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Sunday, February 1, 2009

[roeoz] the sun is setting on a previous era

Posted by AccGURU

We are at the dawn of a new era and more importantly the sun is setting on a previous era. This previous era was a time of exponential growth in energy, population, and material resources.

The conversion of resources and labor into commodities kept up with the demands of a monetary system predicated on compound interest and fractional reserve lending. Admittedly there were some rough spots along the way, but all in all it looked like a pretty good deal.

Then something happened. The system that cranked out all those goods started to run out of markets for those goods. The solution was to buy cheaper labor to make those goods more attractive to buyers. Also, as the resource base started to degrade into lower quality ores and energy, those costs further drove the system to look for more markets and even cheaper labor. As few people had the wages to buy these goods, the system also devised a way to lend people enough money to buy all the neat stuff.

This flooded the system with a lot of new money conjured out of nowhere. Now, as the sellers and financiers of all this neat stuff ran to invest their profits in the making of more neat stuff, they found that there was no way to expand the market for neat stuff. People had about as much neat stuff as they could afford, and arguably a bit more.

But, one of the rules of the system is that money must be put to work and earn more money because of a thing called The Discount Rate. This is when the new conjured up money causes existing money to lose value by inflation. Having nothing tangible to invest in, the brokers and bankers started to invest in instruments that were based on the performance of yet more instruments. This violated the notion that money must confront commodities in a market.

Under this new scheme, money confronted other money or even just the promise of money. What happened? What happened is what happens whenever people make bad promises. Bad things happen. The chain of payments that keeps money and commodities circulating began to break down.

One of the assumptions under the system is that the quantity of money and commodities should always grow. That's what all of the contracts are based on. The system cannot cope with a decline in money or commodities. The system breaks down. The system is like a man driving a tired horse. The horse needs to have it's workload reevaluated. It needs some hay and oats and a long drink, It needs a good rest. But the system cannot stand still. It whips the horse for more work without any concern for the health of the horse. Now we see the horse stagger and fall. It may be too late for the poor horse. Will the horse get up?

If it does, will the system let the horse recover and stop trying to get more from the horse than it can deliver? If the past behavior of the system is any indication, I don't hold out much hope for the horse.

I would have more confidence in optimism if the optimists lived wisely!
A pessimist is a well informed optimist!


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