Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

[Prazak]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

The longer the process takes, the more likely one or more demagogues in the appropriate nations starts presenting the 'too good to resist' alternative of just leaving the EU and all the associated euro trauma behind.

Indeed, Le Pen has already picked up on it, and there's a national election just round the corner, in which Le Pen often manages to punch above his weight (so to speak). It will be interesting to see how much of the French right migrates (if one may use such a term in speaking of the National Front) toward his daughter come April.

[leegs]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

. . . Equally so the EU doesn't have either the military force or the popular mandate, to force unification. . .

I gather, perhaps incorrectly, that it is EJ's premise that the sheer mechanics of implementing another currency (see quote below) are such a challenge that this creates the forcing function for the integration. It seems like a mundane thing, but having experience with the types of systems in question, I know that it's not. Whether it's a big enough deal to override the factors that you mention would seem to be the question.

It took a small army of software engineers several years to implement the euro in the banking and retail systems used by thousands if not millions of businesses across Europe and around the world. Try to imagine how Greece, 12 years later, could coordinate the implementation of a new national currency with every bank and business Greece does business with -- in secret.

[gwynedd1]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

If fiscal integration means a single currency, then I would want no part of it. The hinterlands get chronic currency shortages. You can have a locale exchanging goods with each other even without hard currencies. Once they begin trading in the larger trading block currency, currency shortages not only prevent them from buying outside the trading block, but they even lose local liquidity and cannot trade with each other. When the PIIGS joined the EU its was inevitable. I'd have fixed exchange rates, capital controls and my own currency. I'd certainly have land taxes to also insulate it. The PIIGS in my opinion destroyed themselves the day they joined. How far from the farm will the common water well be dug?

Britain knew this. They may crash and burn but with their own currency they will not be part of the German empire.

[c1ue]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

I gather, perhaps incorrectly, that it is EJ's premise that the sheer mechanics of implementing another currency (see quote below) are such a challenge that this creates the forcing function for the integration. It seems like a mundane thing, but having experience with the types of systems in question, I know that it's not. Whether it's a big enough deal to override the factors that you mention would seem to be the question.

I don't disagree at all that reissuing new national currencies is a gigantic headache.

But this headache isn't one which 99 out of every 100 citizens in any given (former) EU country has to worry about.

Again a look at history shows that people will keep on using a currency long after it ceases making sense - if said currency doesn't impose more problems than the convenience it offers.

However, I think it is quite safe to say that the 'convenience' of the euro was all in the past, and in this present the problems incurred by said euro are far more prominent.

I'd guess iTulip/EJ are using the Roman debasement of coinage as an example - where massive destruction of purchasing power was not accompanied by dissolution. However, there was literally no alternative in that era.

There was Rome, and there was howling wilderness.

That is not the case today.

[jk]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Why does the output gap matter? If we don't close it won't it just create a new trendline? I realize that our private and public sectors have debt loads based on potential output, but won't inflation and amortization take care of the gap in just a few years? Shouldn't this paying down of debt factor into this analysis somehow since we are basing our analysis on the output gap trap causing a debt and currency crises?

output gap= unemployed and underemployed people along with other underemployed resources. not a happy time. it's not just about numbers. it's about people.

[doom&gloom]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Why does the output gap matter? If we don't close it won't it just create a new trendline? I realize that our private and public sectors have debt loads based on potential output, but won't inflation and amortization take care of the gap in just a few years? Shouldn't this paying down of debt factor into this analysis somehow since we are basing our analysis on the output gap trap causing a debt and currency crises?

not only is it about the unemployed and their current mental emotional state, but it is about government transfer payments from the working to the same unemployed to try and keep them from rioting etc. The numbers may sound small in terms of trillion+ dollar budgets, but you are creating a permanent underclass "on the dole" at the same time you are trying to cut back on their dole and inflate awy your debts, meaning their purchasing power shrinks. that is tied inot the idea of the "working poor" article that came out recently, or the one about not having the money to survive a $1000 emergency bill because there is no savings.

Os the output gap grows, more people fall into it over time, and deventually the early ones sink under debt load, hunger, etc. Thst is the start of major social unrest.

I always say that the people will put up with governmental theft so long as they feel they are getting a small share as well. But when times get hard, they pay close attention, that they do not put up with the same shit as in the past. Hence the militarization of police forces -- just in case you know. And the current dfense bill emplhasis on "domestic terrorists" and using the army against them. WHO is a domestic terrorist? An member of al-kookie who snuck across the border, or a OWS member who riots in the street? Who decides? How?

Starving people bring down governments. Part of my farmland thesis. Look at the growth in the SNAP program. It is unabated. This is not a good sign when it comes to future social unrest.

[raja]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

read part ii?

Nope.

I dropped out of the Select Club after what I consider was a major ethical lapse by the Boss . . . .

This action did not result in any damage to my bottom line, such as I suffered before my apostasy

[metalman]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Nope.

I dropped out of the Select Club after what I consider was a major ethical lapse by the Boss . . . .

ooooooooo! how juuuuuicy! do tell...

[Chris Coles]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Originally Posted by porter

Why does the output gap matter? If we don't close it won't it just create a new trendline? I realize that our private and public sectors have debt loads based on potential output, but won't inflation and amortization take care of the gap in just a few years? Shouldn't this paying down of debt factor into this analysis somehow since we are basing our analysis on the output gap trap causing a debt and currency crises?

Let us put this another way. Take the sale of a new BMW, made in Germany and sold there for say, 50,000 Euro. Now in a normal free market society, if you want to sell your BMW in, say Greece, you have to accept the value that a Greek can afford to pay. The best way of finding that out is to sell the BMW at an auction. But there they might only get a value of, say, 20,000 Euro. So the value earned has a direct relationship to the local economy. If they cannot afford to pay, you have to reduce the price or not sell at all.

What went wrong is that the manufacturer is permitted to sell at the full German price throughout Europe. So, outside of Germany you need to have a source of funding to pay the German price. So the banking system provides excessive debt, right across the Western economies to allow the Greek to pay the German price.

Eventually there is so much debt and the debt then reduces the ability of the Greeks to pay their every day bills to the extent, they now cannot even pay for the existing debt they ran up to buy the BMW's'.

The banks are so over their capital limits they cannot lend, (now even to each other), the people, riding around in their BMW's cannot afford to pay their bills and the manufacturers of all the every day products are watching their market reduce because their customers do not have any spare cash to buy them.

THAT is an output gap.

The only way out is a long process of repaying the original debt while the economy shrinks to the level that allows the repayment.

It is the repayment of the debt overhang that causes the underlying problem of the gap; between what was normal before to what is possible today.

If every manufacturer was forced to accept the "Local" value obtainable by say an auction, then all the books would balance.

If you go back in history to where every town in the UK was what was called a Market Town, where all product was sold at auction at the market that day. Then you will note that the whole UK economy was both stable and fair.

What was paid in London was not what was paid in any other location that was less prosperous.

Today we live in a feudal mercantile economy where an large prominent manufacturer expects to be able to be paid their best price in every market they address.

That is not the way a true free market operates.

Ergo, that is where the output gap originates. From manipulation of the free market.

[vinoveri]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Let us put this another way. Take the sale of a new BMW, made in Germany and sold there for say, 50,000 Euro. Now in a normal free market society, if you want to sell your BMW in, say Greece, you have to accept the value that a Greek can afford to pay. The best way of finding that out is to sell the BMW at an auction. But there they might only get a value of, say, 20,000 Euro. So the value earned has a direct relationship to the local economy. If they cannot afford to pay, you have to reduce the price or not sell at all.

What went wrong is that the manufacturer is permitted to sell at the full German price throughout Europe. So, outside of Germany you need to have a source of funding to pay the German price. So the banking system provides excessive debt, right across the Western economies to allow the Greek to pay the German price.

Eventually there is so much debt and the debt then reduces the ability of the Greeks to pay their every day bills to the extent, they now cannot even pay for the existing debt they ran up to buy the BMW's'.

The banks are so over their capital limits they cannot lend, (now even to each other), the people, riding around in their BMW's cannot afford to pay their bills and the manufacturers of all the every day products are watching their market reduce because their customers do not have any spare cash to buy them.

THAT is an output gap.

The only way out is a long process of repaying the original debt while the economy shrinks to the level that allows the repayment.

It is the repayment of the debt overhang that causes the underlying problem of the gap; between what was normal before to what is possible today.

If every manufacturer was forced to accept the "Local" value obtainable by say an auction, then all the books would balance.

If you go back in history to where every town in the UK was what was called a Market Town, where all product was sold at auction at the market that day. Then you will note that the whole UK economy was both stable and fair.

What was paid in London was not what was paid in any other location that was less prosperous.

Today we live in a feudal mercantile economy where an large prominent manufacturer expects to be able to be paid their best price in every market they address.

That is not the way a true free market operates.

Ergo, that is where the output gap originates. From manipulation of the free market.

Great summary.

You hit on the point which many understand - debt can fuel growth - not necessarily a bad thing, but the system seems antithetical to a free society without periodic debt jubiliees, but even with jubilees, the incentive will be to consume and borrow, and not save.

Debt taken on to invest and yield wealth through production - GOOD
Debt taken on to consume - BAD

The problem is that incentives to produce, which should be and are driven be demand and ROIC, seem more and more driven by demand which is driven by the incentive of CREDIT - consumption relies more on credit, whereas before it relied on income or savings.


The consumer doesn't want their credit cut off, and the business owners don't want the consumer's credit cut off either b/c their reason for being in business is this credit driven demand (e.g., auto companies is one example). An argument can be made that such a system does indeed give rise to growth, perhaps moreso than a less credit based system.

The logical conclusion would seem to be:
give everybody enough credit to buy whatever they want - this makes everyone "happy" and drives demand
businesses boom serving this demand and productive owners get "rich" selling on credit
periodice debt jubilees (e.g., FED "prints" periodically to pay off the debts) - and there's nothing to prevent this once we move to a global currency
...
make things cheaply an disposable so that they must be replace fequently - driving demand
enact statutes requireing people to replace cars, HVAC, toothbrushes on a certain schedule
...

The stock market will go to the moon, business will boom, we can all get "good jobs" working and everyone will be brainwashed believing they're "happy".

This is where modern economics can lead human nature. This is the nightmare.

[Chris Coles]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Great summary.

You hit on the point which many understand - debt can fuel growth - not necessarily a bad thing, but the system seems antithetical to a free society without periodic debt jubiliees, but even with jubilees, the incentive will be to consume and borrow, and not save.

Debt taken on to invest and yield wealth through production - GOOD
Debt taken on to consume - BAD

The problem is that incentives to produce, which should be and are driven be demand and ROIC, seem more and more driven by demand which is driven by the incentive of CREDIT - consumption relies more on credit, whereas before it relied on income or savings.


The consumer doesn't want their credit cut off, and the business owners don't want the consumer's credit cut off either b/c their reason for being in business is this credit driven demand (e.g., auto companies is one example). An argument can be made that such a system does indeed give rise to growth, perhaps moreso than a less credit based system.

The logical conclusion would seem to be:
give everybody enough credit to buy whatever they want - this makes everyone "happy" and drives demand
businesses boom serving this demand and productive owners get "rich" selling on credit
periodice debt jubilees (e.g., FED "prints" periodically to pay off the debts) - and there's nothing to prevent this once we move to a global currency
...
make things cheaply an disposable so that they must be replace fequently - driving demand
enact statutes requireing people to replace cars, HVAC, toothbrushes on a certain schedule
...

The stock market will go to the moon, business will boom, we can all get "good jobs" working and everyone will be brainwashed believing they're "happy".

This is where modern economics can lead human nature. This is the nightmare.

You hit the nail on the head; there is no value adding with a credit based system.

In a more normal true free market, the ONLY way to increase prosperity is through value adding. Buy some Iron ore and turn it into steel, value adding. Now you have a product to sell, but must accept the value the market places upon the steel. Your market is entirely dictated by the local prosperity. So THEY have to also find a way to add value .... sow seeds, reap crop, add value...

In such a true free market, the price paid is always dictated by the quantum of local prosperity. So in which case, as a seller of product, you can only sell what they can afford to buy.

But in a credit based system, NO ONE has to add value, all they need to do is borrow that which they do not have in the first place. Ergo, the market place is totally distorted.

[flintlock]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

There aint no free lunch. This is not the 19th century, where the poor were left to die on the vine, or forced to emigrate. Now the state COULD get away with ignoring the 99%. People are kidding themselves if they think they can actually force anything on those in charge. What has changed is the fact that it is no longer politically acceptable to mow down crowds in the street with Maxim MGs. My concern is will they think of more creative means to accomplish the same?( wars, famine, disease, etc)

The modern welfare state is forced by political pressures to pay for this " output gap" with entitlements of course, the costs of which tend to get out of hand, even when/if the economy returns to normal( which it won't). Of course its cheaper and more productive to put people back to work, and let them take care of themselves. Most so called solutions I've heard never address this, which is really the heart of the matter. What do we do with all the superfluous humanity?

The wise nation that realizes the heart of the matter will return to their natural nationalistic tendencies. Especially those with stable population growth. Just like survivors in a lifeboat know to drop the oars and get the hell out of Dodge after a shipwreck. Look for the break up of the EU, and a return to nationalism, along with all the fun that goes along with that. You are not going to change the basic nature of man, regardless of how many conferences, Unions, and meetings you hold about it.

If people wanted to really do something about all this they'd spend more time figuring out how to encourage an end to the limitless growth economic model, which got us in this mess in the first place. But all I hear is talk about how those in power can keep what they have without fundamentally changing a thing.

[thriftyandboringinohio]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

... This is not the 19th century, where the poor were left to die on the vine, or forced to emigrate. ....

All the points in your post were excellent, but this one is especially good.

In the 1800s the US had a huge undeveloped continent, and every unhappy poor person could take "the agrarian option". Walk west, claim some ground, and scratch out a subsistence living by farming and hunting - my grandfather did exactly that. The agrarian option is long gone. Now we can only find a job, get on the dole, or die of starvation under a bridge.

[Slimprofits]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

Let us put this another way. Take the sale of a new BMW, made in Germany and sold there for say, 50,000 Euro. Now in a normal free market society, if you want to sell your BMW in, say Greece, you have to accept the value that a Greek can afford to pay. The best way of finding that out is to sell the BMW at an auction. But there they might only get a value of, say, 20,000 Euro. So the value earned has a direct relationship to the local economy. If they cannot afford to pay, you have to reduce the price or not sell at all.

What went wrong is that the manufacturer is permitted to sell at the full German price throughout Europe. So, outside of Germany you need to have a source of funding to pay the German price. So the banking system provides excessive debt, right across the Western economies to allow the Greek to pay the German price.

Eventually there is so much debt and the debt then reduces the ability of the Greeks to pay their every day bills to the extent, they now cannot even pay for the existing debt they ran up to buy the BMW's'.

The banks are so over their capital limits they cannot lend, (now even to each other), the people, riding around in their BMW's cannot afford to pay their bills and the manufacturers of all the every day products are watching their market reduce because their customers do not have any spare cash to buy them.

THAT is an output gap.

The only way out is a long process of repaying the original debt while the economy shrinks to the level that allows the repayment.

It is the repayment of the debt overhang that causes the underlying problem of the gap; between what was normal before to what is possible today.

If every manufacturer was forced to accept the "Local" value obtainable by say an auction, then all the books would balance.

If you go back in history to where every town in the UK was what was called a Market Town, where all product was sold at auction at the market that day. Then you will note that the whole UK economy was both stable and fair.

What was paid in London was not what was paid in any other location that was less prosperous.

Today we live in a feudal mercantile economy where an large prominent manufacturer expects to be able to be paid their best price in every market they address.

That is not the way a true free market operates.

Ergo, that is where the output gap originates. From manipulation of the free market.

one of the best things I've ever read, anywhere. brilliant explanation

[labasta]

Re: Essential Trends - Part II-A: The End of Engineered Stagflation - Eric Janszen

The only way out is a long process of repaying the original debt while the economy shrinks to the level that allows the repayment.

I agree with your post except the above. A shrinking economy makes the debt larger by reducing the income relative to the money owed. The shrinking economy (as you had excellently pointed out) is due to the debt being too large to pay sucking the blood from everything else which creates a downward spiral to bankruptcy (which is one way debt is cancelled I suppose).

There seems to often comes a time in the debt/money system where the debt is too big and creates an implosion. The debt has to be canceled or reduced and the system rebooted. How and over what time frame this happens is one of the reasons I browse itulip now and again. It won't be a world war as no-one will fight it but the regular troops. Vietnam was the last time a draft was semi-successfully initiated. Even then they had trouble. Now it would be an impossibility. Plus America/Europe/China is broke under the current structure.

I think it could have been 2001, but they just had enough debt push in the tank to give us an extra few years of the current system.

I suspect the ptb will try and keep the current system going for as long as possible and we will see many many years (decades) of continued decline in real economic activity. I imagine that at some time during this, people will lose it and the system will change and we will see something much fairer and more equitable (but not OWS style). If not, then I see techno feudalism being the theme for civilization forevermore.