jeudi, septembre 22, 2005

the subject of this blog

2006 is bound to be the start of three big revolutions.

1 the end of the free market era, deregulation, supply side policies, reaganomics and the infatuation of thatcherists, chicago boys and others dumb austrians ...

Between 1939 and 2006 the world economy has piled debt upon debt. Debt levels have gone through the roof. Consumer debt, government debt (which is way higher than officially recorded in public accounting), banks debt. Only companies have remained approximatively stable in their debt position.
Debt as a ratio of world GDP is up.
On this blog we'll post data on this fact.


THis is a direct cause of falling wage/productivity ratio, wages are a smaller share of value added. And this is probably caused by globalisation and the fantastic "reserve army" of peasant in Asia ready to join the asian labor force at the survival wage, even if their productivity is 3 times their wage.

Producers lend to consumers whose wages are too low in order to get sufficient demand. Investment is made in excess. So much, that right now, investment level is falling world wide : there isn't any more profitable investments available. This is just what Marx correctly predicted, when the wage level does not rise with productivity (and only when it does not) sooner or later, there is no profitable investment to make.

We'll document that growing gap between productivity and wage, and the lack of investment.

Therefore more and more people are going into cash. Savings are bound to raise once people repay debts. But then you can expect a credit crunch and deflation.
And the central banks world wide will not be able to fight deflation, just like japan was unable to fight deflation.

Why because :
1 helicopter drop of money is technically not possible. Back to 50 years ago, central banks created 50% of the money supply, now that's below 5%. So if the private money falls by say 5%, the money supply of the central bank would have to double to compensate this.
Unbelievable.
2 It won't be done because politically no one is ready to do it. Debts have grown for 20 years and risks have mounted of debt deflation. In Japan they've face 10 years of deflation. But the central banks of japan has not dared to crowd out private banks and market actors out of the money creation. Out of 100 yen available in japan, still only 5 are from the central bank.

Basically central banks have been working for the banking community for a while, and not for we the people, there's been a rampant privatisation of money creation. But private money creation is based on private debt. So if the level of debt falls, comes deflation, rising real rates, bankrupties etc.

My bet is that only when deflation will have caused very severe damange will the central banks dare crowd private banks out of the money creation (in concrete terms, will they dare finance the government deficit with central bank money, money directly going to indebted consumers who could then repay the debts owned to the bankers, the destruction of private money limiting the desired inflationist impact of the action).

So that's number one. In 2006, thanks to a crashing world housing market. We'll document that too, the world economy will plundge in world deflation.

Number 2 :
Globalisation of trade and free capital movement comes to an end. That's a direct result of the crisis. Governments realise they can't manage the mess because their economies are still to open, they all try to devaluate their currencies, reduce imports ... Remake of the 30's.
It's already going on. We'll keep track of mounting protectionnism.

(FYI yes protectionnism in itself is a bad thing and free market is a good thing, but we need to understand that excess turns any good thing into a bad thing. Besides their is no such thing as "a global economy" there is a walk towards a global economy, a free market etc. The problem appear when instead of walking you start to run, and then run down a mountain, and then dive and hope there will be water below ... Because the movement is going too fast. Precisely, the opening of trade to asia was probably too fast for a stable world growth.
It's not unusual. The economy is cycles around a trend.
SO we'll document cycles around a trend towards greater globalisation.
I'll try to explain the 4 modes of cooperation I've identified in my PH D in economics and how they can help to understand the present mess.

3 The end of our productivist era.
The present crisis will sign the end of the free market ideology, just 15 years after the end of the communist ideology. Both shared the idea that there is something called technological progress. Humans can domesticate the earth.

THis is prooving to be a myth. We'll document signs that we're not domesticating anything, rather creating a mess around us, because we can't find our correct niche in the ecosystem. We're just like any predators who become too numerous too rapacious and end up dying in numbers when there's not enough livestock to feed them.
Hence epimethee.

Now, that's quite a challenge.
Quite a hope also. Welcome 2006 and the oncoming revolutions.

6 commentaires:

unlawflcombatnt a dit…

Epimithee,

This is an outstanding post. It think I can sum up the core of the problem in 2 sentences. Wages are not keeping up with productivity (and production.) Debt is being created so that deficit spending can maintain demand for the increased production that cannot be purchased with wages alone. I'll post a link to your blog on by blogsite. Keep up the good work.

unlawflcombatnt

EconomicPopulistCommentary
_____________________________
The economy needs balance between the "means of production" & "means of consumption."

Epimethee a dit…

nah there are other problems added : central banks do not pring enough money, money is created by private agents and based on debt. That's a problem.

And we have an excess faith in technology in order to gain us prosperity by controling nature.
We cannot control nature, just like a single human cannot control humanity, we are bound to learn from the eastern tradition, forget our dreams of control, and learn to fit in the flow of events, learn to become lighter for this earth.

And there's also the growing protectionnism.

unlawflcombatnt a dit…

There are a number of places I post at. I'll give you the ones I think are the best--the ones where your posts will do the most good and/or be the most appreciated.

The first is Democratic Underground at:

DemocraticUnderground
Next is DailyKos at:
DailyKos

Kitco.com is a gold investment site, but many of the posters are very well informed and appreciate good input. Their address is Kitco
I'd also like to see you post at the OrangeCountyRegister (California) discussion board. This is my hometown area. The posters on this board need a LOT of enlightenment. (I feel like I'm talking to people here that are mentally deficient.)You will probably get some arguments here, but your input would be VERY helpful. That address is:
OC Blog
http://talk.myoc.com/

The 2nd link is a particular thread.
You might also like the Liberal Forum at: http://www.liberalforum.org/liberalforum/

I have a lot more forums I could give you if you'd like. These are the best ones and the ones with the highest number of members. I think DemocraticUnderground has over 70,000 members.

Let me how these work out. And let me know when you post at one of these site, so I can post comments.

unlawflcombatnt

unlawflcombatnt a dit…

Here are some discussion boards you might want to try.

DailyKos
DemocraticUnderground
Kitco.com
BostonHerald
OrangeCountyOnline
WorkingForChange
UpsizeThis
SignOnSanDiego
LiberalForum
KucinichBlog

unlawflcombatnt
EconomicPopulistCommentary

Epimethee a dit…

thx.

I'm trying to concentrate on my PH D (hard since I'm so much convinced the world is on the brink of a major collapse ...)
I'll write a good post this Week end.

unlawflcombatnt a dit…

Epimithee,

I have to agree with you about the impending collapse. The housing bubble and the debt bubble are bound to burst in the near future. When is another question.

In the U.S. new home sales declined 10% over the last month, though prices increased 2.5%. This still indicates deflation of the housing market.

Consumer confidence dropped 19 points, more than it has since the 1990s. There is nowhere for the economy to go but down.

I'm looking forward to hearing more of your assessments.

unlawflcombatnt
EconomicPopulistCommentary
_____________________________
The economy needs balance between the "means of production" & "means of consumption."