Tuesday, October 28, 2008

The Tyranny of the Immediate

That is a fabulous title, written by John Michael Greer on his blog last week. He doesn't save his blog entries as individual pages, so you'll have to scroll down and look for the date if you check this link anytime past Wednesday the 29th.

Wednesday, October 22, 2008
The Tyranny of the Immediate

One of the great challenges that has to be faced in any attempt to make sense of history while it’s happening is the misleading impact of short-term trends...

...The same mistake on an even more grandiose financial scale underlies the implosion of much of the world’s banking system in recent months. The first generation of derivatives, credit default swaps, and equally exotic financial livestock netted huge profits for their original breeders; so did the next generation, and the next, and before long these dubious securities – valued with an optimism usefully summed up in the phrase “mark to make-believe” – accounted for a very large proportion of the paper assets held by banks, hedge funds, and the like. Because the financial community’s recent experience with such things had been so positive, all too few investors glanced further back and saw what happened every time in the past that financial paper unlinked to sources of real wealth had been allowed to breed beyond the carrying capacity of the market.

The difficulty, as I’ve suggested in previous posts, is that historical change happens at a pace much more leisurely than textbook summaries suggest. Most people who didn’t live through the opening years of the last Great Depression leave school with the notion that when the stock market crashed in the fall of 1929, the economy reached a full stop by the time investors stopped plummeting from Wall Street windows. In reality, it took more than three years for the economy to finish contracting, and scenery en route included a dramatic stock market rally in 1930 and some of the best days of rising prices, in percentage terms, that Wall Street has ever seen. At every point along the course of contraction, furthermore, financial pundits drew false conclusions from short-term changes. The resulting headlines have more than a little similarity to the ones that clutter the financial press today...

...The governmental response to the credit crunch and the near-implosion of the speculative end of the economy has its own implications, and these also push the situation away from normal. In a truly free market, the bust would have erased most of the capital that had been available for speculation, and destroyed so many businesses that the survivors would be likely to flee the more exotic realms of finance for a generation to come; this is exactly what happened in the 1930s, for instance. In the present case, though, governments around the world have propped up investment banks and speculative markets with huge inflows of cash, preventing the wave of bankruptcies that would normally end a speculative boom as wild as the one just finished. One very likely possibility is that the investment banks will attempt to launch another round of speculative excess in order to improve their balance sheets before the political consensus that supports them comes unglued; if this happens, commodities are a likely target, and could soar upwards again.

...Looming over all these factors is the arrival of peak oil. Since 2005, world production of petroleum has been locked into a narrow plateau that not even a 300% increase in prices could breach, and the most believable estimates suggest that by 2010, that plateau will turn into a slow and irrevocable decline. Many of the official figures for oil production lump biofuels and tar sand extractives in with conventional petroleum; since these latter are produced using large amounts of oil and other fossil fuels, there’s a real sense in which some of today’s petroleum production is being counted twice, hiding any early signs of the approaching contraction. The credit crunch and the low price of oil, furthermore have placed additional challenges in the way of the already difficult struggle to replace the world’s rapidly depleting oil fields.

The obvious implication of peak oil is that the mean price of oil is likely to trend upward over time. The less obvious implication is that changes in the mean price may well be hard to extract from the chaotic data provided by an economy in disarray. Thus when peak oil advocates came to believe that the price of oil would soar upwards from $143 a barrel, they were running ahead of the date; when, as now, some of them are predicting a continuing decline in the price of oil for years to come, they are very likely doing the same thing. The tyranny of the immediate makes these short-term phenomena seem much more significant than they are...

In other words, a lot of people who really ought to know better are thinking that the "worst is nearly over" and that the government's massive interference into the "free market" by infusing imaginary dollars (created out of the thin, blue air) into failing businesses will actually do some good.

Neither is true.

The ponzi scheme that modern financial markets have become would have been prevented if legislation that had been put in place after the Great Depression to prevent just exactly these types of excesses had remained in place. As it is, back in the 80s the giant financial firms began lobbying to have those safety checks removed - and what few remained in place were either granted "exemptions" or were just ignored. The result is what you see now - a market that is actuarily broke, a government that is actuarily broke, and people who are actuarily broke. The red ink has turned into a flood of worthless investments and unpayable debts, from top to bottom.

The only real solution to this problem is a Biblical one - but you will never hear it proposed: a Jubilee. A total and complete amnesty - all debts forgiven, nobody has to repay anything - a clean slate. That is the only way this problem can be solved without destroying the economy worse with hyperinflation from all the fake dollars and destitution from the unpayable debts.

Every US citizen should be declared to be debt free, all debts from x-point backward declared void and uncollectable by law, and that includes all mortgages and student loans. The "money" used to create these loans never existed, it's an entry in a computer screen and nothing more. There were never any deposits or assets at any of the financial companies to make these loans, they were done on "fractional reserve banking," meaning somebody put $1 in a CD and the bank then loaned $10,000 based on that one dollar. They never had the other $9,999 to begin with - why should anyone have to pay it back? It was never real. It was a ponzi scheme. It's time people were set free from this economic slavery that was all a ruse in the first place.

This will give people an immediate boost in spending money - and manufacturing will be saved, service jobs will be saved, and small businesses will be saved, because people will once again have money to spend. What will not be saved is the giant financial conglomerates, who need to die. Keeping them alive on artificial respiration will only make things worse - they destroyed themselves and should be allowed to fail, period. Destroying our currency to save them is just plain stupid.

Yes, we wasted a lot of money in those companies, trusting them with our pensions and college savings. Trying to be greedy now and recoup money that we knew we were gambling with and lost will not solve the problem - only admitting the money we foolishly trusted these men to manage for us is gone forever will allow us to start again. Tax revenues for social security and other programs will blossom once people get out of debt and begin spending again.

And, of course, usury laws will have to be put back into place at the federal level and enforced, and protections against unsecured and exotic investments will have to be revived and made stronger. From this stable and secure starting point the economy can be rebuilt. It cannot be built on the strange and destructive notion that someone is entitled to collect on the debts of the failed and failing companies. There is no such right to collect "money loaned" that never existed in the first place. Continually passing around unpayable debts from firm to firm and continuing to attempt to collect them from people with less wages than their fathers made will only make our financial system worse - hence, a Jubilee.

Perpetual economic slavery was something Hashem never intended creditors to be allowed to get away with. Seven years was the maximum for debts, and property had to be returned to the original owners every 50 years. It has been nearly 30 years since the giant financial firms starting throwing off the safeguards that protected us from predatory and exotic financial dealings - 3x seven and then some. We are overdue for an intervention. So instead of bailing out Robber Barons, it's time to do what scripture says and bail out the little people trapped in their grip.

The Tyranny of the Immediate, the inability to see anything but the current situation and the wish for immediate gratification has blinded us to our larger duties and to how failing to perform those duties affects the economy and our communities. Greed is not Good. Greed does not work. Greed is evil.

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