Posts Tagged ‘money supply’

Debt is destroying America

2016/09/04

Debt is denying a whole generation of jobs, places to stay, and self-respect.  Debt is consuming the money supply, creating little liquidity in a bubble-like environment.  There is nothing to flip anymore, there are no safe investments, living off of your investments is just not going to work now, and retirement is a nightmare.

But we are all still the same people that we were ten, fifteen years ago, so what has changed?  Debt.  No matter how you look at it, we are all in debt, no matter what our supposed worth.  But it is all just numbers in machines, it is not anything real, tangible.  Debt is not a place to live, nor is it key to a good job.  Debt is what holds us to the grindstone, wearing away our humanity.

Debt is destroying the American economy, poisoning innovation, stifling education.  We should all be helping each other out, sharing what we have.  When I have something extra, or unused, or rusting away, someone else can use it, maybe even keep it, because I know that when I need one again, one will be there for me.

When did the bubble start? In the 1960’s?!

2010/04/07

There is a lot of loose talk going around right now about ‘bubbles’, the housing bubble, the bubble economy, the credit bubble, I almost feel like I am watching the Lawrence Welk show.  Contrary to popular belief, the economy was deeply into bubbles long before anyone had even coined the term.  It really started in the 1960’s, when consumer spending began to fall of, due to the fact that the consumers had spent all of their savings, and now were cutting back on purchasing stuff that they really didn’t need.

This was a crisis for the money barons of America, because they were dependent upon a certain level of consumption in order to go on accumulating wealth at the rate they believed was essential, as well as their right.  Instead of reshaping the economy to depend on production of advanced goods, or space exploration equipment, or high speed trains, the powers that be decided to maintain the economy in the form it was in, and encourage spending by making credit more easily available.

Through judicious advertising, the American people were gradually brainwashed from their old belief that credit was a tool of the devil into thinking of credit as wonderful thing, which they would have to pay for some day.  Credit cards appeared, only they were the mark of high society, because those folks couldn’t be bothered to carry cash, don’t you know.  Of course, everyone wanted one, and, within about 10 years, just about everyone had one.  Or two. Or three.

Consumer spending actually rose, as people were more than happy to spend what they had not yet earned on something which they almost certainly could live without.  Our lifestyles were profoundly influenced by television, which carefully showed us the kind of world that we thought we wanted to live in.  But what we were being taught was that we needed to consume in order for us to be valid persons.  Spending was our way of assuaging our anxiety over our popularity, which we just knew was based upon what kind of car we drove, where we lived, and our income.

A historic change in attitudes was orchestrated by the makers of water heaters, shampoo, and personal hygiene products to convince people that bathing every single day was not only normal, but essential.  The single greatest luxury in the world, bar none, which many, many people have never even experienced, much less enjoyed very often, and Americans zip right through one every morning.  If you don’t smell like something that comes out of a bottle, or some kind of soap, you are a heathen, a barbarian, an uncouth lout, who will never get laid, promoted, or married.

So what if we are forcing our bodies to manufacture immense quantities of oil, we are consuming!  So what if our truck only gets 12 miles to the gallon on the highway, we are consuming!  The solutions to many of our problems do not require whole new technologies, like wind, and solar.  They are desirable in and of themselves, but we could slash our consumption of energy by nearly half, if we were to change our lifestyles, suffer some minor costs to our business, and accept that it is not our god-given right to be able to go anywhere we choose at the drop of a hat.

But the ones in control of things want us to go on believing that deserve all of these luxuries, and that we can pay for them somehow.  Even as they watch the tidal wave of payments coming due beginning in 2012, they ignore any thought of changing the basic tenants of our economy, our financial system.  There is no ‘tomorrow’ in most people’s way of accounting, just today.  Other cultures may have 5 year plans, we have 5 minute plans, subject to change if some kind of profit is to be made.

Well, here is something that you can plan on;  economic upheaval, turmoil, rapid, uncontrolled change, unemployment, hunger, homelessness, and bankruptcy.  The bubble is just about to burst, the shell game is finally going to end, and America will crash, because we are so greedy we cannot cope with any change which threatens our way of life.  Instead of allowing some change, a gradual turning away from dependence on consumer spending towards some other engine for the economy, our leaders have dutifully avoided dealing with the fundamental rot in the financial system.  They even agreed to remove the very regulations which were written to prevent the kind of situation we are in.

But nature always seeks a balance, even in unnatural systems, such as our method of compensating people for their work.  The lopsided distribution of wealth is a result not of  value honestly created by hard work, but by the manipulation of numbers in machines.  The people who know how to create real value by working with their hands, applying their craft, will still be comfortable.  Those who know nothing except trading, wealth management, and investment banking will be panhandling, because the wealth will be gone.

We have managed to spend everything that we are going to make for the next several years, if we don’t lose our jobs, which means that we are not going to be able to spend money on things that we can live without, like transportation in our own car, new clothes, and food.  Backyard lawns are likely to be turned into gardens, and community plots may become common.  All bubbles burst, and this one is absolutely huge, because it was planned this way.  Kind of.  Almost.  Would you believe, ‘allowed  to happen with foreknowledge of the consequences’?  Some people have made an awful lot of money in the last 50 years.  But most of us have just been going further and further into the hole, digging merrily.

Making money

2010/03/10

Your credit card company charges you for a late payment.  Your bank charges you for an overdraft.  A payday loan company charges you for borrowing money.  These are all examples of wealth creation.  The money that you are charged does not exist until the charge is made, and then it becomes numbers in computers.

This is the kind of wealth creation that the financial services sector performs.  This is the kind of wealth that evaporates overnight.  It used to be that banks made money by lending money that had been deposited with them to people who were going to build a company up, or to governments that were going to build bridges and roads.  That is how America grew into a large and wealthy nation.

But the pace of growth wasn’t enough to satisfy some greedy people.  They wanted to get rich faster.  So new methods of making money were developed, like bank fees, credit card charges, and payday loans.  Using these new practices, wealth was created at much faster rates.  But is it real wealth, or just an illusion.  The bank claims that you have the money it is charging you for the overdraft.  The credit card company believes that you will come up with the money to cover the late payment fee.  The payday loan company is certain to get your next paycheck.

But this money doesn’t actually exist until you earn it.  By calling debt real money, we have grown our economy tremendously in the last few decades.  However, we have not earned that money yet.  By claiming that the money I am owed makes me worth more, I can convince someone else to loan me money.  And so the velocity of money increases.  But what real value has been created?  What has been built, or paid for?

Nothing.  And that is why we are in such a bind right now.  Most of what is being called wealth is merely numbers in computers.  There is no bridge, or road, or building, or house, or airplane, or anything else, to back up the numbers in the computers.  It is a house of cards, a shell game.  We can claim that we are wealthy even when everything that we earn for the next year is already spoken for.

The view from debtor’s prison.

2010/01/18

Debt.  Credit.  Lenders and losers.  Somehow, the world economy has morphed from saving to buy to borrowing to buy.  Lending has been so lucrative that banks have made credit a normal way of doing business.  It wasn’t that long ago that state and local governments only borrowed money by selling bonds, companies sold stock to raise money, and individuals only borrowed from friends.  The one exception was the mortgage used to buy a home.

Partly as a result of banks desire to be able to loan out their money faster, we have seen the world economy severely damaged by excess credit.  Banks which wrote mortgages used to hold those loans themselves, having to wait until they were paid off before the money could be loaned out again.  Then, someone had the brilliant idea of having the banks sell the mortgages to another investor, so that the bank could then turn around and lend the money out again.

Back in the 1960’s, many consumers had used up their savings, and they began to stop spending on unnecessary things.  In order to keep consumption up, a new financial instrument was created:  the credit card.  At first only available to those with the ability to pay off the balance each month, credit cards gradually found their way into the wallets of nearly every American.  Paying off the balance each month was no longer necessary, and often discouraged, as the lenders made more money on revolving balances.

Corporations climbed on board the credit train when they found selling stock inadequate to provide short term liquidity, such as making payroll.  They even began lending money to each other for short periods of time, creating what is known as commercial paper.  State governments saw this, and decided that borrowing to cover expenses while waiting for tax receipts to come in was a sound practice.

In less than 50 years, borrowing had changed from a dirty word to the accepted way of life.  Credit was widely available, to almost anyone, for a fee.  Saving became old fashioned, and consumption was getting higher all the time.  Bankers even encouraged people to borrow against the equity that they had built up in their home, so that the bankers could make even more money.  Its citizens too broke to lend it money, the federal government turned to other nations to borrow the money used to pay for weapons, wars, and welfare.

Now, we are waiting for consumer spending to resume to dig the economy out of the hole we are in.  The government is borrowing nearly as much money as the country makes each year, trying to keep the wheels turning.  Home owners are walking away from mortgages which are for much more than the homes are worth.  Bankruptcies and bank failures are happening faster and faster.  But everyone wants to believe that things will get back to the way that they were.

No where do you hear respected economists and academics calling for the tightening of credit, or for learning to live without it.  Credit has become so fundamental to our economy that people can’t imagine a world without it.  We had better start, because credit is not going to be easy to get for a long time.  How can a bank loan out money when it doesn’t know how much it has?  Many banks are carrying packages of mortgages which, if put on the market today, are worth about 25 cents on the dollar.  Writing off the value of those collateralized debt obligations, as they are known, would wipe out the bank, so they are holding on to them.  In the mean time, the solvency of the bank is questionable.

As the tidal wave of foreclosures engulfs us, those packages of mortgages are going to lose even more value, making credit even tighter.  The federal government has to borrow money to pay the holders of Treasury bills and notes when those instruments come due, which means that it is insolvent, surviving on the good will of China.  Many of the states are facing running out of money, and not being able to borrow more.

Welcome to Debtor’s Prison.

I can’t make you wealthy if I am broke!

2009/11/19

After consideration, I have come to believe that one of the worst practices that our modern financial system has adopted is the attempt to create wealth by charging large fees.  A late payment fee that is nearly as large as the payment only makes catching up more difficult, and when overlimit fees are added to the late payment fee, the fees are more than the payment.  Very quickly, the balance balloons far beyond the established credit limit, and keeps on climbing.

In accounting terms, the bank is getting wealthier, because it can show the money owed it as an asset.  But is this real wealth?  Is there anything tangible about this wealth, anything that has enduring value?  If I end up going bankrupt, what happens to the wealth that the bank says that they have?  Aren’t we creating an illusion of wealth, which has no substance?  Because debt is considered an asset to the lender, banks have been more than willing to extend credit, because it makes them look wealthier.

Watching a firm with billions of dollars in assets on the books go under should not happen, but when those assets are merely entries in ledgers, there is nothing to pay the light bill.  The worth of the United States has been exaggerated beyond all comprehension, as our salaries have doubled over and over again, the value of our homes shooting up without one lick of work being put into them, and our stock markets recording astronomical prices.  This balloon has expanded so much that no one is really sure just what anything is worth anymore, because we can’t get what we say things are worth when we try to sell them.

The greed has gotten out of control, and it is destroying us.  It does not matter how much you say is owed to you, what you have in your pocket is what there is to spend, because the likelihood of your getting what is owed to you is shrinking fast.

Going down the drain.

2009/05/29

The way that we live, the processes that make our lives possible, the nature of the work that we do, how we school our children, all of these in the midst of upheaval.  We have discovered that we are using energy in ways that are foolish and unsustainable.  The very fabric of our society is being changed by forces far removed from our homes.

In order to keep things affordable in times of inflation, quality has been sacrificed over and over again.  Many homes today will not last as long as the mortgage taken out to have them built.  Cars have become complex machines which are usually wrecks by the time that they are paid for.  Easy credit has been the sole reason for the economic growth of the last decade or longer,  and easy credit has come to an end.  Wealth measured in numbers in computers is still disappering rapidly, while bridges and schools are still there.

Underground houses, high speed rail systems, education tailored to the individual, given to the individual at that person’s pace.  The ending of using drinking water to flush toilets with, the end of giant sewage treatment plants, the end of driving everywhere, the end of flying everywhere, the end of supertankers, the end of newspapers.

We have managed to avoid drastic change for so long that we have lost all control over change, and now we are likely to change drastically, chaotically.  Our culture, our very dietary habits, were altered profoundly by the Industrial Revolution.  Now we are dealing with the fallout of sacrificing the family to the factory.  In a culture where the term ‘murder-suicide’ has become common usage, we have to hope for some kind of change.

Money, money, money!

2009/03/03

Long ago, it seems, money was a symbolic representation of work.  Or, at least, value.  But when money is created simply by charging a fee, what is there behind it to make it worth something.  What has been invested to make this new wealth?  For money, in any amount, is wealth.  We claimed to be a wealthy nation, but a great deal of that wealth was created out of whole cloth.

You may be familiar with the process, for it has happened to countless Americans.  You have a credit card, with a fairly low limit.  Because of one thing and another, you get behind on your payments.  If you were close to your credit limit when you got behind, very quickly the late payment fees put you over your limit, so you are charged an overlimit fee each month, and a late payment fee, because you have not paid off the amount overlimit.

As result of these fees, every month, 60 dollars is created out of nothing.  A bank charging an overdraft fee for each check which comes in while the account is overdrawn does the same thing.  Now, imagine this kind of wealth creation going on all over the country, on a grand scale.  Our economy swells quickly because of all the wealth that is being created, leading people to believe that there is enough wealth in the system to raise prices.

As prices go up, workers demand more compensation, which adds upward pressure on prices.  As prices increase, management decides that the current profit margin is too small, and increases it.  Yet, no work has been performed to create any new wealth, no value has been added to anything, just fees charged.  Now, what happens if the credit card holder defaults on their account, walks away from it?  Where is all that wealth that was created by charging late fees and overlimit fees?  It has just vanished, because those fees cannot be collected.

This is merely one example of how wealth can evaporate, something that wealth has been doing enmass recently.   We must begin doing real work, to create real wealth, not imaginary, accounting trick type wealth, or we all are likely to be homeless.

Learning old lessons again

2009/02/22

There is an ancient rule that any individual who becomes wealthy at the expense of the group is threatening the survival of the group, and must be isolated from the rest of the group, irregardless of the individuals eventual survival.  This law was enforced by evolution, natural selection, survival of the fittest.  It appears that civilization has caused us to forget this ancient law, because society has so much inertia that it can survive individuals who make themselves wealthy at the expense of the group.

But that condition is changing, the result of a small number of individuals who have enriched themselves enormously at the expense of the rest of us.  The brakes could have been put on the financial bubble long ago, preventing the carnage that surrounds us today.  But Greed motivated very wealthy, powerful individuals to intervene in the attempts to reign in the explosive growth.  Regulatory bodies were discouraged from investigating suspicious activity, Congress was lobbied not to enact certain laws, and a few overseas governments were manipulated into providing shelters for the wealth.

We all were encouraged to borrow, cash out equity, and to shop until we dropped.  Insanity began to take over, as the stock market kept growing beyond any reasonable limits, prices for homes doubled, and doubled again and again, and we succeeded in exporting our materialistic culture to even much older nations, under the guise of ‘globalization’.  Why should someone in Thailand make shoes for people in America if all they are going to get is material compensation.  The old ways may not have been prosperous, but the people were happy.

Greed manipulated us through the media into believing that owning things could make us happy, and accepting that our self-worth was dependent upon the things that we could by.  We became so desperate to prove our worth that we would buy cars that cost so much we had to get a 5 year contract to buy them.  Tho contract would last longer than the car would.  The same thing happened with houses, where the 30 year mortgage became the standard.  Very few people in this country actually own their home, most are paying a bank for the ability to live in the place.  By the time that you get it paid off, you are too old to take care of it, and often have to sell it for far less than what you have put into it.

All of these things made a lot of people rich, but they made a few people much, much wealthier.  I don’t know their names, and don’t want to know their names, because they are evil people.  They have been willing to run the world economy into the ground to satisfy their insatiable desire for MORE!  It would not be nearly as bad as it is if they had only played with their money, but they had to go and use ours, too.  Basically, we have all been broke for about 20 years, but we have been part of a shell game, a con, to convince us that really could spend more than we make.  It was inevitable that the powers behind this con would eventually lose track of where everything was.  When other nations with more wealth than us began to compete with us for resources, the sham collapsed, victim of gasoline prices which Americans simply could not afford.  It is one thing to put a big screen TV on your credit card, but entirely another to put a tank of gas on it.

Now, we are seeing values return to the levels they would have been at if the ‘irrational exuberance’ had been discouraged with higher interest levels, restrictions on leverage, mark to market rules, and other arcane things which are extremely boring to talk about, but which have such incredible impact on our lives when they are ignored.  Unfortunately, because so many of us have been sucked into jobs that catered to the Greed, such as selling people things that they didn’t really need, values are likely to keep on dropping.  Deflation could become a black hole, sucking the wealth out of the entire system.

Unless we begin using the material wealth that we have amassed to begin creating wealth that belongs to the community, such as a nationwide fiber optic system.  Rebuilding roads and bridges is important, but so is making those same roads and bridges far less vital, by replacing them with the means to move information, to the point that we can almost believe that we are somewhere else entirely.  Virtual reality would allow us to perform tasks half a world away, to take part in events without having to leave our homes, to shop for things without having to go to a store.

Insulating our homes, business facilities, upgrading equipment, these are the investments that we will have to make to keep energy costs low enough that we can afford them in an economy which is sustainable.  Educating our populace to the highest levels that they are capable of is another survival strategy, because the solutions to our problems are not going to come from ignorance.  Who us going to pay for all of this?  We are, the average Americans, who have been duped into spending everything that we were going make for the next few years.  Instead of paying off our credit card debts and hyper-inflated mortgages, we are going to end up working our butts off just to eat and keep a roof over our heads.

The 40 hour work week may become victim to the need to pay a whole bunch of taxes, so that this program of self-improvement is not entirely at the expense of other countries.  Probably, we are going to have to get by with what TVs, stereos, and computers that we have, because importing them would mean paying somebody else real money.  But we have so much incredible potential, so much accumulated wealth, that we could turn this thing around in a matter of a decade.  If we all agreed to work together, to sacrifice together, and to believe in each other.  There is hope, but it is mighty slim.

The dance changes tempo

2009/02/15

So far, I am not aware of anyone acknowledging the fundamental problem behind our current economic woes;  We can no longer sustain the level of consumption that we have become used to.   Between the price of many commodities going up, and home values declining, we have to spend more than we earn to live in great luxury.  Yes, luxury.

We drive ourselves around in our own cars, so that we don’t have to be close to strangers.  Many of us stand under a shower of warm water for several minutes every day.  The lights always will come on when we flick the switch, there are no open sewers running near our schools, and the water coming out of the tap is fairly safe to drink, even though it became fashionable during the Age Of Excess to only drink bottled water.  The telephones almost always work, and most people fly on airplanes when they have to go somewhere.

By the standards of most of the world, these things are great luxuries, which even the wealthy cannot always afford, because they simply don’t exist in some places.  Yet we often consider them to be ‘rights’, which cannot be infringed upon.  We have the ‘right’ to drive our own car somewhere if we want to.  But there is nothing that says that we have the ‘right’ to gasoline whenever we want to go somewhere.  If we can pay for the fuel, fine.  But what if we can’t?

The costs of energy are rising, and not simply because of demand.  Generating plants are becoming harder and harder to get permits for, the grid that transmits the energy that is generated to where it is needed is on the verge of overload, and we need a whole bunch of new lines to move wind power to where it can be used.  Crude oil is no longer found by drilling a few thousand feet in sandy soil.  Extracting it can mean working in thousands of feet of water, and penetrating the Earth’s crust with holes several miles deep is becoming common as we search for new supplies of oil.

For our society to become economically sustainable, consumption of energy has got to be reduced considerably, possibly 50 percent.  That sounds like a huge undertaking, but we are so inefficient in how we use energy that it would be fairly straight forward.  The majority of structures in this country are poorly, if at all, insulated.  Simply bringing every building up to the highest possible level of insulation would result in huge savings,  as would putting solar panels on every roof.

But the automobile is the biggest culprit, and there is simply no way to make it cheap to push around a whole bunch of metal and plastic so that one person can risk their life to get where they want to go by themselves.  We will always have cars, but we will no longer use them all the time.  Instead, we are going to have to get used to riding public transportation when we are commuting to work or school.  But we will still be able to go where we want, when we want, when we can afford it.

If we can make what we already own more valuable by making it more energy efficient, we have invested our money into something that will create wealth, or money, as long as it is used.  But this wealth will be diffused through the economy, instead of being concentrated in the hands of a few, which might be why there is such resistance to changing the consumption of energy dramatically.  The oil companies will not make huge profits if we all start riding transit to work or school.

This will be a drastic change in the American lifestyle, but we are facing something worse than War.  We are dealing with the consequences of unbridled Greed getting its way for too long.  A lot of money was made, but the value of money is coming into question, because so much has been ‘made’ that just disappeared all of a sudden.  Real wealth is the kind that everyone benefits from, and which won’t just go away.  A bridge, a rapid transit system, a fiber optic network, insulation in every building, these are things that make all of us wealthier.

Should we keep our space program?

2008/12/30

As debate erupts over the future of manned space exploration in America, it is critical, I believe, to keep one fact in mind:  Both space shuttle disasters where entireley preventable, and both resulted from management decisions, not inherenent flaws in the vehicle design.  Yes, the vehicle is risky, but anything which travels  between 0 and 17,500 miles per hour is going to be dangerous.  Just getting in the family car is even more dangerous.

The shuttle Challanger was lost after NASA threw its own safety book out the window, for some reason, and went ahead with a launch under conditions which almost guaranteed that the vehicle would be lost, along with its crew.  The temperature overnight had fallen to about 28 degrees F., and had stayed below freezing for several hours.  The booster which was in the shade, the one one the right side, was still very cold at the time of the launch.  The huge ‘O’ rings which are used to seal the gaps between the rocket segments were too cold to be pliable, and the rings leaked.

The only reason that the spacecraft was lost was because it was flown when it was too darn cold.  And this temperature limitation was known and recognized, but was ignored for some reason.  If you put regular tires on a racing car, would you be surprised if they didn’t last very long?  Flying the shuttle that morning was tantamount to loosening the lug nuts on all four wheels of a car before taking it on the interstate.  Of course something is going to go wrong.

The loss of the Columbia was even more criminal.  Repeatedly, NASA management had been warned that insulating foam from the external tank was striking the orbiter, and that damage had occurred in sensitive areas.  One orbiter came back with a hole about the size of a lunch box in the leading edge of one wing, the same kind of damage that destroyed Columbia.  However, the management of NASA at the time felt that the problem could be dealt with during the process of preparing the shuttle for launch, and that the construction of external tanks did not need to be stopped until an answer to the foam problem was found.  The shuttles were kept flying, until a piece of foam punctured the wing of Columbia.

So, both shuttles were lost as a result of management error.  If operated properly, in the correct conditions, the shuttles have performed beautifully.  The only reason that retiring them has been chosen was because it would cost money to keep them flying, and the Bush administration wasn’t the least bit interested in space exploration.  Increasing the NASA budget 25 percent, to about 22 billion a year, would allow the shuttles to keep flying while the new generation of rockets are perfected.

Without the shuttles flying, any serious setback in the development of this new rocket could spell the end of the American space effort.  If we have to wait ten years to get back into space, we will probably just give up.  We are not likely to be the world’s leading maker of automobiles again, no matter how much we spend trying.  But we still are the best at manned space flight and exploration, and developing resources off-planet is the only long-term solution to our environmental problems.

Any view of the future which does not include off-planet exploration and development is seriously flawed, in my opinion.  The investment needed is really rather small,  far less than we spend building weapons which cannot keep us safe.  And the returns from that investment have historically been very high.  We need to make investments which will pay us back for years and years, so that our economy can grow into the debt that we have created.   Space travel is our bridge to the future, and that bridge is in danger of falling down.