Fire Economy De-programming Toolkit

[oddlots]

I was just reading Hudson's latest posted here:

http://www.itulip.com/forums/showthread.php?t=7694

I'm sort of fascinated by exactly how and why Hudson's view of the world is so inaccessible to most people. The fog of cognitive dissonnance has become so all encompassing that you'd think a clear analysis would stand out like a beacon. But Hudson seems to not be getting through. Why?

Admittedly this sounds naive. There are a lot of obvious and practical reasons that I want to put aside. Obviously his analysis is unfriendly to the powers that be and so, not surprisingly, gets marginalised. Debateable. He can be quite strident and shrill in his rhetoric etc. etc. But that's not what I'm asking. My question: what are the key insights that allow one to attain "cognitive escape velocity." If one had to put together a FIRE economy de-programming kit what would it include?

I've spent the last hour labouring over my own formulation which I will post but I thought I'd put it out there for others to toy with without narrowing it down with my own take.

[jtabeb]

Re: Fire Economy De-programming Toolkit

I was just reading Hudson's latest posted here:

http://www.itulip.com/forums/showthread.php?t=7694

I'm sort of fascinated by exactly how and why Hudson's view of the world is so inaccessible to most people. The fog of cognitive dissonnance has become so all encompassing that you'd think a clear analysis would stand out like a beacon. But Hudson seems to not be getting through. Why?

Admittedly this sounds naive. There are a lot of obvious and practical reasons that I want to put aside. Obviously his analysis is unfriendly to the powers that be and so, not surprisingly, gets marginalised. Debateable. He can be quite strident and shrill in his rhetoric etc. etc. But that's not what I'm asking. My question: what are the key insights that allow one to attain "cognitive escape velocity." If one had to put together a FIRE economy de-programming kit what would it include?

I've spent the last hour labouring over my own formulation which I will post but I thought I'd put it out there for others to toy with without narrowing it down with my own take.

It is SO simple you would be surprised.

Stop giving a Fu*K about the markets and stop playing "their" game. A vote of no confidence if you will. "I don't care, I'm quitting this stupid game."

I have done this myself and it works wonders. To be able to appreciate the humor of this tragedy as it plays out on a daily basis is priceless. To be able to realize that PEOPLE STILL DON'T GET IT YET, they still do not have even 10% of the real picture about what is unfolding, and then be able to take what actions you personally feel are prudent. That conscious decision to reject the un-reality that is still put out for daily public consumption in the face of what only can be describe as the "collapse of the local reality".

Unvarnished, unadulterated reality is puncturing the coma of unreality at an accelerating, super-exponential rate. Critical mass was achieved a while ago and the process is now in a run-away chain reaction. There is no stopping it.

Bottom line, you have to accept that the world as we used to know it is over and a new one is coming into being.

You have to let it and yourself go. It is the only way that it, and you, can make the leap necessary to see things how they are vs. seeing things the way that others want you to see them. (In my personal experience, anyway.)

[bobola]

Re: Fire Economy De-programming Toolkit

Oops, double post...

From a USA Today article that said; "The average household with at least one credit card owed $10,728 in 2008, nearly the same amount as in 2007, according to CardTrak.com."

If that's an average, I can't image what big credit card debt looks like at the high end.

I have 2 cards, wife has 3 or 4, and we carry no cc debt - never have - never will.

Call me a deadbeat - the CC companies do...

The only debt we carry is the mortgage on the house, and it will be paid off in 6 years.

I don't see a change for the better until folks stop spending money they don't have, for stuff they don't need.

[bobola]

Re: Fire Economy De-programming Toolkit

An example of a FIRE economy-programming kit; from the UMB (United Missouri Bank) Financial Corporation Q4 2008 Earnings Call Transcript.

Mariner Kemper - "Welcome everyone and thank you for joining us today. In 2008, UMB delivered strong net income growth. These results reflect our continued focus on executing our business strategies despite the turmoil in the banking system. We achieved another year of record net income of $98.1 million, or $2.38 per diluted share, an increase of 32% from the $74.2 million a year ago, or $1.77 per diluted share reported in 2007.

Fourth quarter net income totaled $20.2 million or $0.49 per diluted share, also a 32% increase from $15.3 million or $0.37 per diluted share for the fourth quarter of 2007. These results reflect the sale of our securities transfer product and transactions related to Visa. Excluding the impact of these non-recurring items for both 2007 and 2008, UMB reported net income of $17.8 million or growth of 13.7% for the fourth quarter of 2008, and net income of $89.1 million or growth of 22.8% for the year.

As previously announced on November 3 of 2008, UMB decided not to participate in Treasury Capitals Purchase Program. We chose not to apply for the government funding, both on principle and because of our sound tradition of maintaining strong capital levels, which continues to enable us to execute against our growth strategies. First, we believe that healthy banks should not accept taxpayers’ money to fund ongoing operations. Second, our fourth quarter tier 1 capital ratio was a healthy 13.2% and remains well above the industry average of 10.8%.

As reported on September 30 of 2008, we are well capitalized, continue to make loans, and continue to demonstrate excellent credit quality. Our ratio of non-performing loans to total loans stood at 0.20% at the end of the quarter, well below the industry average of 1.45%"

[BadJuju]

Re: Fire Economy De-programming Toolkit

You have to let it and yourself go. It is the only way that it, and you, can make the leap necessary to see things how they are vs. seeing things the way that others want you to see them. (In my personal experience, anyway.)

jtabeb is Morpheus?! :eek:

[oddlots]

Re: Fire Economy De-programming Toolkit

Hey jtabeb. Granted. But I'm not thinking personally. I'm really thinking in terms of communicating to others. I'm sort of disappointed in my ability to explain effectively what I think I've learned here to my family and friends. (My sister lives in London and I think is kind of at sea with it all. I've not helped her understand it ultimately.) The example of Hudson's always trenchant commentary not seeming to get through to people - at least when paraphrased by me! - was a case in point.

So here's my rough de-programmers toolkit

- start with housing
- use the housing bubble to demonstrate the difference between self-liquidating and non-self-liquidating debt
- use this as a demonstration of how price appreciation in financial assets mimics a real economy until the debt level outstrips the real economy's ability to pay
- use this - essentially the Minsky moment - as a way to explain the crisis that "nobody saw coming"
- ask the question, how is it that, if this phony economy is unsustainable it has lasted for so long?
- return to housing and explain that price appreciation was a result of falling interest rates (cheapening money = rising asset prices)
- explain that falling interest rates were made possible by mercantalist, export-led development in places like Japan and China ("savings glut" - cough)
- explain that these policies are in turn a response to the dollar reserve system
- explain how this structural advantage generates a bias toward financialisation of the economy (exporting manufacturing jobs with the chimerical reward of rising net-worth in the west as the bait in the "bait and switch")
- explain how this advantage motivates those who benefit most from the process to warp tax and industrial policy to accelerate "financialisation" of the economy
- explain how this has led us to the present predicament where the "greater fool" theory leads logically to the state becoming the only possible bagholder for the system by taking over-priced assets out of private hands at above market prices because they hold the economy hostage

Of course I doubt anyone would sit through all of this! But I think it demonstrates one thing to me: the key move is the analysis of self-liquidating versus non-self-liquidating debt. I even wonder whether this is appreciated by most economists. (Of course, it might be wrong - anyone disagree with Hudson on this?) The fact that debt-deflation theory is still seen as fringe economics does not bode well. And if you don't appreciate this distinction then whole crisis looks a lot more mysterious and Hudson's analysis looks cranky to say the least.

[jtabeb]

Re: Fire Economy De-programming Toolkit

Hey jtabeb. Granted. But I'm not thinking personally. I'm really thinking in terms of communicating to others. I'm sort of disappointed in my ability to explain effectively what I think I've learned here to my family and friends. (My sister lives in London and I think is kind of at sea with it all. I've not helped her understand it ultimately.) The example of Hudson's always trenchant commentary not seeming to get through to people - at least when paraphrased by me! - was a case in point.

So here's my rough de-programmers toolkit

- start with housing
- use the housing bubble to demonstrate the difference between self-liquidating and non-self-liquidating debt
- use this as a demonstration of how price appreciation in financial assets mimics a real economy until the debt level outstrips the real economy's ability to pay
- use this - essentially the Minsky moment - as a way to explain the crisis that "nobody saw coming"
- ask the question, how is it that, if this phony economy is unsustainable it has lasted for so long?
- return to housing and explain that price appreciation was a result of falling interest rates (cheapening money = rising asset prices)
- explain that falling interest rates were made possible by mercantalist, export-led development in places like Japan and China ("savings glut" - cough)
- explain that these policies are in turn a response to the dollar reserve system
- explain how this structural advantage generates a bias toward financialisation of the economy (exporting manufacturing jobs with the chimerical reward of rising net-worth in the west as the bait in the "bait and switch")
- explain how this advantage motivates those who benefit most from the process to warp tax and industrial policy to accelerate "financialisation" of the economy
- explain how this has led us to the present predicament where the "greater fool" theory leads logically to the state becoming the only possible bagholder for the system by taking over-priced assets out of private hands at above market prices because they hold the economy hostage

Of course I doubt anyone would sit through all of this! But I think it demonstrates one thing to me: the key move is the analysis of self-liquidating versus non-self-liquidating debt. I even wonder whether this is appreciated by most economists. (Of course, it might be wrong - anyone disagree with Hudson on this?) The fact that debt-deflation theory is still seen as fringe economics does not bode well. And if you don't appreciate this distinction then whole crisis looks a lot more mysterious and Hudson's analysis looks cranky to say the least.

There is no education for those that won't accept the message, that's the part I'm not sure you are getting. How many people have you (have I for that matter) sat down with for as much time as necessary to explain all of this to people? I have spent a good portion of my free time over the past 5 or so years having this very conversation with as many people as I can sit down and talk to. Most, unfortuantely, can't, or won't listen or their barriers to communcation are so high that they can't even accept what is being said to them.

I find that you can only talk to as many people as you can, realize that maybe 10% will listen, maybe 3% will act. To the rest, if I'm in causal contact with them, I'm the broken record that just keeps repeating.

That is all I can do. Only they can choose to accept earlier voluntarily or they will be forced to accept it later by the sheer force of the gravity of the situation.

You can lead a horse to water but you can't make him think.

[gobears]

Re: Fire Economy De-programming Toolkit

the key move is the analysis of self-liquidating versus non-self-liquidating debt.

Also having trouble communicating the problems to friends/family. Like your toolkit very much. Could you please explain self-liquidating / non-self-liquidating? Any references?

Thanks!

[politicalfootballfan]

Re: Fire Economy De-programming Toolkit

----nm----

[Spartacus]

Re: Fire Economy De-programming Toolkit

1. the largowinch posted video of the desolate Spanish condo-hell

and

2. for the slightly more intellectual and curious, this article on how taxation has screwy effects but no one sees it ahead of time

http://gladwell.com/2004/2004_03_15_a_malls.html

And get a bumper sticker that says
r0thpArb rul3z k3y3s dr00lz !!!!

[Slimprofits]

Re: Fire Economy De-programming Toolkit

If one had to put together a FIRE economy de-programming kit what would it include?
[/U]
I've spent the last hour labouring over my own formulation which I will post but I thought I'd put it out there for others to toy with without narrowing it down with my own take.

It goes hand-in-hand with left-right paradigm de-programming. I have no answers though. My tactics with friends and family start and stop with blunt force. True believers don't respond well to it. People that already have a mis-trust of the system are easy nuts to crack though.

I find it works sometimes to show them the tables on opensecrets.org that show the flow of money from wealthy individuals and corporations to the politicians.

True Believers will tell you that ideology trumps money every time though. Good luck

[Judas]

Re: Fire Economy De-programming Toolkit

People won't "de-program" until there is a persuasive new "program" to install in their hardware.

[oddlots]

Re: Fire Economy De-programming Toolkit

Also having trouble communicating the problems to friends/family. Like your toolkit very much. Could you please explain self-liquidating / non-self-liquidating? Any references?

Thanks!

Basically the idea is that the only debt that is good is debt that generates a positive flow of payments from which the debt can be re-paid (as opposed to having it re-paid from asset-price appreciation.) There's a really great little essay that I return to all the time called How Debt Money Goes Broke:

http://www.financialsense.com/fsu/ed...005/1212b.html

"Debt is self-liquidating when used to generate future income, from which interest is serviced and principal repaid. Used for any other purpose, it is non-self-liquidating and results in payment obligations with no countervailing source of income."

Basically its the same point that Hudson makes about the "magic of compound interest." LaChance again:

A debt-based monetary system has a lifespan-limiting Achilles heel: as debt is created through loan origination, an obligation above and beyond this sum is also created in the form of interest. As a result, there can never be enough money to repay principal and pay interest unless debt is continually expanded. Debt-based monetary systems do not work in reverse, nor can they stand still without a liquidity buffer in the form of savings or a current account surplus.

LaChance takes things further than Hudson in saying that this is an attribute of debt-based money. I'm not sure that this is true unless you add the premise that debt-based money systems have a tendency to favour non-self-liquidating debt (i.e., debt that relies on asset price appreciation to generate the interest payments.) Minsky might be providing this in the "Financial Instability Hypothesis."

Regardless I think this helped me understand both Hudson and Minsky and to see why the current crisis is so intractable.

Of course the confusing thing is that even housing can fit the model of self-liquidating debt if the investment generates an income (rent) above the carrying costs of the property. This actually becomes the measure of how out of whack, how bubble-like a housing market is: affordability. I think this is both

1) why there is so much aversion to what Hudson is saying from various itulipers (I think in part people think that he's saying all real-estate profits are un-earned as opposed to saying how far beyond this level of valuation and an "earned" income we are. It's like EJ says, its not that financial markets and assets aren't an important part of the economy, its simply that they shouldn't be the economy. I think that's Hudson's point too.)

2) why there is so much confusion as to why things have gone so horribly wrong. In form, there is little perceivable difference to an economic agent whether the debt is paid off from perhaps hidden capital appreciation or from debt self-liquidation through an income stream. Both produce a profit and so seem, to the individual agent, to be equally viable so long as the bubble is sustainable. Since at least a whole generation has grown up in these circumstances - Soros's super bubble - it's not surprising very few perceive the categorical difference. This categorical difference has just been demonstrated on a global scale and yet there is no language to articulate the problem (except here and in like-minded company.)

[mcgurme]

Re: Fire Economy De-programming Toolkit

Oddlots,

I think the Matrix is a perfect example here. You've got the red pill (reality), and you've got the blue pill (ignorance is bliss) . You can offer the red pill and try to force "the truth," but some people just want none of that. They want the blue pill. They choose ignorance. Because the truth is too scary.

I believe that most people know that things have changed. I see many hints of it in many conversations and actions. But I also think that they don't want to admit it, least of all to themselves. And by trying to force the red pill upon them, that just raises defensive barriers.

I have been warning people for about two years now (ever since I started asking the question, "what is happening with all that debt?" and then discovered iTulip). Only recently have some of those people come back to me and said "I wish I had listened to you". But it was a long, slow process - they had to see things play out in front of their own eyes.

The process is slow, and frustrating. But I think there is little that one can do to force warnings upon people about "the truth". People will take the red pill in their own time. It is just too easy to pretend that "reality" will go on as it did, by swallowing that blue pill.

Hey jtabeb. Granted. But I'm not thinking personally. I'm really thinking in terms of communicating to others. I'm sort of disappointed in my ability to explain effectively what I think I've learned here to my family and friends. (My sister lives in London and I think is kind of at sea with it all. I've not helped her understand it ultimately.) The example of Hudson's always trenchant commentary not seeming to get through to people - at least when paraphrased by me! - was a case in point.

So here's my rough de-programmers toolkit

- start with housing
- use the housing bubble to demonstrate the difference between self-liquidating and non-self-liquidating debt
- use this as a demonstration of how price appreciation in financial assets mimics a real economy until the debt level outstrips the real economy's ability to pay
- use this - essentially the Minsky moment - as a way to explain the crisis that "nobody saw coming"
- ask the question, how is it that, if this phony economy is unsustainable it has lasted for so long?
- return to housing and explain that price appreciation was a result of falling interest rates (cheapening money = rising asset prices)
- explain that falling interest rates were made possible by mercantalist, export-led development in places like Japan and China ("savings glut" - cough)
- explain that these policies are in turn a response to the dollar reserve system
- explain how this structural advantage generates a bias toward financialisation of the economy (exporting manufacturing jobs with the chimerical reward of rising net-worth in the west as the bait in the "bait and switch")
- explain how this advantage motivates those who benefit most from the process to warp tax and industrial policy to accelerate "financialisation" of the economy
- explain how this has led us to the present predicament where the "greater fool" theory leads logically to the state becoming the only possible bagholder for the system by taking over-priced assets out of private hands at above market prices because they hold the economy hostage

Of course I doubt anyone would sit through all of this! But I think it demonstrates one thing to me: the key move is the analysis of self-liquidating versus non-self-liquidating debt. I even wonder whether this is appreciated by most economists. (Of course, it might be wrong - anyone disagree with Hudson on this?) The fact that debt-deflation theory is still seen as fringe economics does not bode well. And if you don't appreciate this distinction then whole crisis looks a lot more mysterious and Hudson's analysis looks cranky to say the least.

[vanvaley1]

Re: Fire Economy De-programming Toolkit

People won't "de-program" until there is a persuasive new "program" to install in their hardware.

I agree. If ya put a blindfold on me and walk me out to the end of the diving board and tell me to jump, I'm gonna peek to make sure there's some water in the pool before I do so.