Tuesday, November 9, 2010

Pompous Circumstances

   The last few days have seen an interesting combination of events.  "Interesting" is a loaded word at times and the current convergence should be especially of note from the perspective of the Society.  It should be noted that there's many different ways to interpret a given set of events, what they mean in the context of a larger discussion, and so on.  What's is often lost in discussions of events is the fact that the conditions exist which allowed the event occur in the first place are often as significant as the event.

   The first is the staggering Republican victory in the midterm elections last week.  It's up to the individual reader if they think this is a good thing or a bad thing from the perspective of improving the conditions of the country.  I tend to take another view, that is, the damage to the financial system is so profound and the changing set of circumstances that America and the global economy are in have progressed the point of being able to be fixed.  Given the inertia of the debt problem, and the fact that the Republicans are already back pedaling on not touching the "sacred cows" of the political landscape (Social Security, defense, etc), little is probably going to happen in terms of a change of direction.  What should be more of interest is the fact that such an epic landslide happened in the first place, and why.  While there are numerous interpretations, ranging from the cluelessly scientific ("midterm election upsets are statistically a reaction to one-party dominance") to the laughable (Obama saying that the cause of the Democrat defeat was "poor communication about the agenda"), the most sensible one I can derive is that the people are beginning to realize that no one's steering the ship of the nation and are desperately hoping to find someone who can take hold of the helm.  Word to both parties, the Germans felt the same way in the early 1920's...

   The second is the "quantitative easing" by the Fed.  The first few stimulus packages was basically selling debt to foreign nations, the way we've gotten credit in the past.  What's important to note here is WHY quantitative easing has happened this time around -- there is simply no one who is willing to pony up their own cash to buy bonds that are becoming increasingly worthless.  In other words, the nations that have always been willing to buy our debt at balking because they see America's financial situation as being increasingly hopeless.  The noise about China and Russia being upset by this is really just a distraction -- while they are angry over the irresponsible financial policy of the country, the real issue is that anyone considering doing the QE in the first place.  The fact the gold is going out of sight shows also that people have given up on trying to find any safe refuge in mainstream investments.

   Third is Obama's tour of Asia.  Again, this is oddly out of touch with reality.  The American public has demanded, through elections, restraint and sobriety in government policy.  Instead, Obama is touring in extravagant style instead of staying home and putting on an image of responsibility and a serious desire to right things.  The notion that the trip is intended to promote American economic interests overseas is ludicrous -- the idea of selling finished goods to India, where they can't easily be afforded and can be locally obtained for much less than a tax-heavy and benefit-heavy American economy can produce them shows a lack of reasoning by the president's economic advisors.  While there is some merit to the thinking that the trip is giving tacit approval for India to become a permanent member of the UN Security Council (thus balancing out China), I think the real purpose has been to try to create an image of American power and prestige, to try to convince people that America is still a strong and wealthy nation which can influence other nations, a new version of the Potemkin Village.

   What do these events mean in the context of our oncoming Dark Age?  The most important aspect of a financial system is trust, something that is essentially gone, and things happening in the news now reflect this end of trust.  No one can look at the system and know exactly where they stand with regard to it.  For example, it used to be a given that you could (theoretically) take a certificate someplace and get gold back.  Then, it became that the currency you held had the backing and guarantee of a powerful government that it would be worth something (i.e. you could do something with it).  So, the necessary component for a global economic system -- an internationally trusted currency system -- is increasingly viewed with suspicion.  While people might say "well, go ahead and default on the national debt," do they also consider what a default would mean?  We import much of our energy and raw materials -- who is going to try to sell that to us if they have no guarantee that what they are being given for those raw materials has any worth?

   While this is a simplification of some of the issues, it leads to another point:  if governments are broke, they cannot respond to crises, fix things and maintain any kind of order.  If no one trusts the monetary system, then no one is willing to assume risk in order to trade materials, services and goods.  If nothing is being fixed and nothing is moving, then conditions are going to overtly resemble the new dark age.  Finally, the corresponding increase in the price of goods and services is going to be the final nail in the coffin of the economy, when people begin to turn from prosperity to survival.

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