Monday, January 28, 2013

The Center Cannot Hold, Part 2

by Stephanie Osborn

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.


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

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