September 2nd, 2010

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The Layman's Guide to Doom: The Economy.



            






     Everyone talks about the economy... How bad it is. When it's likely to recover. Who's at fault for the condition it's in... But few people understand the reality of the economy. It's all so convoluted with technical definitions of capitalism, socialism, money supply, speed of circulation, inflation, deflation, interest rates, etc. Smoke and mirrors, all of it.


     Economies are about the production, preservation, replenishment, and exchange of tangible wealth. That's right... Stuff. Things you need or want. Food, clothing, housing, toys, medicine, etc. The primary reason anyone does anything is so that they can get or keep wealth for themselves and their families.

     The great confusing factor in modern economies is money. When money first evolved, it was just a reliably measured amount of a widely desirable form of wealth, like a precious metal or even salt. Then came representative money, where a note or token was issued as a sort of IOU for specified amount of an inherently valuable commodity. Finally came fiat currency, which is only accepted as money because the Government says so, and isn't actually backed by anything. The US dollar went fully fiat in 1971.

     Modern money is not wealth. It does not even represent wealth. It only reflects wealth in a weird, fun-house mirror sort of way.



     Because we've all been conditioned to think of money as wealth, we're easily distracted by the circus side-shows of fiscal policies, the DOW, interest rates, and so-forth. We've come to believe that Government and the Federal Reserve, with their ability to manipulate the money supply, are responsible for the state of the economy, which is the same as believing that adjusting a mirror actually alters the nature of the object being reflected.



     The reality behind the economy is that the amount of wealth available to the bulk of the population is declining, while the number of people that wealth is being divided among is increasing. Pumping great piles of dollars into circulation doesn't change that reality.

     Some people like to blame the decline in wealth available to the general population on the fact that the folks at the top are sucking so much of it up for themselves. There's some truth to this. In fact, that's kind of the whole point of a fiat monetary system. The people at the very top, those running the Government and Federal Reserve, pump out silly paper (and numbers in accounts) and get actual wealth and human labor in return! A one-way pipeline of actual wealth from us to them. But this is nothing new.

     The more ominous problem than the usual "rich getting an even bigger slice of the pie" is that the pie itself is getting smaller even before they take their cut.

     Modern economies are built on the paradigm of infinite growth. More people wanting stuff. Each person wanting more stuff. More people making stuff. Each person making more. The Government being able to print more money to reflect the increasing amount of actual wealth.



     This works fine so long as the fundamental resources needed to generate more wealth are available. But the fatal flaw in the plan is that eventually your infinite growth crashes into the reality of finite resources.

     That's where we are now. It's not like the Great Depression, where we were sitting on seemingly unlimited resources and simply needed to get our acts together to exploit them effectively. We've reached the point where there are not enough resources available to enable wealth production to support current consumption levels, far less to support real growth.

     Stimulus packages, Federal Reserve actions, DOW manipulation, and media-hyped Green Shoots ultimately can't change the fact that, despite more people wanting more stuff, there is less stuff to make, and fewer people needed to do the making. This is why there will be no real "recovery", even if there are transient, artificial rallies.















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