The Center Cannot Hold, Part 2

by Stephanie Osborn
http://www.stephanie-osborn.com

And the 4th installment from Sarah Hoyt's blog today. There are those of you who may not be interested. However, I think these are things that are important to consider in today's economic situations, and the new year is definitely the time to be considering them. I don't always agree with Sarah on some things, though we are friends. (Hey, friends don't have to agree all the time. But we still get along. That's why we're FRIENDS.) But like I said, it makes some thoughtful reading. And as someone born and raised in Portugal, she brings a fascinating perspective to the topic.

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The Center Cannot Hold, Part 2

by Sarah A. Hoyt

The idea of creating inflation to get out of a disastrous debt situation is neither unknown nor rare. Countries like Greece and Portugal coasted on it for years (and we could go on about what losing that ability has done to them) partly because as “touristic countries” they thrived on being “cheap” by keeping their currency devalued.

You borrow high-value currency and pay the same nominal amount of low-value currency. Fine. That makes sense. But if you don’t let the savings and assets people have appreciate at the same rate, via high interest rates, (which in turn pushes company assets and – usually – salaries up, even though not in real value) you’re going to have people who don’t make enough to eat or to buy…anything. (Look, ALL intervention in economics is stupid, ultimately, because economics is not something someone can CONTROL. It is instead a playground for the law of unintended consequences. It's as if we developed an ability to control the weather and were in shock when keeping it pleasant in Iowa buried NYC in ice or something.)

It seems to me we’re headed there. Most of my friends are beyond pinched this Christmas, and that’s the ones who still have jobs.

If I had to guess I’d say this strategy was cooked up to get us out of the real estate collapse. The inflation is supposed to catch up so that real estate assets never “devalue” in numbers, just in real value. And the interest rates are kept forcibly low so that people will soak up the bad assets and so that those in marginal positions can refinance. (We know how well that last part is working – not.)

Mind you, if that really is the idea, this gang is dumber than dirt. First because if people's money holdings and salary stay the same, buying a house is still difficult, no matter how low the interest rates. Second, because they’re not taking in account that those of us working as contractors and getting paid on contracts made years ago, will end up destitute and not be able to afford...not just houses, but anything. I don’t know how many of us there are, but the fact salaries aren’t going up means salaried employees, of which there are a lot, will end up in the same fix.

In Portugal there was an enormous “soak up” of completely paid off real-estate, a lot of it inherited over generations. In fact, it might have been the norm. Having a mortgage back then was odd. This meant that your property appreciated massively and if you got in real trouble, you could sell it and move on. (Various restrictions on selling rented out places, and rent control made this more difficult than it sounds, but…still. You weren’t talking about people having to meet mortgage payments, house repairs, food, fuel, etc, with salaries that remain static and depreciating currency reserves while a lot of the rest goes up. On the food side, too, most people back then had at least some gardens and some "creation" – chickens, goats, etc.)

On the other hand, it’s entirely possible I’m attributing to stupidity that which is more easily explained by malice: they want to turn us into beggars, because beggars are easy to please. No, wait, that still means stupidity, because what can’t go on, won’t, and like with price fixing, when you make it impossible for people to live, people find extra-legal means.

Okay – another way in which we’re different: we’re the world’s charity [fund]. We still give financial aid to most of the world, and have for close on to a century. (We might that way have enabled tyranny, but that’s something else.) We’re the world’s grantor of peace.

If we withdraw, even well short of a total collapse, will the world finally grow up? Or will it go back to the long wars of the 18th and 19th century everywhere, to the point commerce can’t take place?

Make no mistake, whatever bad things happen in the US will be ten times worse in the rest of the world. And don’t say, “Who cares?” Some – if not most – of those people are much better at WMDs than at feeding their people and will consider knocking the “old champ off” a much greater priority than actually taking care of their starving population.

(A friend of mine said, “Whatever happens now, we’re going to lose at least one major city.” I’d like to say he was wrong, but I have the same feeling.)

Other ways we’re different: we have more guns per capita than anywhere except those places that encourage/enforce gun ownership, like Switzerland. This is not a bad thing because:

Even in the milder of the “things go wrong” scenario, where things go bad first are the people who are marginal now, living at the edge of both society and often legality. Where you see any crackup first in society is higher crime rates – we’re seeing that – and lack of safety on the streets. The fact that a lot of people have guns will probably hold some of that (at least) down.

We have a military that is more in the tradition of service than of machismo. We’re probably the last of the Western powers with a military tradition and our military tradition is…odd, built on winning hearts and souls, more than on, “Shoot them all and let G-d sort them out.” Yes, I know, sometimes the rules of engagement (ROEs) are stupid (Okay the ROEs are mostly stupid) but still, it has a built in, “you don’t kill unless you need to.” This makes us different from, say, the various Latin American countries that have had crack ups.

Will the US military fire on the populace if things get bad enough? Some places. Some populace. As someone said, behavior means a lot.

BUT the US military are also generally a force for good and order, and given a central collapse, might hold things together long enough for things to coalesce in another form. Might. One can hope. (Of course, I keep thinking of Starship Troopers, “And then the veterans had had enough.”)

All of these together, particularly the economic thing, added to the chaotic force of changing technology and the decentralization that tech has been forcing on industry and commerce even as our politics and education and other…non-commercial enterprises have got more centralized, has the effect of making us a particularly unpredictable juggernaut.

It won't be like movies or books, because those move on logic. Real people aren't logical. They're cranky, emotional and ornery. A group of one or the other some place can send things spinning out of control. [I'm reminded of one of my favorite lines from the first Men in Black movie, “A person is smart. People are dumb, panicky, dangerous animals and you know it.” -Steph]

In the best of all possible worlds, you’re going to hit a point where the answer to, “Are things getting better or worse?” will have to be, “Yes.” And then things start smoothing off, if we’re lucky in 25 or so years, so that I can still see it. (Or maybe faster. We’re Americans. We go fast. Hey, look, I’m Heinlein’s kid. The glass is not half full. It’s brimming over.)

On the other hand, it’s unpredictable, and I don’t think the people in charge know that, just like the people in charge of publishing don’t seem to be aware that ebooks aren’t just a “novelty fad.” There is a certain type of credentialed-not-brilliant (but thinks he/she is, because...credentialed) individual for whom knowledge is what exists in books and what your professors passed to you. If reality disagrees, then you deny reality as hard as you can.

Most of the people in charge most places are busy denying reality. Which makes the rest of us real nervous.

Hope for the best. Prepare for the worst. Stay informed. Keep moving. Keep working.

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Or as my grandmother used to say, "Hope for the best, prepare for the worst, and take whatever God sends."

 

-Stephanie Osborn

http://www.stephanie-osborn.com

The Center Cannot Hold, Part 1

by Stephanie Osborn
http://www.stephanie-osborn.com

This is the follow-on post to Sarah Hoyt's "Preparing for the Long Rains" blog. Once again I am splitting it into two halves due to her blog formatting versus mine.

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The Center Cannot Hold, Part 1

by Sarah A. Hoyt

I was thinking this morning that there are other things that make this path we’re on uniquely dangerous in terms of preparing for bad stuff, because it’s simply impossible to guess what form the horrible stuff will take.

Here’s a grab bag at random – just off the top of my head.

We’re the largest country organized on non-authoritarian lines (yes, I know, but we’re not organized for it)…I was going to say “to risk collapse” but now that I think about it we’re just the largest country in history organized on non-authoritarian lines. For those who will protest that, go look at the constitution of the European Union. When we organize under a constitution that classifies the curvature of a banana, then we’ll be in the running. (Yes, there are a series of abuses, and we’ve been trending authoritarian and centralized since the civil war – not arguing the rightness or justness of the war, just saying it centralized and strengthened los Federales and their power – but I don’t think it’s got into the DNA of the nation, yet. Having lived here and in Europe and traveled a bit all over, Americans are still likely to tell authority to take a hike.)

I have massive faith in the American spirit. 9/11 happening anywhere else in the world would have turned NYC into well, something out of the movie "Escape from New York", instead of a place where people helped each other get through, which by and large it was. Yeah, I know there are spots where this fails, but by and large Americans look at what needs done and go, "I'll do it," instead of waiting for the duly constituted authorities.

We are being treated to a very weird financial combination. I think I know what the idiots in power are trying to do, but if it REALLY is what they’re trying to do, they are some sort of unique in the realm of dumb.

Look, I was thinking about this yesterday, in terms of what an economic collapse looks like. Portugal [Sarah was born and raised in Portugal. -Steph] sailed dangerously close to it in the mid-seventies, with inflation going insane and people panicking and buying supplies months in advance, and then hysteria about hoarders being drummed up when supplies failed to materialize. (We also had price controls then. An absolute boon for the black market.)

But no one starved and by the end of it several people were better off than they’d been, (though not those who owned real estate, due to rent freeze and not those who’d failed to acquire saleable skills – more on that later.) People who owned gold or had money in the bank, for instance. (Though how much the future prosperity came from America I don't know. I know in the eighties we joked our GDP was made in America.)

HOWEVER to my knowledge – and I’m not as exhaustively well read on it as I’d like to be, because for the last five or six years work/kid stuff has kept me from reading economics as much as I used to. (Shut up. It’s a hobby.)

I don’t know any other country where currency has been printed like ours, and yet the interest rates are held artificially low. The combination is at best daft. Inflation is already showing up, though they keep doing weird stuff to how it’s calculated. (No, I’m not going to argue that. If you buy food, you know inflation has shown up – but beyond that, because the price of fuel goes up {being paid for in devalued dollars} it pushes everything else up, because fuel is used to MAKE everything.) [Or transport it. -Steph]

A lot of the places that can, and where it’s direct, they are already raising prices/lowering sizes – restaurants; food packaging; services; prices for minor stuff like mini-golf courses.

But the lack of employment is holding salaries down. And for those of us like me, who work at a job with irregular pay and who therefore of necessity have “savings” – i.e. a big paycheck goes in bank and is slowly drawn out to supplement my husband’s salary which is our main support – are seeing those savings eaten away. By the time we need to use them, we need more of them, which we're not getting because interest rates are low.

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Part 2 next week.

-Stephanie Osborn
http://www.stephanie-osborn.com