Tag Archives: #economy

Crisis and Opportunity

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I am addressing these words to Americans for two reasons. I believe we have entered a period of severe, successive and interacting crises that promises to be deep, grinding, and long-lasting.

Secondly, I am concerned about the potential consequences of the increasingly bitter antagonism and disunity current among the American people.

Many of you are aware that the present predicament has been developing gradually over time. We have seen the loss of a once vibrant civil society, deterioration of the nation’s economic base, and a profound loss of social coherence and moral responsibility.

We each have a personal decision to make. Do we wish to recover the integrity of the United States as a constitutional republic? Are we prepared to rise above our differences, to engage personally with our neighbors, to instill the American spirit in safe, dependable communities?

These are among the questions that have inspired the forthcoming book. Our circumstances are already extreme. Nothing will be easy.

The United States and the world have arrived at an unprecedented turning point. We face a formidable array of complex crises. The challenges are diverse, profound, and mutually reinforcing. Some will impose themselves suddenly, others gradually, but all will ultimately converge as they impact upon our lives.

What is most extraordinary is the number and variety of crises that are emerging into view at virtually the same time: social and economic, moral and material.

An abbreviated review is offered here to demonstrate this diversity.

1) Increasing social instability characterized by a dramatic loss of civility, and by unrestrained anti-social behaviors that include accelerating incidences of brutality and mass murder.

2) A banking and monetary system that favors the financial elite rather than the American people, and which has become dominated by self-serving individuals who appear incapable of recognizing that their risk-taking behavior threatens the well-being of everyone, including themselves.

3) Massive government indebtedness, which constricts the economy and threatens Americans (and many others) with a dramatic devaluation of our dollar.

4) Ancient and deteriorating infrastructure that we depend on every day: bridges, municipal water and sewage systems, and the electrical grid. These will be almost impossible to upgrade or replace by governments already hobbled by indebtedness and shrinking revenues.

5) An exponentially increasing global population. With this comes rapidly increasing risk of global epidemics, as well as inevitable food shortages caused by falling water tables and a continual loss of arable farmland.

6) The rapid development of advanced technologies without a commensurate advancement of moral maturity or conscious sense of responsibility.

7) Degradation of the natural environmental systems that provide us with clean air and water, the consequence of population pressures and the long-term aggregate build-up of toxic substances derived from motor vehicles, household products, and industrial pollution.

8) A failure of parenting, and the emergence of a generation of youth untethered from reality and having little sense of moral, personal, or social responsibility.

9) Last, but not least, a profound loss of moral compass, balance, and integrity on a societal scale. This dramatic deterioration is overwhelming the values and norms of the past, and it is a crisis that impacts on all others.

There is more.

During the past century we have seen the emergence of integrated and digitized global systems that include transport, communication, and surveillance technologies, and a unified global monetary system. Consequently, no crisis can take place in any context without impacting on the whole.

A profound structural transition is taking place in human affairs that many have yet to recognize or understand.

How can such dire circumstances be called an opportunity?

For Americans the opportunity lies in the disruption of our lives – a disruption so profound that it cannot fail to alter our perspective, our thinking, and our willingness to cooperate with one another for the sake of local safety and security – whatever our politics or religion or the color of our skin.

And, if we can build viable local communities we can also begin the dialog to identify the practical extent of our shared values, and to develop a sense of shared vision and purpose that we can respect.

We must resist being dragged down, demoralized. We cannot react out of fear. We will stand firmly together, rising to the promise of our humanity with honor, dignity, and resourcefulness.

The identity of the nation is at stake.

Tom

Next week: A Confluence of Crises

Where we are going…

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Lake 2

“If you don’t know where you are going, you might wind up someplace else.”

–Yogi Berra

Honesty

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Coast 2-x

“Honesty is the first chapter in the book of wisdom.”

–Thomas Jefferson

“I am afraid we must make the world honest before we can honestly say to our children that honesty is the best policy.”

–George Bernard Shaw

Common Sense

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Leaves 2

“We cannot solve our problems with the same thinking we used when we created them.”
–Albert Einstein

“Democracy is finding proximate solutions to insoluble problems.”
–Reinhold Niebuhr

“Society is always taken by surprise at any new example of common sense.”
–Ralph Waldo Emerson

Economics…floats in the air…

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Tree 9 Yellowstone

“Existing economics is a theoretical system which floats in the air and which bears little relation to what happens in the real world. It has no subject matter. That’s the problem.”

–Ronald H. Coase, Nobel Prize in Economics

Excluded From the Means…

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People 7

“Men might as well be imprisoned, as excluded from the means of earning their bread.”

–John Stuart Mill

The aristocracy of our monied corporations…

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Lightning 1-x

“I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.”

–Thomas Jefferson

“If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.”

–Mark Twain

Coin, credit and circulation

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Coast 3

“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
–Mark Twain

“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation [money].”
–John Adams

“The time to save is now. When a dog gets a bone, he doesn’t go out and make a down payment on a bigger bone. He buries the one he’s got.”
–Will Rogers

American Crisis – 2

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Jefferson Memorial 1

“I believe that banking institutions are more dangerous to our liberties than standing armies.”

–Thomas Jefferson

Why the Bankers Are Trapped

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Few seem to grasp that we have arrived at a turning point; a nation and a world confronted with extraordinary structural change.

To think of the future in terms of recovering the past will not be helpful. We must pick ourselves up, hit the reset button, and move forward in a manner that is congruent with a rapidly changing reality.

I am not a banker or economist. I cannot speak with authority regarding the fragile conditions to which we are exposed. But neither am I trapped in past assumptions or blinkered by custom. My intent here is to monitor a transition I think we should all try to understand.

There are many aspects to the changes we are experiencing, some with immediate implications, others longer-term.

However, I think it useful to begin with a particular question with critical immediacy: “Why is the Federal Reserve unable to return the economy to some semblance of order?” Or, to put it another way: “Why has nothing actually been fixed since 2008?”

Here we find a powerful illustration of what is meant by structural change.

The short answer to these questions is that they want to believe they are dealing with a cyclical crisis rather than a structural crisis.

Again, why? Because the truth represents an unbearable existential threat.

Structural change has shifted the economy into a long-term deflationary trend, which presents financial institutions and governments with an impossible situation.

I refer you here to James Rickards’ recent best-seller, “The Death of Money: The Coming Collapse of the International Monetary System”. A monetary economist and former banker, Rickards is an adviser to the Pentagon and CIA.

Using simple math, Rickards’ explains how “in effect, the impact of declining prices [deflation] more than offsets declining nominal growth [GDP] and therefore produces real growth.”

Most of us would think this is a good thing.

He writes: “Despite possible real growth, the U.S. Treasury and the Federal Reserve fear deflation more than any other economic outcome. Deflation means a persistent decline in price levels for goods and services. Lower prices allow for a higher living standard even when wages are constant, because consumer goods cost less. This would seem to be a desirable outcome, based on advances in technology and productivity that result in certain products dropping in price over time….”

Why is the Federal Reserve so fearful of deflation that it resorts to extreme measures to oppose it? Rickards gives us four reasons.

First, deflation has a severe impact on government debt. “U.S. debt is at a point where no feasible combination of real growth and taxes will finance repayment…. But if the Fed can cause inflation…, the debt will be manageable because it will be repaid in less valuable nominal dollars. In deflation, the opposite occurs, and the real value of the debt increases….”

Second, deflation impacts the debt-to-GDP ratio, causing foreign creditors to lose confidence and demand higher interest rates. This is an urgent problem because the debt is continually increasing. Budget deficits require new financing, and interest payments are being financed with new debt.

Third, deflation is a major problem for banks. As Rickards’ puts it, “deflation increases money’s real value and therefore increases the real value of lenders’ claims on debtors…. But as deflation progresses, the real weight of the debt becomes too great, and debtor defaults surge.”

The fourth problem with deflation is about taxes. When a worker receives a raise, the additional income is subject to taxes. But, if the cost of living drops by the same amount, the worker in effect receives the same raise and the government cannot tax it.

“In summary,” writes Rickards, “the Federal Reserve prefers inflation because it erases government debt, reduces the debt-to-GDP ratio, props up banks, and can be taxed.”

“Deflation may help consumers and workers,” he says, “but it hurts the Treasury and the banks…. The consequence of these deflationary dynamics is that the government must have inflation, and the Fed must cause it. The dynamics amount to a historic collision between the natural forces of deflation and the government’s need for inflation.”

Such are the difficulties and dilemmas of structural change.

Tom

Next week: Insolvency and the Devaluation of the Dollar.

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