Mish Shedlock gets it exactly right that we need deflation for economic recovery, and then goes one better, noting the correct impact of credit vs money "creation." He cites predictions (meant to be feared) that odds are Europe will see deflation before USA.
Correctly understanding deflation means Europe will recover before USA recovers. If so, important news. And an aspect Mish does not (nor would perceive) is the implication that Europe has less of a false economy than does the USA.
USA investments and notional values of the derivatives "supporting" the notional value of our wealth has people actually spending based on these suppositions. Since the suppositions are false, the range of goods and services people buy contribute to a false economy.
For example, people who have a nominal stock portfolio of $5 million based on notional derivatives, own a condo in Hawaii with HOA fees of $500 a month and drive a Porsche making $500 a month payments and so on. Such a person may be living nicely on say $8000 a month, $4000 fixed costs and $4000 discretionary spending. When the bust finally comes, they will have no means to cover fixed costs and no skills that will earn them enough to cover those costs. When that economic actor is no longer participating, the costs of a condo and HOA and porsche and so on will drop dramatically.
Such a person will wish they owned a hot dog cart, since at least they could rent a place as far away from the section 8 housing they are now obliged to dwell. The EBT card will be accepted in ever fewer places as businesses who are actually providing goods and services in a true economy prefer to work with customers mike them.
We saw a micro-vision of this in 2008, but we accepted the can being kicked down the road and the next crack-up will be epic. Skip that next trip to your condo in Hawaii, sell it, get a cart on a corner selling hot dogs. Or something where you own the means of production right now.
The most revolutionary act is to start a business.
Feel free to forward this by email to three of your friends.
Correctly understanding deflation means Europe will recover before USA recovers. If so, important news. And an aspect Mish does not (nor would perceive) is the implication that Europe has less of a false economy than does the USA.
USA investments and notional values of the derivatives "supporting" the notional value of our wealth has people actually spending based on these suppositions. Since the suppositions are false, the range of goods and services people buy contribute to a false economy.
For example, people who have a nominal stock portfolio of $5 million based on notional derivatives, own a condo in Hawaii with HOA fees of $500 a month and drive a Porsche making $500 a month payments and so on. Such a person may be living nicely on say $8000 a month, $4000 fixed costs and $4000 discretionary spending. When the bust finally comes, they will have no means to cover fixed costs and no skills that will earn them enough to cover those costs. When that economic actor is no longer participating, the costs of a condo and HOA and porsche and so on will drop dramatically.
Such a person will wish they owned a hot dog cart, since at least they could rent a place as far away from the section 8 housing they are now obliged to dwell. The EBT card will be accepted in ever fewer places as businesses who are actually providing goods and services in a true economy prefer to work with customers mike them.
We saw a micro-vision of this in 2008, but we accepted the can being kicked down the road and the next crack-up will be epic. Skip that next trip to your condo in Hawaii, sell it, get a cart on a corner selling hot dogs. Or something where you own the means of production right now.
The most revolutionary act is to start a business.
Feel free to forward this by email to three of your friends.
1 comments:
If Europe has less of a false economy than the USA, I'd surmise it is because their lack of a fiscal union restricts what central bankers can do. No such restrictions in the USA ... So Bernanke hands the torch to Yellen, and on and on it goes.
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