Posts Tagged ‘deleverage’

Still more notes on the delveraging economy:

August 20, 2009 Leave a comment

What we have written here is all speculation based on our understanding of how the economy works. Please do not construe it to imply you have been wasting your life in a job which produces nothing, creates nothing, and only serves to empty your remaining years on this earth into a black hole of worthless activity.

To continue:

For the past seventy to eighty years, an increasing portion of transactions in our economy have been based on the exchange of some real thing for a notional placeholder – a valueless piece of fancy paper with a picture of a dead president on it – and, worse, by some promise of future payment in the form of this fancy piece of paper.

That real thing – a single family home, car, 42 in wide screen high definition plasma television, or pair of shoes – has long since suffered the ultimate end that all such goods suffer: It was consumed through days, months or years of use, until nothing remained of its original utility to us.

Shoes wear out, cars die by the side of the road, the television goes on the fritz right in the middle of American Idol.

Even a house, the most durable of our goods, eventually succumbs to old age.

It is what things do.

But, of all the goods mankind has ever created, there is one exception to this rule: Money.

gold4Money is never consumed because it exists simply to serve as the medium by which goods circulate in our society until these goods fall out of circulation to be consumed.

For instance, it has been estimated that eighty-five percent of all the gold mankind has ever pulled from the ground and stripped of its impurities lies somewhere in some vault of a central bank, or around the neck of some rap artist.

And, here is where it gets really interesting:

What is true for gold, is true for money in general. And, we believe, this also has to be true for the chain of incomplete transactions waiting to be completed since the Great Depression: Every transaction where someone made a purchase on credit that was not eventually completed with the creation and sale of a new good, is still hanging out there in our economy waiting to be completed- every home mortgage, car note, or bag of groceries, whether repaid or outstanding.

These incomplete transactions are sitting as an asset on the books of some financial institution or on the computer in the basement of some central bank.

Mind you, we’re not talking only about debt which has not yet been repaid with the fiat money in your wallet: even debt which has “officially” been repaid with dead presidents, but has not been replaced by a real good, must be considered incomplete.

The reason is simple: The dollar is a valueless piece of paper, which, while it can stand in the place of real money (gold or other precious metals) for purposes of facilitating transactions, cannot itself complete those transactions, i.e., can not do what real money does: replace the value of the good that has been transferred from seller to buyer.

Thus, in any such transaction, the seller has accepted, in return for his/her good, not the money equivalent of that good, but a pretty piece of paper.

This point must be understood: Should there arise a circumstance where real money is called for, where paper can no longer serve as a representative of this real money, because it has no value in and of itself, the aggregate value of all such transactions, all the way back to the moment the dollar was debased from gold, will vanish, as if they never occurred.

All of the “wealth” allegedly created by, and predicated on those transactions, collapses in a massive catastrophic implosion.

If these transactions expire without being completed – without the previously consumed good being replaced by a new good – the economic value of the transaction vanishes, in much the same way as the ledger value of your mortgage vanishes when you default and are foreclosed.

Since the great mass of these incomplete transactions will never be completed owing the the very structure of our economy, where superfluous work composes the great bulk of economic activity, and only adds to the volume of incomplete transactions. the only thing standing between current valuations of assets in the economy and this massive implosion is the relentless addition of even more such transactions.

For all these years, Washington has forced the use of fiat money in place of  money, because of the one attribute of money for which fiat cannot be substitute:  money’s irreconcilable antagonism to superfluous work, to work that that is meaningless and has no productive value.

The costs of this meaningless work is now embedded in the price of every good sold in our economy, every asset held, and, most of all, in the very employment of millions across this nation.

To evaporate, all that is now required is a trggering event: an event, we believe, that has already happened…

More notes on the deleveraging economy…

August 18, 2009 Leave a comment

The leverage we speak of is that set against your free time, your time to be human, your moments on this Earth which can either be spent enjoying your life or sitting in a meeting discussing the synergies arising from the company’s relationships with its vendors and customers, given rapidly changing technological interfaces.

You know: bullshit…

The leverage they speak of is also this choice, but couched in the obscuring discussion of consumer confidence; household, corporate, and public debt; and, complex financial instruments.

In fact, in all of this discussion of leverage there is only your free time.

Everything else can be measured in the moments you can be diverted from enjoying your free time to focus on your confidence as a consumer, your debt, and how you might be convinced to take on more of the latter to boost the former.

As we stated, our concept of leverage differs from that of economists in that they assume the debt incurred in a transaction whose completion is delayed indefinitely will eventually be paid in full with worthless, valueless, pictures of dead presidents.

Okay, fine.

Bear with us a moment as we peer into this dubious assumption – really, it will only hurt for about the rest of your working life.

We promise…


Inspired by the Messiah, I decide it is time to trade in my clunker for a spanking new 2009 Toyundai Skeezer, which gets 44 mpg, and has a factory installed diamond-laced-thingamajig-doohickie-where-am-I-now, with built-in turbo-thrusters, and a halo ring.

Thanks to the debt guy at the dealership, I incur only $20,000 of debt for this new monster of fuel efficiency, and, thanks to the Messiah, the Federal government incurs an additional $4,500 of debt, which, according to economists, I will pay in taxes over time.

Of course, both my $20,000 and Washington’s $4,500 merely exist as dancing electrons on some computer in the basement of the Federal Reserve – but, no worry! I am good for it.

You see, I have a job: Every day I rise from bed, and commute an hour to a desk, where my job is to inhale oxygen, and exhale carbon dioxide – break for lunch – and continue the process in the afternoon until exactly 4:15 pm.

Rinse and repeat for five years, and the car is mine.

The economists are satisfied with this transaction, so I am satisfied as well.

There is, however, a small problem: I have just purchased a 2009 Toyundai Skeezer, which gets 44 mpg, and has a factory installed diamond-laced-thingamajig-doohickie-where-am-I-now, with built-in turbo-thrusters, and a halo ring, in return for five years of shallow breathing – interrupted by trips to the water cooler to discuss this weekend’s football game.

I get a car, the economy gets a lot of carbon dioxide.

Every week in return for several thousand shallow breaths, my employer gives me dancing electrons which exists mainly on some computer in the basement of the Federal Reserve.

I, in turn, send some of those dancing electrons to the bank which financed my loan, and they accept it as payment for the car loan.

On any normal planet – or previous period of human history – where people would not elect Sarah Palin as governor, nor blow up Afghan wedding parties to make a political point – the exchange of a bit of dancing electrons for a 2009 Toyundai Skeezer, which gets 44 mpg, and has a factory installed diamond-laced-thingamajig-doohickie-where-am-I-now, with built-in turbo-thrusters, and a halo ring, might seem like fraudulent transaction.

People on those planets, or, in those periods of human history, might object that the exchange is not only fraudulent and unacceptable, but also indicative of an unbalanced mind.

They might strenuously object that the exchange of some part of five years of shallow breathing for a 2009 Toyundai Skeezer, which gets 44 mpg, and has a factory installed diamond-laced-thingamajig-doohickie-where-am-I-now, with built-in turbo-thrusters, and a halo ring, is an economically unsustainable transaction; and, that an economy built on such exchanges is doomed to collapse.

At this point, an economist would step in and explain:

So long as this incurred debt is replaced by another, larger, quantum of debt, the chain of transactions where something is sold for nothing can continue indefinitely.

If corporate debt is not enough, we can rely on consumer debt, and, after that, international debt, and finally, government debt.

And, when we have exhausted all the sources of debt, we can rely on that little computer in the basement of the Federal Reserve, which creates money out of dancing bits of electrons…