But you have to learn to think!
Just read part of one a book on the financial crisis that is upon that will soon be out *Armstrong *will post link later… Simply illuminating….my take away is as follows (Many of these are paraphrased from Armstrong’s work)
This isn’t the “garden variety recession” Very few politicians are familiar with monetary history and are the last source to look for financial guidance.
Consider that during the Panic of 1896 JP Morgan convinced British bankers to lend to the US. After WWI London gave that capital to New York. In 2000, New York had more than half of the world IPO market (IPOs are when companies decide to expand) Although many of those were ill advised ideas and due to the decline of the rule of law that number has shrunk to 5% today.
Mostly the result of fiscal mismanagement and the debt crisis. Politicians (on all sides) believe they’ve figured it out…but the answer to the problem is always the same, debt and fiscal mismanagement. Those who only see 2 sides of an argument or who are asking what will happen to the DOW or my house are missing the bigger picture here.
We have a front row seat to what will be the most interesting times (financially) in the history of man. The thing politicians are ultimately forced to realize is that the people eventually understand they really never had any idea what they were doing for they were able to spend other people’s money. When this theory is pushed to the max as it has been today, you have the stage set.
Ultimately the financial markets reveal the truth. It is our job to understand what they’re telling us and when enough pontification is enough. Politicians do not like this because they come to grips with the fact that many of their ideas are over the top, unsupportable and not based on any shred of economic sense.
This is not about the end of the world (eg. 2012, etc) or some doomesday scenario…Those who suggest this either want this or have learned to live in fear. This is the realization that putting off till tomorrow what needs to be paid today (Fiscal Mismanagement) HAS reached the end of the road. You simply can not spend more than you earn. Duh!
When you step back from all the BS and hot air you really its really that simple.
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If you’ve ever heard the MMT guys before, they believe that not only can the government spend what hasn’t been earned, but it can spend as much as it wants. It’s all 1s and 0s, anyways, so padding accounts with a few 0s shouldn’t be too difficult, right?
Of course, that still ignores the issue of spending other people’s wealth; money is not actual wealth; actual wealth is the stuff accumulated and saved by people, intellectual capital, human capital; all of those are forms of wealth.
All the government can really do is stimulate one over the other or redistribute from one over the other, or it can engage in its own activities; although we can debate the ends of some of these (Manhattan project, Apollo mission, Eisenhower Interstate program), there is always additional waste since government is spending other people’s money.
Then there’s the additional question which is even if the government did a decent job of creating a net increase in jobs through redistribution trickery, do we really want the government to act as the chessmaster, with us as the willing pawns? Who would even decide what jobs to give, and how would they be productive? The only thing I’ll grant them is that unemployed families lead to more unemployed people, but there are more elegant solutions to that than just giving everyone a job to fill ditches all day.
I think it’s going to take more than simply a realization that you can’t “spend more than you earn”. I think that voters are going to have to realize that the government cannot generate more wealth with a given set of resources than can the private sector, and they most certainly cannot generate wealth out of nothing. Political structures will eventually have to change to accommodating that fact, otherwise we are stuck like hamsters in a cage.
Good stuff, Mike, looking forward to more of your posts.
Hi Kevin,
Good to hear from you as always and well thought out comment.
The simplicity in the statement that “you can not spend more than you earn” goes back hundreds of years studying great economic superpowers. It’s an attitude these superpower’s (long in the tooth) take on believing they have conquered history and they are immune to economic laws so simple.
You can see the beginnings of this with the daily mention of local, state and federal workers being laid off, benefits being cut and unemployment rising. There are other factors that will weigh in on that simple statement above such as the retiring class’ age, promised benefits, medical care, etc. These promises will be broken and we will either fix them or we will turn to war (internal and abroad) this is nothing new.
People thinking that things will simply go on “as promised” by the government via Social Security, unemployment, medicare because of deficit “stimulus spending” are about as clear thinking as the sub prime borrower a few years ago who told himself, “It doesn’t matter if I can’t afford the payment, I am going to sell it for a $50k profit anyway.” You do not cure a debt problem with more debt. Providing stimulus on the “margins” is acceptable. Holding interest rates close to 0 for years which encourages more borrowing is a sign of insanity. But it doesn’t matter as long as we “hope” so. There are always severe consequences and I believe this time will be no different. Like I said above, not the end of the world, but an end to madness. How will this play out?
Eventually, this economic law will be realized by all in the economy, including the US govt. They know it’s coming. The US Treasury is just able to push this off the furthest. When the first US Treasury (debt) auction is not fully subscribed, you will see these signs I mentioned above go into hyper active mode. This will catch most people off guard, just as it always does.