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Economics Is Simple ... The Fat Cats Just Want You to Think It's Complicated So That You Won't Demand Change

George Washington's picture




 

Washington’s Blog

Economics and finance seem like complicated topics, and so many people "leave it to the experts".

However,
these topics are actually simple, and if people hear a clear
explanation, they will be able to form an opinion about our current
economy and the government's response to economic challenges.

It
will be easy to understand the economy if we think of money as water.
Links showing that the analogy holds true with the economy are provided
for convenience.

Let's imagine that there is only a limited
amount of fresh, drinkable water in the U.S. (which is true), and that a
handful of say 5 big water companies control the rights to 90% of the water in the country.

Let's
further imagine that the water companies - wishing to make more money -
expand beyond their traditional water business, into mining for oil and
gas. Indeed, the oil and gas mining business becomes so lucrative that
it soon dwarfs the size of their actual water business. They keep their traditional water business, but soon also become the largest polluters in the country.

They
dig for oil and gas right around where the aquifiers are where they
pump water. Unfortunately, they are greedy and cut corners, and end up
polluting all of the aquifiers with toxic crude petroleum compounds.

The
water companies loudly tell the government that this pollution was
"unexpected" and simply a temporary "water-flow" problem. They jump up
and down and yell that - unless the government "bails them out" by
giving them more water - the entire water distribution system in the
U.S. will fail, and Americans will suffer a water shortage and severe
thirst.

Advocates for the American people argue that the big water companies should be forced to clean up
the aquifiers. They point out that we will have a drastic water
shortage unless these water supplies - which constitute the lion's share
of fresh water in the U.S. - are cleaned, and that the water companies
must be forced to stop mining for oil and gas right next to the water
supplies so that it won't happen again. They also demand that the
government distribute the water in its emergency strategic water supply directly to the people, as that will directly address the problem of thirst and water scarcity.

They
point out that drilling for oil is a wholly-separate business from
pumping and selling drinking water, and demand that the water companies sell their petrol business.

They
point out that if the costs of cleaning up the aquifier are honestly
tallied, the water companies are bankrupt. They say this the problem is
not a "temporary" water shortage, but that the big water companies are actually insolvent, and that their entire business model is flawed.

And they note that the big water companies are not as efficient at extracting water from aquifiers as smaller water companies, but that the big companies are getting so big that they re driving the smaller companies out of business.

The
big water companies respond that they're "too big to fail", that
they're doing fine and only experiencing a very temporary "liquidity
crisis" shortage of water, that they just need a little temporary help
to get the water flowing to America again, and that they'll drill safely
for oil and gas and that so new rules are needed.

The White House and Congress (having received a lot of contributions from the big water companies), and the Federal Water Reserve - a quasi-governmental agency owned entirely by the big 5 water companies - decide not to crack down on the big 5 water companies. Instead, they exempt them from pollution laws by relaxing reporting requirements so that the companies don't have to report
how much oil and gas pollution has really gotten into the aquifiers.
Indeed, the government let's the big companies write the rules for a
series of highly-publicized "stress tests" which are simply a P.R. ploy to reassure the public that the water is safe and the companies sound, even though neither is true.

The government and Federal Water Reserve also buy all of the polluted water in the aquifiers at 100% of the normal price for clean water (and used it for security for cheap loans to the big water companies), and that water is stockpiled in the bowels of the Federal Water Reserve building
(even though the high petrol content makes the water highly flammable,
and thus a fire hazard). So instead of the water companies having to
pay for their toxic pollution problems themselves, the government takes
care of it ... at the taxpayers' expense.

The government also taps into it's emergency water supply, and gives all
of the water to the big 5 companies to help them through their
"temporary" water shortage. Americans are starting to get thirsty, but
the big 5 don't sell to average Americans. Instead, they use most of
the water in their oil and gas mining operations (it takes a lot of
water sprayed on the rocks being drilled to keep the dust down). The
big 5 sell some of the water to fat cats who already have lots of fresh
water in private ponds and storage tanks, and stockpile some of it.
Somehow the water given to the big companies never trickles down to the
public. The average American on "Main Street" gets thirstier and thirstier.

The government also props up the big water companies by giving them all sorts of subsidies, incentives and business opportunities which guarantee that they'll make money. The government offers none of these to smaller water companies, and actually penalizes smaller water companies by charging them extra fees to pay for the misbehavior of the big companies.

The
American people become thirstier and thirstier, and without water to
grow crops, put in their cars' radiators, or even wash their hands,
America becomes poorer and living standards decline.

The big water
companies try to make the situation seem extremely complicated, so that
only the "experts" can understand it. By making things seem complex,
the American people won't feel competent to demand changes. Indeed,
they even promote academics who are trained to ignore the real world and instead focus on highly complex - and unrealistic - models.

But the situation is actually simple. Things haven't improved, and won't improve until:

  • The big water companies are broken up, so that smaller water companies focusing just on H20 can step up to find clean water and sell it to normal Americans
  • The big companies are forced to clean up the polluted water, and the illegal mining operations of the big companies are prosecuted

Simple, isn't it?

 

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Sat, 12/25/2010 - 20:14 | 830042 Guy Fawkes Mulder
Guy Fawkes Mulder's picture

What he said. Thanks for all the great articles this year.

Sat, 12/25/2010 - 14:41 | 829852 Between The Lines
Between The Lines's picture

Thanks for all the great articles this year, GW.

Fri, 12/24/2010 - 07:33 | 827797 zhandax
zhandax's picture

Bingo! You hit it on the head.  What ever happened to anti-trust legislation?  Not that I think there is a prayer in hell, but busting up all these mega corporations so that they cannot afford to buy congress is an essential building block to an ultimate resolution.

Thu, 12/23/2010 - 23:44 | 827527 Mark Medinnus
Mark Medinnus's picture

I got lost.  Perhaps, next time you could leave a trail of breadcrumbs before descending into the labrinth of your analogy.  

Thu, 12/23/2010 - 23:18 | 827495 Unlawful Justice
Unlawful Justice's picture

Very nice article George.

Goes to prove it's a concentration of hegemonic power problem,and not a water,or paper money problem.

When we understand the shenanigans behind the charade, it doesn't look like a big mystery anymore.  

Democracy was a nice experiment.  Game over! time to turn the page................

 

Thu, 12/23/2010 - 21:14 | 827326 Judge Fedd
Judge Fedd's picture

What about the part where the gov't gave water to the Big 5 so they could just lend it back to the gov't with interest?

Thu, 12/23/2010 - 21:06 | 827314 hardcleareye
hardcleareye's picture

Merry Christmas George, I have enjoyed reading you writings, please continue.....

L

Thu, 12/23/2010 - 20:58 | 827306 blindman
blindman's picture

interesting analogy.  exactly what the financial community wants

in the future is water.  control of water and taken away from

the public sphere and into private control and ownership.  for price gouging

/ financial profit,  just like the bond market,

just like financing.  that communities cannot finance themselves,

government, and need to borrow is a function of private and fractional

reserve lending with interest at the core of money creation, resulting in "inflation". 

aka. political control of a people via contractual obligation.

http://www.newsday.com/columnists/other-columnists/timing-of-nifa-takeover-key-for-mangano-1.2563708

.

http://www.nifa.state.ny.us/

http://www.nifa.state.ny.us/reports_financial/annual/2009AnnualReport.pdf

the standard line is nifa imposes fiscal discipline.  they do this by hooking

the addict to heavy debt drugs and usurious interest payments.  this expanded

puts the user, needlessly into the position of selling their precious for

further rounds of usury and dismal collapse of utility and local abundance.

no fear, the resource will be sold at a profit elsewhere.  these vipers have

it down to a science.  of course there is a g.s. connection.

.

so you read through this and think,  what is stopping nifa from buying

a cds on the collapse of the county finances while simultaneously

leading dysfunctional politicians and unions down the path of budgetary

insanity, no tax increase and further borrowing to pay interest and etc..?

nothing.  they can as a private corporation, appointed by the state, do

as they please, and my guess is they will.  end result, they will own the

tax base and the water right of the county of nassau.  and the "money".

.

anyway... minute 17:00 - 18:00.  here.  the story

http://maxkeiser.com/2010/12/23/kr106-keiser-report-markets-finance-scandal/

Thu, 12/23/2010 - 19:29 | 827172 New Revolution
New Revolution's picture

I think your making it too complicated.   Just stick to the facts as truth is stranger than fiction and carries more 'water'.   Everyone knows Wall Street and Washington are bed fellows, and they know that we're being ripped of royally.    I don't know about you, but I'm connecting the dots with details and will soon be out.   But that doesn't even resonate with the masses.   Because they still don't know what to do nor why they should do what needs to be done.

I'll explain that too in a 'Contract with America'.   We're talking Revolution, The New American Revolution to be precise.   It's already begun and I'm going to give it a big shove.   If we can vote together on what we agree upon, the hard part will have been done by 2012 just in time for whatever cosmic calender dates may be (like crossing the galaxial plane?).

In any event, whether you decide to participate or not, your still in the game and  your going to have to play the hand your dealt.   The only question you need to answer is if your going to fold, or play it for all its worth.

The difference means you either wear chains or you live Free.   It's an easy decision and that's why we'll win.   Just tell them the truth.

Fri, 12/24/2010 - 07:50 | 827805 zhandax
zhandax's picture

30 or 40 new fish in that pool of sharks hardly makes a new revolution.  Nice start if they don't get immediately eaten, though......

Thu, 12/23/2010 - 20:59 | 827307 minus dog
minus dog's picture

It's easy to make things too complicated.  Keep in mind the number of people who can't make simple change, or who think that "billion" is just another way to say million with extra emphasis.  GW's example isn't bad for explaining some of the ways we're getting boned, but the general public's eyes start to glaze over even when explaining the most basic topics.

People relate best to people; after all, they are one (if tenuously).

Good example is inflation; people have at least some understanding that "stuff costs more than it used to", but good luck getting them to, say....  recognize the possible drawbacks of runaway printing.  

A simple example that has never failed me is this; say the government decides tomorrow to just give everyone a million dollars out of thin air.  Poof, you have a million bucks.  I ask them what the first thing they'd buy for themselves would be... usually something like a big screen TV or a Playstation.  So I point out that quite a few other people also want those items... and that they also have a million bucks.  

Then I ask them how much they think a PS3 will be selling for a week later.  They catch on fast, because you started with a simple event (the million bucks), resulting in a simple behavior on their part, expanded it to reasonably expect that others would act in a similar fashion, and then moved on to a result.  All things they can immediately understand - even an idiot understands two people wanting one thing.  And best of all, you did this without bringing any concept of right or wrong into it - if you ask them, they might say jacking up the price of the PS3 is somehow "wrong", but they'll certainly expect it to happen anyways.

People tend to get hung up in economics on what they think is right or wrong, or in failing to understand the nature or motivation of entities that are larger than a single person (Such as the Fed ... or GW's Federal Water Reserve).  To them, companies and bureaucracies aren't "people"; they're expected to simply do what they're directed to for unfathomable reasons.  But they expect individuals to act much like themselves.

Thu, 12/23/2010 - 19:03 | 827123 zeta34
zeta34's picture

I built the cashflow engines for mortgages back in the late 90s and early 00s...everyone in the analytics department knew the value of these horizontally-tranched mortgage pools (better known as CDOs later) were *completely worthless*.  There was no secret.  Wall Street *DESIGNED* these vehicles for hedge funds who wanted an above-market yield in the short term (a few years), and didn't care if they lost 100% of the principal down the road.  It was the perfect solution...a headless fund-of-funds money manager would simply buy this toxic garbage for the 8% CONSTANT yield for a few years, take his 2 & 20 (after Merrill took their cut for finding customers), only to suffer catastrophic losses later.  The fund "profits" were never returned, the fund manager got paid, the banks got paid finder fees and exorbitant securitization fees on the CDOs themselves, and the customers (suckers) got wiped out.

 

Woo hoo, everyone wins!

Thu, 12/23/2010 - 19:04 | 827127 zeta34
zeta34's picture

Remember, if a pool of mortgages given to illegals (each having 20 mortgages) to buy Florida investment condos suffered only 4% of losses, the super-senior AAA CDOs were a 100% PRINCIPAL loss.

 

Assuming 10% defaults and a 60% recovery rate, every single holder of super-senior AAA paper was wiped out, suffering a 100% principal loss.

 

Smell ya later.  Thanks for the contribution suckers.

Thu, 12/23/2010 - 18:56 | 827092 George Washington
George Washington's picture

I thought of adding some analogy about the Federal Water Reserve drawing moisture out of the clouds and giving it to the big water companies, and thus depleting future water resources and necessitating future austerity -- but that seemed too complicated.

What do y'all think?

Thu, 12/23/2010 - 21:13 | 827325 hardcleareye
hardcleareye's picture

I think you should add it, think of what happens to the east side of the Rockies.. dry desert... impacts the ability of people and crops to grow and live, not just in the future but now, (like the middle class)?  Not sure if that works...??

Thu, 12/23/2010 - 20:03 | 827218 Miles Kendig
Miles Kendig's picture

Its another green application .. This time in multitoxic desalination of the Federal Water Reserve ... and a private/public partnership in developing these emerging technologies.

Nice read all year Geo.  Thanx

Thu, 12/23/2010 - 19:46 | 827197 bruiserND
bruiserND's picture

 

'What do y'all think?'

 

I think that Washingtons Blog is a national treasure.

Thu, 12/23/2010 - 20:00 | 827220 Cistercian
Cistercian's picture

 I agree, and thanks George for your hard work this year!

  Merry Christmas George, and thank you again!

Thu, 12/23/2010 - 22:28 | 827440 essence
essence's picture

Agreed.
Thanks George for you efforts in bringing forth the truth & 'sticking' it to them.

I also try to stick a spanner in the cogs of the PTB whenever I can.
And you all should too.

Fight damn it, because the alternative is slavery.

Thu, 12/23/2010 - 23:10 | 827465 tahoebumsmith
tahoebumsmith's picture

George,

There are a few people I tip my hat to because they truly get it. Hat's off to you for not letting go of the facts. You truly get it and understand the vast dynamics of the robbery. OBTW the article on the oil was spot on. Do you realize they are still operating 3 rigs at the spill site at like a million a day per rig? ROVS still spraying on the fractures? My guess is one of those rigs is hitting the seepage at the bottom so nobody will ever know the extent of the existing damage. Happy Holidays and keep up the good effort in telling the truth.

Thu, 12/23/2010 - 21:48 | 827178 DavidPierre
DavidPierre's picture

Damn Man...It be the eve of the eve of X-mess.

Now... you just lighten the hell up... enough with all this gloomy and doomy stuff and such downers.  Just git on over to the parties and tie one on.

Mean whilest... And in the happy and forgivening spirits of the season... over at SmokeyJimQuinn's sheep-paddock blog www.TheMoronsPlatform.com he, ands the other Hilly-Willy Sheep, has raised a tribute to Yours Truly.

Since being in the festival and carnival spirits... not to mention the fine home-brewed liquids and better yet home-growed BCBud vapors and such like... I will soften myselves towards the 9/11Moron and link up honestly and troofully Y'alls to The MORON's blog for a few laughs... giggles... etc. etc.

"In honor of one of our founding members, David Pierre, I will treat you to a Redneck Christmas tribute."

http://www.theburningplatform.com/?p=8770#comment-14699

Being as I is, and continue to be banned and deleted from Quinn's sheep barn blog, I will post here my sin-searest gratifications and thanks to him and his for such honourifics.

Mary X-Messes!

And F#(%> Y'all... Good Night!

 

ps: TheDP's Birthing Day is twomorrows on the Eve ... I'd be pleased to accept any pleasentries via...

  • Gold Money
  •  

    pps: I could not help myselves. 

             Just had to do it.

        http://www.youtube.com/watch?v=VJOe3CXE-mA

               "I'm Sorry!"

           Hoe... Hoe... Hoe !!!

    http://www.youtube.com/watch?v=JVHGGQJmjEw&feature=related

    Get Er Done!

    Do NOT follow this link or you will be banned from the site!