Weekly Musings 1 01-03-12
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For those who are new to the Musings: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights, and thank you for supporting the site.
Slicing Through the Spin, PR and Propaganda: A Glance into 2012
First, a quick bit of housekeeping: I've decided to start the New Year with Musings 1 rather than Musings 51. Resetting the numbering every year seems more useful than continuing the series from inception. Second, thank you to everyone who has maintained their support of oftwominds.com into 2012. I sincerely hope to bring some value (and if nothing else, amusement) to you in appreciation of your support.
OK, let's get started. It is tempting, of course, to join the multitudes who are daring Fate by making predictions. Predictions have value as thought experiments--what if?--but I think we might be better grounded by asking what already-established trends may exert themselves in 2012.
1. As long as the Powers That Be on the Federal level can borrow $1.5 trillion (a staggering 10% of the nation's entire economy) at near-zero rates of interest, then a host of structural ills can be papered over with Federal spending. In a way, we can view the decades of 2000-2020 as one prolonged effort to backfill the imploding private economy with borrowed money guaranteed by the Central State.
In the 1940s, an explosion of Federal spending to fund World War 2 "cured" the private economy by substituting Federal spending and consumption for private spending and consumption, enabling debt to be written down and private savings (forced by the war effort to be saved rather than consumed) to accumulate. Bernanke and the other financial mavens are essentially counting on the same dynamic being repeated in this decade. But gargantuan Federal spending is doing nothing more than propping up the Status Quo--the private economy continues to be debt-and-tax burdened, and savings remain abysmally low as the Federal Reserve's policy is to punish savers and reward borrowers with super-low interest rates.
The Grand Failure of this strategy is one of the primary financial stories of the decade. But unless a "debt event" overrides the Fed's control and interest rates shoot higher, then we can anticipate the Central State responding to each and every challenge/crisis with more of the same, i.e. borrowing and throwing trillions of dollars at the problem to avoid any systemic change.
2. The MSM and blogosphere alike tend to focus much of their energy on dissecting and chewing over policy tweaks such as QE3 (The Fed's money-printing operations) and various political machinations. None of these "adjusting the parameters" tweaks will accomplish anything. The only meaningful question is this: have the fundamental problems facing the nation and world been clearly stated and understood, and then addressed in a straightforward manner?
The answer is no. We all know this, but everyone with a stake in the Status Quo goes along with the hope that magical thinking will somehow succeed--that is, that doing nothing different will somehow magically produce different results.
Sadly, humans are deeply prone to magical thinking--this is of course the basis of the skin-care and diet industries. "Extend and Pretend" is based on the belief that the basic systems that underpin the economy will self-correct, without imposing any sacrifice or difficult changes. This strategy "worked" in every previous recession, and so the Status Quo is hanging on, hoping that somehow it will magically work once again, even though it is painfully obvious that this is not just another postwar recession but the end of the postwar paradigm of debt-based consumption.
3. A crisis would be a welcome opportunity to bring about real transformation. Right now, the political and financial sectors are like two dysfunctional drunks; onlookers are "debating" whether being addicted to wine or "the hard stuff" is worse, conveniently overlooking the obvious fact that the problem is not what the drunks are drinking but their addiction.
Extend and Pretend simply suppresses volatility and the system's "immune response", guaranteeing a severe dislocation when the built-up instability finally breaks through the crust of Status Quo control. The best thing that could happen is precisely what the Status Quo fears most--a crisis which refuses to be suppressed with more borrowed money and more Extend and Pretend. The ills of the nation will become terminal if left untreated, and so those of us who realize the only sustainable solution is meaningful transformation should hope for crisis rather than fear it.
4. High Finance is essentially alchemy--the system only works when we believe that risk has been magically whisked away by hidden complexities we don't really understand. What is happening, slowly but surely, is the loss of faith in financial alchemy. The latest blow to this faith was the collapse of MF Global, which has revealed the complete failure of the financial watchdog agencies and the alchemy itself.
Once 20% of the players loses faith in financial alchemy (recall the Pareto Principle in which 20% exert outsized influence on the 80%), then they will be unable to accept risk as they did before. And once people accept that risk cannot be magically whisked away or transferred to others, then their behavior will change and the world will change with it.
From Left Field
Nowhere to Go, Patients Linger in Hospitals, at a High Cost: Hundreds of patients, including illegal immigrants, who are well enough to be discharged have languished in city hospitals for months or years because there is nowhere to send them. (via Joel M.)
In Depth with Author and Journalist Chris Hedges: "The American Empire is over and the descent is going to be horrifying" (via U. Doran) (3 hours)
Obama's speech on "Prolonged Detention" (via Dr. Ishabaka, who noted: "I think this sums up the single most important thing Obama has done in his Presidency - which 99% of the population don't understand or care about.")
A World in Denial of What It Knows: Our refusal to see what we know is true has led to one global disaster after another. (via Joel M.)
Why is finance so complex? "Financial systems help us overcome a collective action problem. In a world of investment projects whose costs and risks are perfectly transparent, most individuals would be frightened. Real enterprise is very risky." (via Maoxian)
Thank you for reading, and for including oftwominds.com in your life as we enter the exciting and unpredictable year ahead.
charles
