How Busts Happen

The problem starts with libido dominandi, or lust for power, something around at all times and all places. A particular expression of the problem occurs within the economy when a government manages to take over currency and credit. People are so fearful of government ever taking control of currency that when the Federal Reserve Bank was formed in 1913, it was done so under the legal fiction that the bank we refer to as the Fed is a private, free market entity. In the free market private companies do not have their chief picked by the President of the USA, its operations are not overseen by Congress, and it’s offerings are not strictly monopolized, such as we have in the USA. So in USA we have the government printing currency and fiddling with interest rates.

Click read more to read on... Although today almost all currencies are printed by governments, places such as Switzerland have a higher rate of gold backing the paper so the Swiss Franc is considered a relatively “hard currency” and in Hong Kong private companies, three at last count, print the currency, probably the last of the free market currencies on earth. In Hong Kong the free market competition keeps each currency perfectly equal to the other, and a;; three flexible and resilient enough to serve a world trade nexus.

By printing money governments can tax the poor and aggregate wealth in the hands of the elite. Excess printing of money leads to inflation, but the magic is in the fact that time does the tax collecting. When new money is printed, those who get it first beat the inflation; those who get the new money last bear the inflation. Government gets the money first, then the bankers, USA workers get it last, as the new money works its way into the system, from banker to industry to commerce to paycheck. (One third of USA currency is circulating overseas, the foreign export workers are the hardest hit in this system.)

The printing of money is announced after the fact. If Monday there are 100 units of money, and a loaf of bread is 1 unit, and on Tuesday the government prints another 100 units of money, then on tuesday a loaf of bread is worth 2 units. But only government and banks know this on Tuesday, so they pay one unit. Wednesday industry catches on and raises prices, thursday commerce catches on and by Friday your paycheck is the same, but the price of bread is now 2 units. Go ask for a raise, but the problem is your employer is feeling the squeeze too.

The other whammy is interest rates. By fiddling with the rates, the Fed distorts economic calculation so the result is misallocation of resources. What we see know in 2009 is the bust part of the boom and bust cycle that comes with centralization of interest rates. By lowering interest rates, finance began driving the economy with an emphasis on debt, industry was transferred overseas as the cost of management in USA skyrocketed.

Gross distortions began to emerge, a false economy booms that promised the stock market always goes up and real estate prices never go down. A giant ponzi scheme wherein people invest more and more and are paid back in what appears to be exorbitant returns, which they [plow into more junk, bigger homes to store it, and even more junk, with mini-warehouses, and retailers getting larger and more specialized to make acquisition easier and faster and restaurants to feed people too busy getting to bother cooking and shorelines are cleared of mangrove forests in exotic pristine lands to make room for resorts for such busy successful people to relax and airports are hodgepodge expanded to accommodate the traveling people who are selling CDOs and Interest Rate Swaps to pensions and the Government regulators who assure us everything is on the up and up and a legal drug called coffee is sold everywhere to perk up people who need to be at it in the race as soon as the dawn breaks and more and more diversions for the kids of the parents who are doing so well and private schools and soccer moms and hospitals serving a medical structure that give us perfect teeth but turn our bodies into toxic wastelands as MRSA awaits you unchecked for your next visit and subsidizes a transportation system that assures we remain stuck in 1920’s technology where we pay more to get less but everyone has a car but don’t worry, if we can just get the right person in office, then we can deal with teh terrorists who are the soource of our problem or the global warming which is the source of our problem either way we can put vast resources ins the service of some blasphemy pleasing to televagelists and all will be well, except that is what everyone says every time and half the time half the people get their wish, and of course logically at not time can everyone get their wish so the impossibility does not down on people educated in a system so distorted that 1/3rd of the kids drop out of high school and another third cannot read their diploma, but don’t worry, we’ve designed drugs that keep such people broken, and can be had with or without prescription, and we can finance a war on some drugs to fight the latter when people denied proper health care manage to self-medicate but then comes the bust.

The bust is just the correction when something that cannot go on stops. The damage is not the correction, such as we are in now, the damage was done during the boom. Small business does good while doing well in part by filling in the voids left from the bust. A loaf of bread, some carrots and dandelions, a jug of wine...

Big business and politicians are now about seeing what they can get away with. Quite a bit, it appears. A good strategy is for we in small business to say, “hey no bailout of auto industry without eliminating the dealership monopolies...” or any argument that ties you gaining freedom every time the powers that be want to bail out their system. This is a fun part of business, cutting a sustainable deal when you have something to offer, and you know what it is, and so does the counter party.

Come on in, the water is perfect!

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