Thursday, July 23, 2009

Money, Demand and the Collapse

Here's an interesting perspective on the Great Collapse and how the crony-capitalist financial economy can grow to distort the feedback mechanisms that make free-market capitalism efficient.

The description of how financial goods trade with positive feedback loops is pure Prechter and Parker.

The Anti-Ecology of Money
John Michael Greer, The Archdruid Report
...The differences between a tertiary good and a primary [FJ: as defined by E.F. Schumacher - a good provided by natural processes] or secondary one [FJ: produced by human labor and capital inputs] reach further than this. Tangible goods produced by natural cycles or human labor are available in amounts limited by the supply. If there’s only so much water in a river, for example, that’s how much water there is; the fact that people want more, if such is the case, does not produce any more water than the hydrologic cycle is already willing to provide. Equally, if a country’s labor force, capital plant, and resource base are fully engaged in making a certain quantity of secondary goods, producing more requires a good deal more than an agreement to do so; the country must increase its labor pool, its capital plant, its access to resources, or some combination of these, in order to increase the supply of goods.

Yet tertiary goods are available in amounts limited only by the demand. How many bonds can a corporation print? For all practical purposes, as many as people are willing to buy. A good number of the colorful bankruptcies that have enlivened the business pages in recent months, for example, took out firms that mistook a temporary bubble for permanent prosperity, issued bonds far beyond their ability to pay, and crashed and burned when all that debt started to come due. On an even more gargantuan scale, the United States government is currently trying to restart its economy by spending money it doesn’t have, selling bonds to cover the difference, and amassing debt on a scale that makes the most extravagant Third World kleptocracies look like a bunch of pikers. It’s hard to imagine any way in which the results of this absurd extravagance will be anything but ugly, and yet buyers around the world are still snapping up US treasury bonds as though there’s a scintilla of hope they will see their money again...

...It’s when we get to the tertiary economy of financial goods that things change, because the feedback loops governing tertiary goods are not negative but positive. Imagine a thermostat designed by a sadist. In the summer, whenever the temperature goes up above a certain level, the sadothermostat makes the heat come on and the house gets even hotter; in the winter, when the temperature goes below another threshold, the temperature shuts off and the house gets so cold the pipes freeze...

Worth the read. Plenty of food for thought.

1 comment:

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