This is just a brainstorm that lacks stucture but I’m going to use it for future reference….
We can use law or anticompetitive collusion to change the world, which means emergent order is powerful but only to the extent that it’s allowed to exist. Strange. See article on chaos. Mises, Hayek, etc. figured out something important about the consequences of human meddling in chaotic systems that produce emergent order. Hence their love of a gold backed currency. The problem is that the Fed is using the Fiat system to combat deflation(cite Fed study), the libertarian fear of inflation is therefore off base. They’re wrong because they understand money, human nature but not the concept of accelerating change (quote Greenspan circa 1999).
To the extent that we adapt to change does exponential progress become linear in our eyes? To what extent does our perception of change affect the markets?
Economists, techno-philosophers, media pundits, are all talking about tipping points… In my opinion this is accelerating change rearing its head. Stephen Roach has it right when he says
“policy makers always fight the last battle — as evidenced by the ascendancy of inflation targeting at just the moment when inflation is all but dead.“
Human nature is the elastic goo that makes things lag behind then snap back in the face of accelerating change, the tipping point is letting go of the rubber band
I have a copy of Bastiat’s “The Law” next to my pillow. Amazing read. He points out that Democracy became a way for the lower classes to use the government to steal from the rich which was not the original intent or moral purpose of law.
France has high productivity because labor restrictions prevent businesses from cost effectively hiring workers. So they buy better computer systems. Socialists accidentally showing us what the capitalist future will look like. France is, oddly, a vision of the future. High unemployment thanks to productivity which was encouraged by labor laws. Are geopolitics after globalization just politics?
The fact that people are saying housing will pop even though they assume inflation is rampant is worrying. If you assume techologically fueled deflation is accelerating then you also have to assume the Fed is going to have to slash rates in the near future. That’s great if you have an Adjustable Rate Mortgage, how much is an Interest Only loan if rates are at zero? But if salaries are dropping due to deflation that $400,000 mortgage remains unworkable in the long run. Bernanke on the problem:
However, a deflationary recession may differ in one respect from “normal” recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.2 Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the “zero bound.”
Idea. Housing isn’t a side effect of the explosion of the M3 it’s your standard issue speculative bubble set off by the declining median income numbers. The reversion to mean is going to be rough.
So housing pops. Banks/hedgefunds, etc. blow up. There’s a flight to quality, gold takes off in the short run, then crashes when people realize there’s a cash shortage as banks write off huge losses due to foreclosures (this needs more thought). The Fed, already flooding the market with money, fires up their virtual helicopters and start dropping money. But they can’t do it equitably without starting riots unless… they open the Federal Reserve with accounts based on SSN. And we get something that looks like “The Plan”.
The middle class isn’t going to be happy. We’ll all have plenty of food but the dignity of the $65/hour job at GM will be torn from their hands and some people care more about pride, dignity, etc. more than food.
Technology is a funny thing. It enabled the original fiat currency experiments with the printing press which lead to inflation, now it’s reached the point that the presses(electronic) can’t print enough to keep up with deflation, or maybe they can but the lackeys at the Fed have absolutely no idea how much money to put out there. That’s why they’re now “data dependent”. The problem is that they’re looking at old data. The M3 money supply report is now hidden in the bowels of the Federal Reserve bank but I imagine the numbers are huge.
Does a country that creates fiat money out of thin air that’s fighting accelerating deflation have too much control over the economy by virtue of their power to purchase?
All that said, I think the Fed is wrong too. They’re a banking cartel and have a built in bias against deflation of any kind. Good deflation makes computers cheaper but hurts Dell’s stock price. The Fed isn’t ready to trade lower earnings for higher standards of living yet.