The Death Of The Virtuous Cycle

Tyler Durden's picture

Authored by Michael Lebowitz via 720Global.com,

Understanding value, pricing and risk/reward tradeoff within the context of the business and credit cycles provides a durable platform from which results-oriented, sound investment can happen. As Ben Graham said, “Price is what you pay. Value is what you get.”

During periods of extreme bullish sentiment, investors tend to get overly enamored by price trends and investing fads while neglecting fundamental analysis and the primary driver of asset prices, the macroeconomic landscape. Accordingly, to level the playing field, many of the articles we have published have been devoted to exposing fallacious economic thinking. We believe our discussion on the matter is imperative as most Ph.D. economists, including those at the Federal Reserve, have convinced investors, policy-makers and U.S. citizens that durable economic growth stems from debt-fueled consumer spending. This is not only a patently false claim, but it has immense implications for investors as we have explained and depicted on many occasions. In particular, we wrote, The Death of the Virtuous Cycle, to provide readers with a clear understanding of why the United States and many other developed economies have seen productivity, wages, and economic growth stagnate.

We make every effort to craft articles in a clear format using common sense analysis and straight-forward logic. Financial jargon, complex formulas, and abstract theories are tools for those who prefer to sound smart or simply wish to advance an agenda by confusing readers and obstructing basic truths. That said, despite our efforts to be laconic and make the complex simple, we struggle at times. To combat this, we have often written sequels or follow-up articles to present a topic in a different light or to add emphasis and enhance the reader’s understanding.

Due to the significance of the message contained in The Death of the Virtuous Cycle and our desire to effectively reach as many people as possible, we take a new approach and present the concepts using an animated short video...

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Looney's picture

 

Call me an optimist, by I think Yellen is planning to surprise the heck out of the markets.

She might pull a “wardrobe malfunction” with a Nip Slip or simply come out wearing a Crotch-less Pantsuit.  ;-)

Looney

Nice Try Lao Che's picture

So how do cocktail waitresses & lear jets work into this?

A. Boaty's picture

Factored into the Spamflation Index.

Kayman's picture

I used to own a Learjet, now I am a cocktail waitress.

withglee's picture

We believe our discussion on the matter is imperative as most Ph.D. economists, including those at the Federal Reserve, have convinced investors, policy-makers and U.S. citizens that durable economic growth stems from debt-fueled consumer spending.

Not a single one of these Ph.D. economists knows what money really, and obviously, and provably is ... nor does he who wrote the statement above know what it is.

Money is indisputably "an in-process to complete a trade over time and space". It is created only by traders ... always has been and always will be. And it is destroyed by responsible traders delivering on their promises. And it results in inflation when irresponsible traders (like all governments with their perpetual rollovers) are free to default on their trades without an interest collection of like amount to recover and destroy that defaulted money.

It doesn't get any simpler folks. Don't make it complicated ... unless you too are in on the money changers con and scam.

LawsofPhysics's picture

Allow me to make it much simpler.  My team and I have worked very hard to provide you with this real product. PAY US WITH SOMETHING REAL IN RETURN OR FUCK OFF!

"Full Faith and Credit"

withglee's picture

Allow me to make it much simpler.  My team and I have worked very hard to provide you with this real product. PAY US WITH SOMETHING REAL IN RETURN OR FUCK OFF!

"Full Faith and Credit"

Sure. That's a parameter necessary to trade with you. I can choose to trade with someone else or not trade at all ... or I can meet your restrictions. The decision is mine. You likely will change your policy when you find no traders wanting to trade with you under those conditions when a proper MOE process allows them to do it on trust ... at less hassle and cost. How many trades are you making right now with the "improper" MOE process we are all using (with it's know 4% leak and money changer manipulation).

Have it your way ... if you can find anyone to trade with at all.

MoreFreedom's picture

"... nor does he who wrote the statement above know what it [money] is."

I agree with Michael Liebowitz's article. It' not about what money is. It's about the virtuous cycle of savings, investment, production and income. Saving allows one to invest in figuring out better ways to do things including increasing production. Rather than the non-virtuous act of borrowing money to spend for now and becoming a debt slave later.

In fact you seem to fit their description of "those who prefer to sound smart" rather than keeping things simple (admittedly you say it's simple at the end). Describing money as "an in-process to complete a trade over time and space" isn't simple as say "a medium of exchange."

But perhaps you've just misunderstood the article, and we're really on the same page. The video is good, and simple.

LawsofPhysics's picture

The only flaw in the video being being the implication that economic growth can continue forever and ever in a biosphere with finite resources...

withglee's picture

In fact you seem to fit their description of "those who prefer to sound smart" rather than keeping things simple (admittedly you say it's simple at the end).

Well try this:

Definition: Money is an in-process promise to complete a trade over time and space created by traders and destroyed by traders on delivery as promised.

Discussion and proof:

Examine "trade": (1) Negotiation; (2) Promise to deliver; (3) Delivery.

With simple barter exchange in the "here and now", (2) and (3) happen simultaneously on the spot. Money enables (2) and (3) to happen over time and space. Thus money is "obviously" an "in-process promise to complete a trade over time and space".

Whether that sounds smart or not, it is irrefutable ... and proves other definitions wrong on their face ... to be just clumsy, expensive, ineffective, and inefficient stand-ins for money. Gold and silver come to mind.

Your move. Disprove it!

Describing money as "an in-process to complete a trade over time and space" isn't simple as say "a medium of exchange."

Money "is" the "media" in a Medium of Exchange (MOE). It comes into being by traders making promises spanning time and space and getting them certified by the "proper" MOE process. Those certificates (really records of them) then circulate as the most common object in every on-the-spot-in-the-here-and-now simple barter exchange. This is because a "proper" MOE process guarantees perpetual perfect balance of supply and demand for the money itself and thus perpetual zero inflation everywhere. This attribute makes it welcome all the time and everywhere.

If a trader fails to deliver, return, and destroy the money he creates as promised, it is immediately recovered by interest collection of like amount. Interest collections are not some arbitrary time value of money as the money changers want you to believe. And money is  not created by the money changers who claim they are entitled to tribute for doing so (i.e. interest) ... it's obviously created by traders as the above discussion and proof illustrate.

Thus the operative expression is: INFLATION = DEFAULT - INTEREST = zero for a "proper" MOE process ... and no money changers nor the governments they institute for their protection need be involved at all.

GRDguy's picture

Came across an old book (1954) in a bookstore the other day.

The title in bold letters was "Seduction of the Innocent."

My immediate thoughts were; it's about government and/or finance;

or maybe religious teachings.

Turns out it's about how comic books generates juvenile delinquency.

So I put it back on the shelf.  Sure a misleading title.

Or maybe that's all they had to worry about back then.

Delving Eye's picture

Ha! Interesting. I was born in '53, and America's biggest fear, via the Cold War, was being nuked by Russia. Thus, me and my schoolmates learning to "duck and cover," as if that were going to save us! 

Not much has changed, except now it's NK and the Dear Fat One, instead of the Great Bear and Khruschev we are staring down.

Comic books (dangerous as they are ... not) would be a relief! ")

GRDguy's picture

I was born in '47, so I hear you loud and clear.

William Dorritt's picture

Debt is good for the Money Lenders who control both parties and the Courts.

Batman11's picture

Bankers need to shift their debt products.

They run the show and want everything to run on debt.

The end - 1929/2008 when the economy saturates with the bankers debt products.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png


 

Batman11's picture

How can we shift more of our debt products?

Use an economics that doesn't look at private debt in the economy, neoclassical economics.

It was there for 1929 and 2008.

Let's role this crap economics out globally, queue the ubiquitous neo-liberal housing boom where no one can see the debt problem.

The bankers shift lots of their debt products until it blows up.

Look at those suckers in the UK:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png


 

RabbitOne's picture

I did the virtuous circle in the computer revolution. It works. My partner and I were able to build a retail computer outlet with $85K sales the first year in sales to $2400K sales in 9 years. We paid off our initial loans and plowed all our funds back into the business. I had a meager income in those first years. We did ok until major retailers jumped in and under cut our sales (I and 2 other employees left). The business went on another 10 years from the clients we built up (with smaller profits).

The same business plan would be DOA in today’s environment. Paying high wages, heath care benefits to employees and increased taxes would have bankrupted my business in less than a year back then. Retail depends on slim margins, high inventory volumes and turnover.  Today’s business environment requires an entrepreneur run losses for years to satisfy government. It is not going to happen. Capital flows where business is welcomed and profit is not a bad word.

People underestimate how important small business are to the U.S.. In the 20 years my small business was around we on average supported 19 people with wages and benefits. It is this job multiplication factor of jobs from small businesses that is gone in the U.S. In its place is a huge government bureaucracy that continuous to suck up more and more resources...

Kayman's picture

Debt is no longer savers lending money to borrowers, using a bank as an intermediary.

Step one, conjure it out of thin air via a Central Bank, e.g. the Fed.

Step two, lend it to your friends in high places (the mechanics are varied)

Step three, your friends in high places lend this over and over via the fractional reserve (today it is the no reserve) closed loop banking system.

The goal? To collect the income of others via interest and skimming from productive assets and/or jack up existing asset prices and sell to the sheep as they arrive to the slaughter house.

CJ Robber's picture

Yo Peeps, the PHDs got it right, it's just 1s and 0s. When the NWO participants succeed in declaring that disclosure of Central Bank activity is classified and disclosure is a capital offense you all will be singing a different tune. What the unwashed don't know won't hurt them. Most are more concerned with Kimmie's cottage cheese ass anyway.

Zip_the_Zap's picture

They are not concerned about Kimmie's ass, they are concerned that their own asses are not as good.

Sonny Brakes's picture

When this shit-show eventually does blow-up what will become of the people who are debt-free? Will we be asked to assume our fair share of the collective debt? Will we, the debt-free, be held responsible for not having participated and done our share in the building up of this debt bubble. Will we be hunted down like draft-dodgers and sent to the frontlines to help work it off? It seems to me that Mr. Big isn't prepared to take a haircut on his malinvestments. Am I right?

CrabbyR's picture

Good point....It will be your patriotic duty...blah blah blah

ElTerco's picture

If you have any financial assets (cash in a bank to equities), then those assets are already being levered 10x to 100x by the financial system. Physical assets such as precious metals are the only way to not participate in the collective debt party.

decentralisedscrutinizer's picture

 

It’s becoming obvious that our worst economic and political problems revolve around the global hegemony of corporate cartels headquartered in the US, where their military force resides. The only effective way, now, to regain our sovereignty as citizens of a constitutional republic is to severely curtail the activities of such corporations. To remain a free nation, we have to stop granting corporate charters to every con artist that comes along and start demanding a well-defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't take the incorporation of private transnational banks for granted anymore. The government must be held responsible to human voters, not fictitious entities.

 

 

 

An omission in the US Constitution created the swamp of corporate corruption we now see surrounding our capital. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a legal drain. This 28th amendment is intended to provide that drain so Congress can legally pull its plug. As a matter of political practicality we must rely on the Article 5 Constitutional Convention for which the electorate will need prior consensus to avoid preemptive state or corporate interference. This is what it will take, in plain language, to save the world; and nobody gets hurt:

 

 

 

28th Amendment

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation;

 

a, owning another corporation,

 

b, becoming economically indispensable or monopolistic, or

 

c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of;

 

a, government,

 

b, education, or

 

c, news media, and

 

3, provisions for;

 

a, the auditing of standardized, current, and transparent account books, and

 

b, the establishment of a state and municipal-owned banking system

 

c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

 

 

 

The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual States, smaller sovereign nations, and eventually to buy out the Federal government itself. Now that these fictitious entities own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation and run it by virtue of regulatory capture, MSM propaganda, and Congressional lobbying, they’ve set their sights on the creation of an all-inclusive global financial empire. The US Constitution is the de facto “Charter” of that Empire. Only we, the people, can amend it, and in doing so, restore the Republic.

    

Consuelo's picture

 

 

"Understanding value, pricing and risk/reward tradeoff within the context of the business and credit cycles provides a durable platform from which results-oriented, sound investment can happen."

 

If you had people freely transacting with one another, sans 3rd party intervention at every turn and at every level, would there even be a 'business or credit cycle'...?