Thursday, June 7, 2012

Modern capitalists hate capitalism

You can sum up any current financial news in to a few categories. You'll either find yourself reading about:
  1. A solution proposed by those responsible for the problem that when tried didn't work.
  2. An expensive summit or meeting attended by those responsible for the problem to discuss a solution which won't work.
  3. A meaningless monetary policy implemented by those responsible for the problem which fuels hope.
  4. A meaningless monetary policy implemented by those responsible for the problem that drives disappointment.
  5. And finally... A notice to the peasants who were not responsible for the problem that they are going to have to sacrifice to fix it.
In fact you can actually sum up the above 5 categories in to one completely meaningless statement put out today by Stephen Harper:
"As I told the president, they're not going to have growth in Europe unless they establish some confidence in markets. And it's going to be very difficult to establish confidence without a plan to address some of these issues and some of these structural issues."
Without having any understanding what-so-ever about the system, economics, or the current problems this statement tells you everything you need to know about modern economics today. It tells you everything you need to know about the sort of policies you can expect to see going forward (or backward?).

'Confidence', it's the key word. Its the word all of our money is banked on. Instead of looking at the fundamentals of what is affordable, the current state of supply and demand, and most importantly the current state and value of global economic risk we instead are concerned about market confidence as if market confidence and market performance are somehow not the same thing.

The market today was disappointed because Bernanke has again flip flopped and is now back on the "no stimulus" side of the fence. Don't worry though, market, he'll be promoting stimulus again soon enough. Of course no amount of central bank annoucements can change the fundamentals we are dealing with today, those confident today will be fearful tomorrow.

Take for instance, gas and oil prices. Remember, it was just a month ago in which oil and gas were making headlines world-wide. There was a large upward pressure on them because "economies were recovering" and "there was growth". At the same time you'll remember, analysts everywhere were declaring that the high gas prices were having no effect on growth. These analysts were declaring that consumers could definitely afford to keep paying for oil and gas. It should be no surprise to you that shortly after the price of gas started eating in to consumer's wallets that consumer growth practically stopped. Call this a coincidence if you want, I call it peak oil.

The price of oil always reacts to growth projections due to the nature of futures contracts, and it is this dynamic between oil price, growth, and the economy which a lot of people in peak oil denial don't understand.

Right now, world-wide, there are two camps arguing. It doesn't matter which country you look at, it is these two camps and only these two camps and they are both wrong. In camp A you have the austerity folks and in camp B you'll find the "pro-growth policy" folks. "Pro-growth policy" is a fancy term for money printing.

Camp A is wrong because it is a scam austerity, not an honest austerity. It's an austerity which will "lead to growth", or so they would have you believe. In a sense, yes however, if you completely destroy an economy then eventually the only direction it will have left to go is up. The end result though of an economy that undergoes let's say a "controlled demolition" is horrible and those proposing this brand of austerity are not being honest about the result they are trying to achieve and also happen to never be included in the austerity measures. This is akin to royalty, not capitalism. They don't want to lose. The people on top are the same people who made the bad bets and their brand of austerity has only one purpose and that is to keep them on top and let the citizenry "eat cake". Honest austerity would see the likes of the technocrats, Merkel, Bernanke, Corzine, etc turfed by the citizens A.S.AP. Hard times would still be had but everyone would have a fair chance to deal with them.

Camp B is wrong because more money printing doesn't solve anything. I hate to break this to you leftists, but currency unto itself has no value. It has no instrinsic value. I often hear this being said about gold, you're wrong. It's intrinsic value is the energy in the process to aquire gold and the demand. All printing more currency will do of course is devalue existing currency. Additional credit does not make things more affordable. It is the nature of this problem which tells you why interest rates are being held at record lows, because real production, real growth, isn't increasing, isn't growing. The only tool a central bank has to keep things affordable during currency devaluation is to make lending cheaper but we've reached the end of that game as you can not have a negative interest rate. There is a reluctance to provide more stimulus among "over-stimulated" nations because they can not lower interest rates further to offset the devaluation (commonly mistaken for inflation). The inflation does not disappear however, instead what you see is the currency in your bank account literally devalue and this turns into what's known as hyper-inflation.

A common mistake when people think about hyper-inflation is to think it's closely related to inflation. I see a lot of "hyper-inflation vs. deflation" arguments when in reality hyper-inflation and deflation are two sides of the same coin.

Hyper-inflation is the result of capitalists that hate capitalism. I should note that although they hate capitalism they love profit. They love the upside of capitalism, but as any real capitalist knows "more risk, more reward". It is the risk portion of capitalism that these capitalism haters despise for if they accepted the risk they probably wouldn't be in a position to be making the stupid decisions for us that they are now.

When people look at the subprime mortgage collapse and those affected, I've seen a lot of people say "well it's also the fault of the people for taking the mortgages in the first place". Yes, no one is arguing that, the problem is look where all of the risk ended up, and look where the reward ended up. All of the risk landed on those people and the banks? All reward. That's the problem in the subprime mortgage scandal, that's why it's a scandal. That's why our economies are still reeling to this day, the capitalist haters don't want to let capitalism play it's part. These banks and the governments who support them should fail. Yes, it'll be painful. Yes, some people are going to be very poor. I have got news for you, a fuck ton of people are already hurting and are already poor. You're too late.

There are a lot of people still living the good life (I'm one of them), and many of those people still believe this problem is developing and that it can be avoided. It's already here. It's on your streets and in your neighborhoods. People are starving all over the place and yet those who are not living the crisis are afraid of what a correction might bring? Stop being afraid and look this problem in the eyes, it's not going away.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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