Guest Post: You Can't Fool Mother Nature For Long: The Substitution of Debt for Productivity
Submitted by Charles Hugh Smith from Of Two Minds
You Can't Fool Mother Nature For Long: The Substitution of Debt for Productivity
The "big story" of the U.S. economy is that we have substituted expansion of debt for meaningful increases in productivity.
For the past 30 years, the U.S. economy has become increasingly dependent on explosive debt expansion for its "growth" rather than on meaningful rises in meaningful productivity. Growth is in quotes because growth based on secular increases in productivity--that is, the same investment of labor and capital produces goods and services of greater value--is qualitatively different from "growth" based on a pyramiding of debt.
Real growth based on rising productivity is sustainable, "growth" based on ever-greater expansions of debt is not.
What has kept the Status Quo from falling off the debt cliff over the past four years is the substitution of exploding Federal/public debt for no-longer-rising private debt. If Federal borrowing were to return to 2006 levels, the economy would immediately experience a severe contraction.
We can understand this reaction as that of a debt junkie economy suddenly deprived of massive infusions of fresh credit.
This substitution of public debt for private debt is simply an attempt to fool Mother Nature. The justification of the Status Quo for impoverishing future generations is the massive expansion of Federal debt is needed to "kick start" the economy, i.e. "get us through a rough patch."
After four years of kick-starting and muddling through rough patches, the economy has yet to recover benchmarks set in 2007, much less grown. Meanwhile, the kick-starting added $6 trillion in visible public debt and trillions more in off-balance sheet obligations and backstops.
Substituting debt for productivity is also an attempt to fool Mother Nature. Here's how the substitutiion works: when productivity is flat, then "growth" can be created by leveraging the economy's surplus into greater amounts of debt, which can then be squandered on mal-investments and consumption to foster an illusion of "growth."
Note that I use the phrase "meaningful productivity." If a highrise tower is built in the middle of nowhere and sits empty, the construction and related costs (inspections, transport of goods, utilities, etc.) are added to the gross domestic product (GDP) as "growth," even though the empty building is not adding any real value to the economy.
The same can be said of millions of unneeded medical tests, millions of doses of medications that don't work as advertised, etc.--all the costs of sickcare that rarely add productive value to the economy but which are all added to the GDP as "growth."
If you leverage $100 per month in surplus capital in a household into a $100,000 home equity loan that is squandered on luxury cruises, a new kitchen, boats and dining out, then that explosion of spending boosts "growth" like a shot of cocaine.
But then what happens when the borrowed money has all been spent? What happens when the borrower defaults? The underlying assets--the boat, home, etc.--can all be auctioned off, but a massive loss remains to be swallowed by the lender.
Needless to say, the bankrupt borrower will be unable to borrow another $100,000 any time soon, even if interest rates are lowered to near-zero.
That's what happens when you try to fool Mother Nature by substituting debt expansion for increases in meaningful productivity. Eventually the surplus that is being leveraged into debt reaches the point where it cannot leverage any more debt, and the over-leveraged borrower defaults at the first financial bump.
An economy that is dependent on constant massive increases in debt to fund its "growth" is not sustainable. In a very real sense, the U.S. has been fooling Mother Nature for 30 years. Now we've overleveraged the nation's shrinking pool of surplus capital and assets, and the last rabbit has been pulled from the magician's hat. Mother Nature (i.e. reality in the form of a transparent, marked to market balance sheet) is about to take her revenge on all those who reckoned she could be fooled forever by ever-expanding debt.
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In other breaking news, the sun came up this morning.
north? west? south? east?
I've got call options on the fact that the moon will also come up in a few hours.
Keeping fingers crossed!
AIG FP probably thought the same thing. Some things are always true..... until they're not of course.
We are merely witnessing the messy end of the Sales Side, Sell side, growth to infinity world.
And good riddance.
Demand Side World FTW!
ori
/shattering-midass-curse-gold-de-spell-ed/
They are still attempting to clear the excess inventory of stone heads on Easter Island.
Well, talk about stability eh? We can only dream.
ori
LOL. For some reason that struck my funny bone.
Must watch Chris Martenson lecture: http://www.youtube.com/watch?v=8WBiTnBwSWc
Chris does a great job explaining the single most important issue related to everyone's quality of life. The exponential decrease on the energetic return on the energy humanity invests, unfortunately this does involve real laws and math and so, 99.9 % of the sheeple (eCONomists included) shut off almost immediately.
every politician should be required to write the following 100 times on a blackboard before taking office:
"in the long run (and absent war or theft), the value of the goods and services which a country can distribute to its citizens, must be equal to the value of the goods and services which the citizens of that country produce".
i think we're in the theft mode right now...
CHS...I admire your venture into these questions...The limitations on what is physically possible (Thermodynamics) and fiscally/economically possible (Mental/psychological) certainly exists...However, seeking to define these relationships is a humongous task to say the least...This is pretty much virgin territory...We'll need a hundred geniuses to even dent this question...Really!!
"Mother Nature" has nothing to do with any of this since there is no metric for "meaningful productivity". Somebody needs to get a hold of Kant's books pronto. Pretending physics and economics are similar in any way shape or form is absolutely asinine. The physical world can have measurement applied while modern finance is a mental construct. Make necessary changes.
CHS is two sandwiches shy of a picnic
Mercifully, his blog posts are getting shorter.
"Finance is a mental construct" Yep and as long as the sheep are mental this can go on for a long, long time. All the discussion of productivity vs debt is meaningless as long as everyone agrees that this fiat is worth grain, oil and other resources. As long as the mental construct stays nothing changes inflation is just a change in confidence by those most in touch with reality; producers.
Which then begs the question: what do people really value? Entertainment, spectacle and fantasy.
Mundus vult decipi.
Face it, education is a scam for most in the U.S. we are taught to never question and never be inquisitive. Why do you think PC speech and thought codes were introduced, people who question are hard to control. This leads to dependency of thought and easier control economic and otherwise. I have been called condescending by more than one sheep for daring to use words they should know but don't because their vocabulary has been cheapened and minimized to limit idea formation.
I know what I value and what my family will value but explaining to the maroons most of us are surrounded by is nearly impossible and not worth the mental energy.. Try to explain why minimal self sufficiency in the face of over extended societal complexity is a good thing to people you know.. You will get reactions from its icky to "you own a gun" ahhhh.. I might get hurt, the newsman told me so.
No, the only thing that matters anymore is finding the fulcrum and the point to apply it so that it all tips over; that is the question because the fulcrum is the red pill and we better take it soon. We need to find it so we can smash the truth into the worlds face if we fail that, things will get worse and stay that way.
...ergo decipiatur.
Thanks Gene. Awesome Phrase.
ori
Productivity has been thru the roof in the last few decades - in a normal economy those gains are shared between labor and capital -
Lately however the capital side has kept all the gains and then some......
That's how it works in a Kleptocracy......
let me push back on that a bit. productivity has been through the roof in china. here in the u.s., not so much. unless you count the transferring of jobs from manufacturing to service and government as somehow increasing "real" productivity. we've become a nation of baristas, diversity co-ordinators, nurses and massage therapists. eventually, other countries will grow weary of transferring their production to us in exchange for our promise to transfer a share of our so called "production" to them at some future date.
OK, so how does changing the labor location to China change the fact that capital is taking all of the gains and then some?
china's standard of living has increased substantially. therefore, it is doubtful that ALL of the gains, and then some, are being taken by capital. my point is that a large portion of our problems, in the U.S., is due to the fact that we are producing less of real value with each passing year. even if capital's share of production stayed the same, our standard of living would still decrease due to the simple fact that we are producing less.
Are we getting ready to hoist the red banner!
By "Capital" do you and Arlo reefer to Taxes, Monsanto, the war companies and Newt's "consulting" fees?
By borrowing FROM future production @ current efficiencies financed by future (assumedly better) efficiencies.
Inflation is the usurers' "take-home".
I'm talking american labor not Chinese labor -
And american labor's productivity has been going up rapidly......
Google it......
Hell I know of a small office where 3 employees has become 2 doing the work of the fired one with no pay raise...... And they are as busy as ever.....
My point is an economy that doesn't transfer some of the productivity gains to the labor force is skewed and it's a clear indication of a corrupt economy.
The marriage between physics and economics is way off into the future...Economists are more akin to 'High Priests'.....
I assumed meaningful productivity means production of good or services that society wants needs and desires. In other words production that has a market for the thing produced. Private markets in a capitalizt system generate goods that are wanted needed or desired, or the producer goes out of bussiness. The standard of living of a society is not depends on GDP, but on the percentage of GDP that creates good and services that are wanted, needed, or desired. Government spending fueled by debt is not very effective at producting good and services that are wanted, needed or desired (see Solindra or 99 weeks of unemployment paying someone to not produce). Thus you have GDP growth, but without an increase in prosperity. Sooner or later those who can easily see that they are no longer as prosperous as they once where, but are now deeply in debt will require that the debt fueld government spending stop. Then we will see the consequences of years of years of deficiit spending.
So the mis-allocation of capital continues. Like this article some things never stop getting recycled, hedge accordingly.
Still a good article explaining without too much technobabble very important concepts
thanks
Once the dollar bubble pops we will find out what our true productive capacity is.
Once the dollar bubble pops we will find out what our true productive capacity is.
Dr. , when the dollar pops say goodbye to BeersBoobsBombsBongs&Burgers or in shorthand usa inc
Ah but it was fun while it lasted. Now say hello to BeansBulletsBaindaidsBoozeBatteries&smokes all those needs for survival or barter.
I know that...you know that...we allllllllll know that.
It's just that the bond and stock market ride the short bus.
And bears shit in the woods.
The best part is that 1% economists say that we "need austerity in social programs like Social Security and to tax 401Ks more" in order to pay our Neo-Feudal lords.
Yeah, lets fuck with the old people, and young people's ability to get college loans. In a country where there's over 250 million guns. That's going to go over well.
It's almost like we are fighting the British Imperialists again. And btw, folks....we stil pay tax on our tea.
Bears shit wherever they feel like it. And I'm with you 100% on the going over well part. In fact, I wish they would hurry the F up and push harder, so we can get the show on the road. Waiting is good for them and bad for damn near all of us.
Extending huge college loans to young people is exactly the way the neo-feudal rule is being implemented. Consider that if the average student only had $5,000 per year available to pay for college, then schools would only be able to charge that much. But when the government loans students an additional $20,000 per year, then the college can (and does) raise its charges to $25,000 to take in all available $$.
So, we've got kids taking on $80,000 or more in debt for something that should have only cost them $20,000 total, and by the time it's paid back, their kids are starting college. College loans are turning us into a nation of lifelong debt slaves.
Combine this gem of logic with the observation that if you under-tax the larcenous gains from the phantom growth induced by the debt orgy you are playing Russian Roulette with one empty chamber....
an excellent summary.
Flakemeister the way I look at this whole entire picture is they set up for a collapse obviously, the cover was to be getting into this major world war, which isnt going well as theres no support for invading Iran. Israel is now throwing a temper tantrum to hurry up and attack Iran, but something is missing, the balls to do it. Its like they just suddenly realized its real.
You give TPTB far too much credit.... unfettered greed and incompetence is more than enough to explain the chain of events of the past 30 years...
The US got itself on to an endless treadmill in the ME because they absolutely need to maintain the pricing of oil in dollars...War is the only outcome possible....
We, as a nation, could have changed things.... but there was too much greed and the illusion of prosperity brought about by falling interest rates and increasing debt to make any hard choices while we still could...
+1. Absolutely. Don't give these beta males super powers that they don't possess. These idiots in charge aren't nearly as intelligent as they would like to appear. After all, they had all that they needed. What could they possible want more of? Were they intelligent, they'd pick up their feet and coast along, enjoying pleasures most only (and if) read about.
Instead, they're killing the golden goose. Out of sheer ignorance and personal defect. When the host dies, what becomes of the parasites? They best find a way to encapsulate like lungfish, or go into a cyst like hibernation, because Darwins little theory is especially hard on idiots.
the host ofter rejects the parasite. historically, this has often happened by a reset of laws, customs and prejudices
I think the die was cast when we vested too much faith in government. We allowed our constitution to be re-interperted too the point where people can vote themselves money they extract from other people whom they deem less deserving. The only way to get there is to move from a system where property rights ensure individuals have the power to direct the allocaation of capital to one where politicians decide where to allocate capital. Once you do that you have a coruptible system where money can be used to influence government to allocate specific individuals or corporations more money. Then government becomes a tool to proectect the rich and powerful from any threat to that wealth or power.
The die was cast refers to rolling of dice, thowing things to the hand of fate....but I digress..
No...the problem was that the greedy pricks undermined the peoples faith in government so it became a self-fulfilling prophecy...
And last time I looked, the Supreme Court has a had a right wing bias for most of the past 35 years or so, take up your activist judiciary with the Republican party and don't insinuate that it was the left that was responsible.
And your quip about extracting from other people.... yes, I agree, they rewrote the rules so that the least deserving people could extract the gains from increased productivity....To put it in perspective, if the GDP per capita had maintained 1970 levels as the GDP allegedly grew, then the median income would be about $112,000... it certainly ain't. And yes, my example is somewhat heuristic...
And allowing a diverse vibrant press to be consolidated into a few media empires.... ah fuck, let's not even start on that....
As for the role of proper regulation, I call to the stand Ken Lay and his Enron cronies as my first witnesses to be followed by Charles Keating.... the list goes on....
We would not have have had Michael Millikan and his ilk if he had not recieved a blessing from his holiness Milton Friedman...
Yeah, well, all I know is that despite all that, the market continues to rise. The NASDAQ just hit its all time highs today.
DavidC
So now what?
Party on Dude!
What world do you live in? In mine the NASDAQ composite index reached $5130 (intraday) and closed at nearly $5050 before crashing. That high came in March, 2000, during the reign of the president who never inhaled so he couldn't get high. Or were you talking about some other NASDAQ index?
Japanese debt model. A model that Bernanke promised the US was not pursuing. Of course he also said he was not monetizing our debt.
People I know, good hard working employed blah blah, bought a house for $49,500 in 1995, today they owe $280,000 amortized over 25 years on the very same property, they refied twice in 2011. They listed for sale in Sept but just caught the beginning of the deflating bubble and they'll never sell for what they owe now. What can you do, people won't listen.
Folks I know bought for 80k, twenty-two years ago. They now owe 200k+ and are making double payments at a high (8%!) interest rate because nobody will re-fi and they have to get it paid off before their bodies give out. Multiple pensions and SS checks won't even cover their mortgage payment if they were to retire. The house has gone up(in the bubble) from 88k to 325k and is now valued back around 90k.
Didn't even keep up with inflation.
I'm not sure Mother Nature actually cares about money. We are the only species of tens of millions extant that uses money, let alone a fractional reserve banking system.
Mother Nature could give shit. All She does is relentlessly, remorselessly, and fully account for the ecological transactions we make.
Entropy trumps.
Butter.
Wait. My history is a little fuzzy. Can you tell me who because President about 30 years ago and what bar that cocktail napkin with the illustration of how to sink the world economy came from. Thanks!
Logically, if the government levies a zero percent income tax it collects nothing. If it raises the tax to 100% no one works and the government collects nothing. Somewhere in between 0% and 100% is the optimal tax rate for getting tax revenues. It probably changes over time, but by examining the end points we can deduce that the Laffer Curve does, in fact, reflect reality. The problem may have been in determining the optimal rate. So maybe your memory of history is a little fuzzy, as are your language skills ("who bacause President...").
That said, it's always been a spending problem, not a taxing problem. Tip O'Neill reneged on his promise to cut spending. The cure is simple in theory, impossible in reality. Congress should authorize spending no more money in any fiscal year than it took in the prior fiscal year. Oh - and the president should not be allowed to spend any money not authorized.
"Needless to say, the bankrupt borrower will be unable to borrow another $100,000 any time soon, even if interest rates are lowered to near-zero."
What a change from the days when the money was looking for people. Lending to anyone; with the hope they won't pay back is a total perversion of capitalism. Thank you very much AIG CDS.
I love this to pieces.
Bank of America CEO Moynihan to be Named as Defendant in Federal Foreclosure Lawsuit
These Too Big to Fail weasels knew what they were doing.
The moment the lawsuit is filed I will pull it from PACER.
Garsh! For some reason I can't escape the feeling that we covered this territory exactly about 2 days ago....
but since it's ZH n'all, it must be all good....prolly some kind of subtextual message from the Tylers that reality is to be viewed as nothing more than some kind of endless cycle of Days of Our Lives reruns...either that or CHS has enough allocable resources to emboss his bumpersticker upon ZH's wagon!?!?
CHS = Ground Hog Day
He's been running out of anything new to blog about for some time now.
http://www.youtube.com/watch?v=hr97i7R9aVk
Fast foward to 13:00 for interview with Warren Pollock. Everything you want to hear.
So all this 'new normal' everyone has bought into really CAN'T go on forever as everyone seems to believe? UH-OH!
i just hope mother nature has been keeping a list of the names that tried fooling her and takes it out on each them personally
That's really mean and vindictive.
+1
It is all about net energy. Increasing net energy = increasing prosperity / GDP.
You can achieve increasing net energy by increasing gross energy or by increasing productivity. But then you hit diminishing returns in both.
Decreasing net energy is the root of the problem. The other is exponential growth.
Can't wait to see how all those CDS's help things when Euro-nations start toppling over.
We CAN borrow and spend our way into productivity. Remember, there is no reality until the militant neocons decide what it is.
There is no such thing as "debt" when a country is fiat. The US government spends (or liquidates) money into existence and uses the Primary Dealers to funnel that money into Treasury bonds and then claims its been "funded" with money it already spent. That's how we've remained fiat for 40 years. Not saying it's good, but that's just how it works.
You can't bemoan how our country is fiat and then worry about the debt in the next breath. One negates the other.
Close. But the "fiat" doesn't actually "negate" the debt; it postpones the payment of principal. In the short term that gives the creditor class the privilege of siphoning off the "debt service" as income. But when the debt service can no longer be funded out of productive activity, only by more borrowing, the underlying principal begins acting like an economic black hole, sucking everything into itself where it just disappears.
People simply cannot produce and watch their production siphoned off and flushed down a drain, so they stop producing and do what they can to join the parasites. Which of course only hastens the inevitable, the inevitable being that the underlying bill for the principal is coming due. And the bill is unpayable and everyone knows it.
So what you get is declining productivity and a sense of panic. Sound familiar?
We have to cancel the debt, that's the main thing. If we're rational, we would change the monetary system at the same time to repudiate the whole idea of a fiat, making money "redeemable" in, most likely, gold.
But it would have to be a very high dollar gold price to do this. And it would have to be a constitutional amendment:
http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-ed...
This is not a matter of economics but of law. And that's as it should be. We are not really having an economic or financial crisis; we are having a rule of law crisis. A constitutional crisis. And the question is this: are we self governing as we so often pretend to be? Or do we really not want the responsibility, so that we are content to be ruled by people we figure know so much more than we do, and then when we find out they don't we blame them?
A man can corrupt Hadleyville only because Hadleyville is already corrupt.
I like your last paragraphs. It;s not a financial crisis; it's the consequence of criminal behavior. This seems to be correct.
Productivity no matter it's level is real, the accounting numbers assigned to it when measuring it i.e. euro, yuan, seashells, dollars or debt denominated in dollars, are the intangible or unreal part subject to manipulations and upon which many others not involved in the actual production piggyback a share of the wealth based upon the production, which in effect means that instead of the owners of production being able to get richer and perhaps increase the share of profit for labor, or pay a fair share of taxes, now finance and accounting take a huge chunk in "interest."
The problem is that when they realized this many decades ago they were constrained to take just a small part lest their own greed kill the underlying productive capacity, greed is like a fast breeder reactor though, once you start the chain reaction you cannot really stop it, and it is geometric, or is that exponential?
We need to be putting a larger share of production toward building an ability to get off Earth and colonize outside our solar system, it is man's only chance at surviving because greed is an infection of fear and hate in the soul that is always fatal.
But what IS 'productivity' here in our Service Based Economic Model....number of towels folded?
Services are harder to price in real terms than hard goods, but not impossible. After all the labor of the person on the factory production line or in a construction job is just doing a service for their employer for what economics calls rent. We call it wages. Same as for the service employee. Farmers mostly produce tangible objects with utility to consumers also, but they have a product with a very short shelf life that once reached takes the value to zero. Folding a towel ditto, the moment someone picks up the towel the production put into it loses it's utility to anyone else, same as for a tomato once you put it in your mouth, it has been consumed. Durability does not change the underlying value of output, if it is not consumed before it hits it's expiration date then it simply was mispriced.
In order for anything, any work performed to have utility to a potential customer the utility has to be matched to price which in turn is related to cost of production plus the return on investment needed to produce it. That is why it is so important to have a stable store of value in your money, why store of value is one of the three definitions of what constitutes money. Also why it is so important to have universal and transparent accounting rules. If you cannot calculate the real value of labors that are inputs to service sector production it is because these two things are utterly missing in our global economics now. And it will not, cannot, end well. Already the portion of the population that has been systemically and PERMANENTLY cut out of opportunity to do well, get a fair share of profits in rent (wages), is so large that it is near critical mass socially, once that point is reached and it might have already gotten there, it is only a matter of time till the mobs seek justice on the real parasites in our society, the money changers, the banksters, the government officials that failed to protect us, etc.
Mixed feelings about that here, on the one hand justice and fairness are way overdue as we all know, on the other hand mob justice never ends as well as anyone hopes, the last time it happened in a big way the world got Nazi Germany. Before that it was the Russian Revolution, and before that the French Republic and roving murder squads of Robespierre. Mob justice once ignited cannot seem to stop till it has killed so many that even the executioners are sickened by it. And guilt or innocence becomes an irrelevant existential question with a sliding scale.
While I agree with your statements on mob justice. It matters not to the elites who will be safely gathered on their islands, plantations and fortified positions. Look at what the elites are doing now and pay no attention to what their MSM and political proxies are saying.
Who is going to save them from those who guard them?
What is "productivity?" Sure, it can be looked at as output vs. input. But what if the actual example is digging a ditch, then paying to refill it? Wages were paid and energy was expended. To use someone else's example: What if we build a high-rise in the middle of nowhere that sits vacant? Or in today's real world, what if we build a high-rise in the middle of somewhere that sits vacant? In all of these examples, wages of some sort were paid. When something tangible is the result, there is something quantifiable in the end, but shouldn't productivity include a determination that something is useful? In a debt/fiat world, we can repeat this almost infinitely, but I wouldn't call it productive.
In your examples you are talking about what most people call waste. Where there is production there will be waste, ideally as little as possible, but some is built into all production because the laws of diminishing returns dictates that elimination of all waste becomes more expensive than the waste itself at some point and it is different for different industries. For example, a city pumps and purifies water for it's citizens at cost Y knowing that drips and leaks and such mean up to 40% of that water will not be used as clean water from taps. It is wasted. In some places water is so scarce that it is economical to reduce wastage to say 5% or even less, but in others it is cheaper to produce 40% more than is needed than to chase down every leaky tap or mandate smaller reservoir tanks on toilets. Dublin Ireland is planning a new pumping facility from the Derg for just that reason, the standard in Europe is 20% wastage but Dublin has access to water so cheap that it would cost more to get the city to that 20% than to just pump new supply, environmentalists are unhappy for non monetary reasons. But then they always are.
The extreme ditch digging example, waste without production is actually just welfare by another name but for political reasons you have citizens that demand their tax revenues not be simply handed over to unproductive people, so the unproductive are given a pointless cosmetic task in order to placate those making the demands. I consider that a sin when in fact our parks at all levels are so dilapidated and need so much labor that would be productive. The right wing makes that impossible though via claims that parks are not a worthy government expense. So, OK, we get poor and unemployed to dig and refill ditches in order to qualify for welfare. Sad. Also a vanishingly small part of the overall economy and government spending problem.
What your example about the empty building out in the middle of nowhere involves is like I said earlier about a mismatch between utility and price to customers, lower the price and the building will fill up. Maybe with different tenants than you originally planned for. And there are many reasons for such misallocation, often having to do with tax avoidance, and mark to myth valuations might well be more profitable than actually filling the place with tenants, if for no other reason than loopholes that allow you to deduct more losses than you can sell for. That is part of what fucked up and continues to fuck up housing, landlords used rental housing tax breaks to offset highly taxed unearned income from financial investments, when capital gains were lowered to 15% the need for the tax offsets were reduced and that allowed rents to rise pretty sharply, people started buying houses in droves and that was a big contributor to the housing bubble. My own rent went up for no reason 15% in 2006 and was part of why I bought a house in early 2008. Then you had investor landlords losing all their financial income when ZIRP was put in place, now they had no income that needed an offset at all but also no income to live on, that and higher demand for rentals due to so many people foreclosed upon and strategically defaulting means rents are again going to rise. That is why the only bright spot in housing construction is multifamily units.
Anyway, the cost of waste is simply another overhead input to the cost of production. Any business people (corporation/nation) that chronically build and overprice empty high rises (widgets/production) in the middle of nowhere or otherwise foolishly misallocate capital or stubbornly refuse to lower prices will not be doing it for very long because they will be out of business.
A lot of the problem is the failure of our leaders both public and private to learn one small but critical lesson in economics/finance, it is the sunk cost. Instead of describing it for you I will just cut and paste the simple version:
In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. Both retrospective and prospective costs may be either fixed (that is, they are not dependent on the volume of economic activity, however measured) or variable (dependent on volume).
In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that an economic actor not let sunk costs influence one's decisions, because doing so would not be rationally assessing a decision exclusively on its own merits. The decision-maker may make rational decisions according to their own incentives; these incentives may dictate different decisions than would be dictated by efficiency or profitability, and this is considered an incentive problem and distinct from a sunk cost problem.
And the reason they are failing? Masculine vanity in some cases, fear of failure, inability to admit error, or in most cases they are either profiting from the continued failure or they are being constrained by others who profit at all our expense. For the pure purposes of economics there is no difference between public and private.
There's labor productivity versus energy productivity. For example, agriculture increased labor productivity at the expense of energy productivity (e.g. energy expended per bushel of corn).
Indeed, what even really defines a service sector job? I tend to think of them as some function I could perform reasonably easily but choose to outsource to someone else.
Let's say I can fold towels and mow grass. So can my neighbor. I say I'll mow his lawn, and in return he folds my towels. We're doing each other a service, and the same amount of grass gets cut and the same number of towels get folded. No money changes hands. Great. I needed the exercise cutting the grass for my neighbor, who's even older and more feeble than am I.
The problem arises when the tax man comes by and says that the arrangement my neighbor and I have is a barter system. So for every five times I cut my neighbor's lawn I have to cut the tax man's once. And for every five towels my neighbor folds for me, he has to fold one for the tax man.
Guess what, the service economy collapses (or goes underground). I can fold my towels more easily than cutting the tax man's lawn, so my neighbor no longer is 'employed' folding my towels. I'm no longer 'employed' cutting lawns. The tax man has to do his own folding and cutting. I just have to determine if a) I need the extra exercise, and b) how feeble is my neighbor? I might just cut the neighbor's lawn for free, and screw the tax man.
It is totally different when we move to producing real stuff, like cars or computers, because I can't create a crankshaft from a lump of metal (or, worse, ore), and I can't create a CPU from a pail full of sand and some indium gallium arsenide, or whatever they use these days. Clearly this goes beyond the service sector.
We're too busy pissing money away on making sure everyone is "equal" to do that. How much did we spend on space exploration to the point where we got the shuttle designed and into orbit?
Now compare that to what we spend on EBT, Link, foreign "aid" in the form of food/military hardware and the cost of keeping the seas open for trade. Feeding whole countries where they only thing they can grow are starvation -protruded bellies and flies.
How far out would that squandered money have taken us? We'd be mining the asteroids for ore to back all those unsupported paper silver and gold notes if it weren't for the goddamn progressives and their fucked up sense of pride. Playing god to balm their guilt ridden egos. Little beta men and harpies all.
Begin the great reset, I beg you!
Silver For The People – The Blog
http://brotherjohnf.com/
Silver Update 1/18/12 Capital Controls
KWN – WE HAVE PANIC RIGHT NOW, MASSIVE FLIGHT INTO GOLD & MUCH MORE – Chris Whalen
Peter Schiff Interviews Keynesian Economist Laurence Kotlikoff 01-18-12
WS & City of London will continue to downgrade, stoke volatility, milk the system, and extract wealth.
No Solution
Ron Paul Explains To Congress That We Must Live Within Our Means
Meet The 7 People That Were Charged Today In The FBI’s Insider Trading Probe
When Will Gold Reach a New High?
KING WORLD NEWS – FEATURED BROADCASTS
Heavy Demand for Silver Rounds Featuring Presidential Candidate Ron Paul Leads to Controversy
Tekoa DaSilva: Major Broker Dealer Bankruptcy Crisis May Be Coming
The Road to Socialism
“I hope my colleagues will join my effort to overturn this shameful Section 1021 of the NDAA.”
Patriot Radio Newshour – Wednesday, January 18, 2012
Greek Bond Talks Edge Toward 68% Haircut Deal; Will the Deal Be Accepted?
A Normal Mirage
Penny Wise And Pound Foolish
Day of the Dead State – The Dollar Vigilante
Karl Denninger – Hungary: Erect The Finger
Another Failure for the Elites as the EU Sinks?
A ponzi is a scam which pays early investors out of the investments of later investors. In a sense, the world’s monetary system is one giant fiat ponzi scheme with the only question being when will the ponzi end, not if it will end.
The problem is growth is no longer able to keep up with the malinvestments caused by cheap money (0% rates + QE). Either cheaper money is increasingly provided in order to cover up the malinvestment (more QE, or purchasing of MBS, or printing money to purchase anything), or the malinvestments become exposed.
Allowing the malinvestments to become exposed is politically unfeasible, so cheaper money will be provided in order to keep the malinvestments hidden. In a sense, the new investor is the newly created currency..once the new currency stops or even slows, the ponzi fails, but keep the new currency coming in faster and faster and hyperinflation is the end result. TheSilverJournal.comActualy, the new investor is anyone who owns cash or it's equivalents, as the new currency additions debase everything else.
As long as the Fed can keep loaning money to the TBTFs which can in turn loan money to the mega corporations to finance stock buybacks, this can go on forever. Remember the path we are on, feudalism. One minority class that holds 99.9% of the wealth and the rest produce for their lavish consumption. As long as directors can keep granting themselves stock to cash out at ever inflating prices, thanks to the Fed, they have an endless stream of near tax free income. Sure they say anyone can get in onthe ride, but thanks to wage destruction and the hyperinflated stock bubble any normal person wil never get ahead. The answer is simple, end the Fed. We all know it but how are we going to make it happen? Once the Fed is ended the next step is the publicly traded market. Ending the IPO con game must be objective #2.
You are confused my young falcon. There is no mother nature when it comes to finance. Mother nature creates life and beautiful things like trees, Mountians and horses. What controls finance is what Arthur Jensen describes as "The primal forces of nature". Primal nature and mother nature are two different animals .
Consider it a metaphor.
Forced Asset Allocation.
Period. FORCED BULL MARKET. We are cornered and have nothing to do but buy risk assets...
1999 all over again...unhealthy is putting it mildly....
Correct, but the banking cartel has wiggled out of this twice already, are you saying that this time fraud will actually be prosecuted and the rule of law restored? Please defend this with evidence.
1999 - you had other options - you could get decent cash rates, decent T-bond yields etc.
This time you're right - what are your other options?
Trade. buy low and sell high. same, same.
Yes, a debt jubilee is the only solution. Debts that can't be repaid, won't be. But it's a complicated thing, and could only be done in the US via a constitutional amendment:
http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-ed...
http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-ed...
http://strikelawyer.wordpress.com/2011/12/31/brief-history-of-jubilees/
http://strikelawyer.wordpress.com/2012/01/03/seigniorage/