Since the 30s, the government, in conjunction with the Federal Reserve, has increasingly narrowed the "sweet-spot" of economic viability. by Republicae
(libertarian)
Saturday, July 19, 2008
"The sole fact that credit is today the normal and proper expression of value and of exchange has introduced an element of extreme instability into all contemporary economic systems. Modern economic systems appear to be balanced on a knife's edge as it were; the tiniest excess or deficiency of national credit can tip the balance in one direction or the other. This system is minutely adjusted, so to speak, to reflect the smallest increment in weight which it can just support, and that is why it is so extremely sensitive." Karl Lamprecht
We have had decades of economic paving in this country, the road has been paved with what amounts to little more than "bills of credit". With each manipulated "boom", there has also come a very predictable "bust"; since each "boom" is completely financed by the creation of debt, these "booms" are, for the most part, economically superficial. These "booms" seem to make people think they are "wealthier" and act as though debt is wealth, when in reality it is just the opposite and sooner or later that reality makes itself known.
Since the 30s, the government, in conjunction with the Federal Reserve, has increasingly narrowed the "sweet-spot" of economic viability. Historically, every depressionary trough was preceded by a panic, which usually included bank-runs and failures. A very interesting fact about "depressions" is that the word itself has been defined out of existence, conveniently replaced with less-foreboding sounding words. Today, even the word "recession", now nothing more then "depression's replacement" has been politically relegated to the closet. Eventually, economic law will overwhelm the illusion that has been carefully crafted at the hands of the political handlers, the bureaucratic managers and the central bank economic planners. Their attempts at a very particular social and political plan is failing far more rapidly then they realize; the problem, of course, is that the rest of us will pay the price for their manipulation of our society through their central economic planning and excessive debt creation. As I have stated, they can simply repeat the mistakes of the past, they have nothing else in their bag of tricks, eventually nothing they try will shift the downward economic spiral they helped create.
The current Fiat System is about to demand reality and that reality is about to come in the way of interest rates. This country, the government and indeed, the Federal Reserve has yet to see that this demand is on the way and are doing everything to avoid such rate increases, but it is pressing against the artificial barriers that have kept massive rate increases at bay, but the fragile economic dam grows weaker and weaker. Eventually, even the powers that be will not be able to restrain the forces that press against the rate process in this country. The combination of an extremely sensitive economy, high levels of risk in the throws of decay, the artificial rate racket is about to come to an end.
There is though, one huge problem; this reality will wreak havoc in an already sensitive Fiat economy. There has been a sign that few seem to be aware of and that sign is the decreasing margin of tolerance this economy has between the low levels and the highs it can manage while remaining viable. At one time the economy could tolerate higher rates without convulsing however, as we have seen, that is no longer the case. With each "boom" and "bust" the level of tolerance has narrowed substantially to the point that even minor increases become reactionary.
Our "money" supply is being inflated at a precipitous rate and eventually, and we won't have to wait long, that monetary expansion will, it must be mirrored in interest rates. They, the government and the Fed, are, of course, attempting to keep money cheap, pumping it out in hopes that they can avoid massive business and individual economic failure. However, the eventualities of reality, a reality that none want to think about, will forcefully, even violently push through the illusionary blissful world of the fiat economy.
The Fed, and its government darlings, has attempted to suppress the forces that naturally bear down on a fiat economy by keeping rates as low as possible, all in the hopes of preventing widespread economic insolvency, but since they will eventually have no other options left to them, the reality will exert itself and the very thing they have sought to avoid by keeping rates low will happen as rates catapult to the point that the economy falters. The fiat economy will be placed on the harshest anvil of reality it has ever been subjected to, think Great Depression ten fold.
There were however, a few saving characteristics of The Great Depression that our contemporary society lacks. First, economic resiliency has been removed from our society, the manufacturing base has been effectively decimated and the people of this country are wholly unprepared for such distress, particularly those in urban areas. Additionally, in all likelihood, this next Depression era, will be conflated with hyperinflation rather than deflationary as was The Great Depression. The amazing thing about the Great Depression was its slow creep, like a vine, it slowly spread across the country. This current recession will prove to be just the beginning of a far larger, far deeper depressionary creep.
As much as the government tries, it's attempts to "cure" the economic woes that it helped create will only make things worse. Politicians are quick to deflect blame, but the blame falls squarely on the shoulders of those power-twisters in Washington, D.C. This country and its people will face a period that few people can even conceive at this point.
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The views expressed
in this article are those of Republicae only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Republicae is solely responsible for the contents
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The fundamental problem is with Wall Street and the massive number of "products" that is being peddled from their enterprises, ie, derivatives, etc, all of which accomplish two goals; Firstly to confuse the buyers, banking companies and other such institutions and secondly to create a situation in which the only people who understand them are the purveyors on WS . I have been in the business of providing guidance to investors for over 30 years and during that time have seen the number of these "products" grow to what we are seeing today. Until WS gets back to the basic business of providing stocks and bonds these problems will not be resolved.Â
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