Here's an answer from Ireland on the road to ruin:
'The two Brians haven't a heart between them'
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Claire O'Brien Irish Independent
Thursday December 09 2010
"I WOULD cry, but I can't," says Ann Hughes, but her voice breaks as she tries to come to terms with the Budget cuts that will take food from her table.
A full-time care(give)r to her 31-year-old autistic daughter Debbie, Ann is already relying on her only working son to help when her care giver's payment doesn't last the week.
She doesn't want to cry, but the tears flow.
"The bills have to be paid," she says. There's the rent, electricity, heating and the credit union loan she has that bought the little car she needs to get Debbie around Tullamore, Co Offaly, where they live.
Right. The choice is to heat the house or drive. Believe me, most Americans, Europeans, Chinese (with carz) or others (with carz) around the world are making the same choice. Starve the poor baby girl and keep paying for the car. Blame Cowen and Lenihan.
What comes is inevitable: "You keep the food, I'll take the car!"
Notice, I left the car ads that emblazon the Independent web page. The hectoring to get into (unserviceable) debt in order to make the necessities/car choice is unending. Internet is fast becoming the same, worthless advertising medium television has been for decades. It's smartest minds and largest companies exerting every effort to convince you how much you suck if you don't buy goods ... such as carz.
Mr. Advertising Man Internet is a 'basic, human right', correct? Google and Toyota and our other self- created golems have won, along side the worthless and corrupt apparatus of governments world wide which exist to support them!
This article demonstrates why whining about 'heartlessness' is self- immolating. The gas- guzzling car is always sacrosanct. There is no real choice as our 'hip and trendy' culture orbits around car 'ownership'. You 'own' the car, the bank owns you. You get to make the heart- rending choice whether you drive or eat.
While this is taking place, the consumption of irreplaceable capital bankrupts the car- centric culture from the bottom up. Ann Hughes's car is literally taking food off her own table. We humans are competing against our own cars for resources! How stupid is that?
The ice caps melt and the great cities of the world slip into the ocean we can blame whom?
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Sad part is that few take the time to make the connection between convenience and 'appearances' on one hand, and onrushing system breakdown on the other.
Meanwhile, the estimable Chris Martenson has the usual sales- pitch for inflation (and gold buying) over @ Zero Hedge:
Don't Be Fooled: Inflation Has The Upper Hand
Here at Martenson Central, we are endlessly keeping a close eye out for the emergence of deflation, defined here as the purchasing power of the dollar going up.
Technically, inflation and deflation are terms that indicate a particular combination of money surplus or deficit (respectively), demand for money (of which velocity is but one measure), and demand for various goods and services (which themselves may be in abundance or short supply).
The reason that the inflation vs. deflation debate has been so noisy, yet simultaneously so murky, is that all of these intersecting variables impact the final equation. It is like the difference between trying to balance a single broomstick on your outstretched hand vs. trying to balance a broomstick with three well-greased hinges at points along its length. The former is tricky enough to balance; the latter would be impossible for nearly everyone.
Chris inserts the usual straw man arguments:
Some try to reduce the inflation/deflation debate to a single broomstick (“…all we need to do is look at declining credit and see that we are in deflation!”), but in my opinion, that is far too simplistic a view. We still need to consider base money creation, velocity, and the relative level of faith in current and future monetary policy among the majority of market participants.
The argument for deflation says that because of declining credit, people will hold onto whatever money they have for dear life, unsure if more money will be forthcoming. In this case, the velocity of money will slow and collapse.
Next ...
Conclusion:
While the theories about the role of money and credit as the drivers of the ‘-flations’ are very important to understand, what we really care about at the end of the day is the final impact on our purchasing power. By nearly every measure, except in limited cases sprinkled throughout (with housing being the most visible and important), we find that prices have been rising smartly. Or we could say that the dollar and other fiat currencies have been sinking, which is a more accurate way to think about the dynamic.
Hmmm ... prices are going up therefor we have inflation. Right.
Please read the whole article and the linked additions. Chris is brilliant; if you haven't take his Crash Course.
The oil value of dollars is set by the economy, not by the markets or by central banks
Meanwhile, I completely disagree with his conclusions about inflation. With diminishing oil supplies -- as indicated by dollar markets rather than fudge-able 'production' and 'reserve' figures -- inflation is impossible. At some point the oil price rises to a level where economic activity slows sufficiently to kill demand for oil. When this happens the oil price drops. The high price level is the 'upper bound' of dollar or other currency devaluation relative to oil. It is therefor oil which sets the value of dollars, euros, yen, yuan and other currencies at the all- important margin. Since the dollar is the world's reserve currency, its value is the fulcrum over which other currency values are leveraged.
Since the dollar value upper bound is fixed by economic forces that matter, activities by fun- loving central bankers are compleately irrelevant! The Federal Reserve seeks to become so by forcing the dollar lower on foreign exchange markets. It does this by activating its network of primary dealers, by manipulating gold and silver prices, by stage- managing currency interventions, by purchasing bonds in the open market then selling these same bonds under the table in the derivatives markets and by other well-known central bank tactics. These tactics backfire when they trigger speculative bubbles in crude oil which force the price to the level where economic activity slows down. The oil value of dollars is set by the economy, not by the market or by central banks.
The takeaway is that the Fed and other central banks can effect monetary policy and pretend to set currency values only when it doesn't matter. Central banks attempting to matter can only effect values adversely, when they stupidly force oil prices to the upper bound! Doing so reinforces central banks' impotence and self- destructiveness.
Four- dollar gas and Planet Bernanke gets burned in effigy in front of the Federal Reserve building! Four dollar gas blows up the finance activities of the waste- based economy @ the same time.
When economic activity slows, market entities that rely on currency flows are starved for short- term roll- over funds.
The fast- becoming- unproductive world's economies are reduced to ponzi schemes of buying and selling money in order to obtain oil, so that the Ann Hugheses of the world can burn it up for absolutely nothing. Upsetting the cash flows through these ponzis is fatal. On the one hand the blameful Hugheses inexorably bankrupt all around by way of resource depletion, on the other is the periodic mad scramble by collapsing ponzis desperately seeking liquidity.
If it wasn't so tragic it would be hilarious.
Question: if there be inflation, where is the liquidity? The current answer is endless cycles of re- lending; solving credit problems with additional credit. What looks like inflation is borrowing from the left pocket of the sweater to 'loan' to the right pocket at interest. This nonsense is taking place so that unraveling the same sweater from the bottom can be continued! Right now, the pockets are about to disappear.
If the world had those four or five more Saudi Arabias we would have inflation. We don't so we won't.
The price rises are caused by two forces: one is allocation by price where entrenched credit mechanisms allow this form of allocation to take place. Higher education and medical costs are two such areas. Education has its own credit system of 'student loans' that has specific legal supports that do not exist in other sectors. One can default on consumer credit or house loans without personal penalty while student loans are ... persistent and difficult to discharge. Consequently, the education lending regime has not fallen bankrupt, yet.
The same is true with the medical 'industry' which also has its embedded credit system of 'insurances' along with the willingness of those in extremis to tap any and all unused forms of credit or savings in order to save their own or loved- ones' lives. It is only when the savings are stripped, the education non- productive or the participants unwilling to participate in these particular ponzi schemes further, will the costs of these sectors fall alongside real estate,
The other force which pushes prices higher is changes in marginal returns: as business declines firms attempt to maintain margins by raising unit prices for their diminished customer bases. Obviously, this is a rear- guard tactic as there is an upper bound to the amount of increase that any given group of customers can afford. As with crude oil, rising prices reach a level where customer purchasing activity slows and demand is destroyed. In this way companies price themselves into bankruptcy.
People can endure very high prices for food and other necessities. Allocation will take place by price with food and energy taking ever- larger shares of business and personal expenses. Keep in mind that most goods and services are petroleum in varying forms. Some are more necessary than others. Most modern food is a form of petroleum.
Nominal prices rise and fall responding to market forces. The prices tracked by indexes are misleading. What matters is the cost of energy as well as food (energy) relative in proportion to other costs. The percentage of economic activity allocated to energy production and use increases at the expense of other activities. Unfortunately for all of us, these other activities are what make up our 'moderne' economy. Since this economy exists to enable the Ann Hugheses of the world to waste energy, it is eating itself for dinner.
Or, unraveling its own sweater.
Keep in mind also:
Ordinary price inflation is the outcome of business expansion. I define inflation as the worth relationship between economic activity and the money that is used to transact it. As activity increases in value, the worth of money declines as it should. The functioning world must have valuable business and worthless money. That is, money with intrinsic negative value. This intrinsic negative value represents the rate of ordinary inflation.
It is the business activity that must have value, not the money, which is just a tool of business. Business expands, credit to enable it expands, money supply expands along with velocity; the unit value of money declines.
Bernanke may not understand the foregoing principle but his attempt to create business activity value by increasing inflation and some form of the money supply acknowledges it. Unfortunately for Bernanke, business creates ordinary inflation, not the other way around.
As business expands, the firms so engaged lend into existence what funds are needed. By doing so debt expands. After lengthy periods of credit expansion and large debts, these become unservicable by business cash flow, diminishing business value. Debt must either be repaid or written off and forgiven. This expansion and contraction of accumulated debt is the business cycle.
Non- business establishments adding money (or credit) to the economy to increase the money supply in circulation is hyper-inflation. Whether funds enter circulation or not depends upon business activity. When there is no activity the added funds become reserves. These reserves represent an increase in money value relative to business worth. Adding too much reserves causes problems for those who must manage them. These problems in turn create an upper bound on the amounts of reserves that can be accumulated. If for no other reason, excess reserves cannot be turned into money- stores of value other than the notational currency. This is what is taking place in the gold and silver markets. You can be sure that gold and silver bankers are complaining to the central banks about excess base money creation!
Deflation takes place when the intrinsic value of money increases while the worth of business declines. Notice how currencies become harder to find when business contracts. Unlike money, business activity cannot be hoarded. When money is hoarded as by means of 'excess reserves' deflation is taking place.
There are no such thing as 'excess reserves' during economic or business expansions. Reserves become phantom as there is too much demand for credit.
Make an note of the terms, as what many call 'inflation' is to me 'hyper-inflation'.
The difference between deflation which is the natural part of the business cycle and depression is that the latter is a form of social conflict waged between the rentiers and their putative 'customers'. In general, without interference by governments, depressions end with the destruction of the rentiers.
For those rentiers out there reading this, watch out!
