an animal.  The animal must be restrained.. by rule of law, and by regulation.  Todays mostly captured regulators hardly count.  Google's Corporate credo is very telling as to how Corporate behavior needs to be restrained in light of the usual lack of self-imposed restraint;  theirs is, "Dont be evil". 

I don't know what a perfect economic system would be.. but I would love to be part of the money subgroup working on design for the next, bankerless money system  : )     

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treebeard
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Self interest

Greed and self interest (where interest in the self is above any and all other interets) are equivalent to violence.  It is not that they can create it or may tend towards it, they are the source and creation of it.  You cannot have one without the other.  They do not keep the world in check, they are the forces that unbalance it.  We have projected our darkness onto the natural world and then in turn have used our corrupt view of natural systems to justify our own corruption

And the one lie that is the source of all other lies and self delusion in the world is that our own darkness creates light, that our greed and self interest creates balance. Greed and self interest are violence which in turn creates more greed and self interest and more violence that will continue to spiral out of control.  We have the current condition of world as proof. Native and indigenous peoples who's world view was antithetical to ours of completing self interest have uniformly been annihilated along with the natural systems that they and we depend on when they come in contact with us.

Save the planet is the slogan of a narcissistic self centered culture, it is not the planet that needs saving but us.  If we don't drop our sociopathic worship and of the individual and self and see our selves as a member of a larger community of life in the universe we will be selected out. Not because we did not develope competitive advantages over other species, but because we failed to realize that it is the species that cooperate that survive.

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gillbilly
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Thank you Jim

and to Rhare and Treebeard. All good points being made. Sorry for the last post being so long. Sometimes when I have the time to write, I work out my thoughts as I'm writing. My wife says I talk too much as well:0 I don't assume that what I write is something you haven't already thought of, so I apologize if some of it sounds preachy...just me working out my thoughts.

I still believe that the reason we strive for exponential growth.. which of course brings about exponential debt growth.. is to be found in the nature of our money system, and the motivations of those who operate and profit off of it.  Of course, exponential population growth has something to do with it also...

I like this much better! It acknowledges that it is human created and operated, and that the money system can take on a life of its own, often changing the people that created it as well as those who are effected by it. That is the two-way relationship between us and technology (money system being one technology).

I am familiar with the Austrian principles, but as with all schools and theories, I find many holes and contradictions that I won't go into now. Your mention of Galbraith awhile back on another thread had me go back and read his "The New Industrialized State." Not sure if you have read it, but chpts 6 and 7 on capitalism and power (6), and technistructure (7) have good insights on what we're discussing.

Ultimately I think our obsession with exponential growth lies in our fear of death. I know that sounds strange, but think about, what grows forever? Why is a corporation deemed a "person/individual" in the eyes of the law? I think we being human, there is a part of us that wants to last forever, i.e. continue to grow, and the corporation, at least in theory, can do that.

Google: I'm torn about this company. If you read Nicholas Carr's "The Shallows" or Jaron Lanier's "You are not a gadget" (highly recommend the second), you'll know what I mean. Lanier makes an interesting observation that web 2.0 has brought back a type of logical positivism. I'll stop there.

Gotta run, thanks again to all of you.

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rhare
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Community can not be forced...

Jim H wrote:

I don't know what a perfect economic system would be.. but I would love to be part of the money subgroup working on design for the next, bankerless money system  : )

Why does there need to be a money subgroup?  The problem with our current monetary system is it is forced onto the population.  Have monetary competition and you will see much better (and worse) alternatives emerge.  Just as you have to be selective on your purchases, people will quickly learn to be selective about which money they use.

treebeard wrote:

We have projected our darkness onto the natural world and then in turn have used our corrupt view of natural systems to justify our own corruption

Treebeard, you seem to think there is a choice of not being self interested.  There is not.  Ultimately humans just like all other living things in the natural world will do what it takes to survive.  That is not something that is chosen as a lifestyle.  Because it will always exist, the best choice is to insure that it is balanced by others seeking to do the same.   Any method that is given to allow one individual more power over another will be used to their advantage not the "common good".  It might take a few generations to be corrupted, but that advantage seeking nature of all living things will eventually occur.

There are thousands of examples of this process in our current society - all thought up by someone thinking that they could stop this natural tendency:

  • A health care system that is supposed to be for the "common good" that benefits large pharmaceutical companies and insurance providers.
  • A military industrial complex to "protect us" that steals our wealth to benefit those who run the companies.
  • A political system filled with those that seek to benefit themselves at our expense.  In fact I would argue that if you want to gather the worst of the worst in one place - provide a government that gives them unlimited power over others.
  • A banking system designed to "save the little people from economic ruin" that has done just the opposite.  FDIC, Fannie Mae/Mac, ... - lots of examples of greed and self interest running rampant all in name of the common good.

treebeard wrote:

If we don't drop our sociopathic worship and of the individual and self and see our selves as a member of a larger community of life in the universe we will be selected out. Not because we did not develope competitive advantages over other species, but because we failed to realize that it is the species that cooperate that survive.

Treebeard, you are essentially advocating enlightenment, but how can you have enlightenment when it is forced  rather than realized naturally?  The only way you will ever get to the world you desire is to allow people to be free to make choices both good and bad.  To learn that cooperation is better than conflict.  To learn the value of resources and labor.  To learn that you have to persuade someone to make better choices rather than use force via proxy against them.

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Jim H
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RHARE

my comment on money was not meant to be serious...there is no subgroup...it is just my particular area of interest. But you know that our current monetary masters will of course come up with something purportedly shiny and new and better than ever when the current fiat regime fails... my own view is that nature should be allowed to take it's course with an ecosystem of decentralized currency choices.  Maybe there will be Bitcoin, some kind of e-Gold, e-Silver, e-Oil, a Gold-backed Yuan, who knows... I just want freedom of choice.

I do believe in the beneficial power and fundamental intelligence of the free market.  What we have right now is the polar opposite of this.. with fully manipulated markets.. vast malinvestments and bad decisions are guaranteed.        

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Grover
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Posts: 507
Sticky safety net

Kelvinator and gillbilly,

I've been busy the last couple of days, but have been thinking about government's social responsibility. I'm wondering if you are advocating more government programs to aid the poor. Isn't that akin to Krugman asking for significantly more Keynesian stimulus since all others have been failures? I look at some of the social indicators - welfare, food stamps, etc. The measured levels very roughly parallel the increase in debt. If government handouts funded by debt solved these problems, wouldn't you expect an inverse relationship?

I'm not saying that Keynesian theory is responsible for the social blight. I am saying that it isn't the solution to the social ills. We need to dig deeper.

A coworker is a member of a native American tribe. I asked him why conditions are so deplorable on the Reservation. Over lunch, he gave me his insights. Here is a synopsis in a few sentences. He told me that he has a love/hate relationship with the Rez because of what it is and what it does. He loves it because it is a place where he is accepted for who he is. He hates it because people get enough government handouts to barely get by. Anyone who tries to improve his/her lot is accused of turning "whitey." It is a sticky safety net.

...

Last year, I promised rhare and treebeard that I would start a thread on "Appropriate Level of Government." I've started it at least half a dozen times. Each time, it ended in despair. When I researched the current levels of spending in the agencies, their stated missions, the latitude of executive orders and signing statements, I've concluded that the system can't be fixed. Tweaking here and there won't be sufficient. An overhaul won't be possible given all the moneyed interests pushing for status quo.

Assuming that our government would fail, there would be small communities that would survive. Some of those communities could have a substantial number of members. They would likely form governments to coordinate efforts. If that were to happen, what would be appropriate responsibilities of the government and what level of funding would be appropriate? Again, it is impossible to say that government should be a certain percentage of community GDP and that this much should go to each of various Cabinet level departments. That would depend on size, location, community needs, and collective strengths. Again, I think most people here have a good idea of what they think is necessary, and also the ability to discern what is really necessary as the funding dries up. Not everything is equally important.

I'm not going to try to start that thread again.

Grover

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gillbilly
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Posts: 378
Ambitious

Grover,

That is an ambitious undertaking. I can honestly say I have no idea as to what an appropriate level of government should be. It's such a complex question on so many levels, and the system and data has been so corrupted I'm not sure anyone would have an answer. Your example of native Americans is quite unique because of their history and culture. I posted a link awhile back to a recent documentary "Dokata 38" that details how native Americans are still dealing with how their ancestors were treated. We as a country have yet to have a meaningful conversation about it on a national level.

It's such a huge topic I'm not sure where I would start. Regulation/Legal system? Entitlements? Welfare? Military/Defense? Planning? I do think our economy and/or private sector couldn't have grown to the size it is without a government growing along with it. Some corporations have assets and budgets that are bigger than state govts. and/or small countries. Should our federal government be smaller than these private entities? These same private entities sit in the federal government backrooms when policy is being crafted, so where's the line between government and the private sector? Where does government really begin and end in the system we've created. Is it strictly what our taxes pay for? It's pretty nebulous.

I'm all ears to other's opinions though.

Thanks

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treebeard
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Growth

I would posit that the concept and necessity of growth comes from the investor class and not from your typical working stiff.  We as the general unwashed masses are increasingly being indoctrinated to think and act as investors.  But that to my mind that only leads to bubble mania, and the something for nothing mentality.  What does your average person want? If I may make so bold to speak for the mass of humanity: meaningful work, reasonable hours, reasonable compensation, some level of job security and a comfortable old age.  I don't think growth is in the narrative for most people.

Those that push the concept of growth are those who wish to profit from the labor of others without directly participating in the human project themselves.  Without growth invsetments don't accumulate at a rate that can support those that don't contribute directly with their minds or physcial labor.  I am not arguing against savings and capital formation, but it is the over development of a class of investors, and the investor mentality that eventually leads to the financialization and the collapse of the economy IMHO.

Dave Korten is big in to narratives too and the critcal function that they play in the creation of culture fabric and macro societal outcomes.  I am a big fan of his, if there is any one person who encapsulates an ideology that will get us out of this mess, I think that it is him.  Kelvinator brought his name up too. The attached clip is a little long but worth watching if your not familiar with his work.

He hits the three E's head on and proposes interesting solutions.

gillbilly's picture
gillbilly
Status: Gold Member (Offline)
Joined: Oct 22 2012
Posts: 378
Amen Brother!

I forgot he wrote The Great Turning! This video reminds me of a sermon I heard once on the "forgiveness" stated in the Lord's prayer. The original translation is in fact "forgive us our debts," not "trespasses." This is not coincidental, but literally to mean all forms of debt including the debt Korten is describing. Interesting the word trespass is used as an alternative...very different meaning. Thanks for the link, and yes, this is the class warfare I see as well.

Peace

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