our economy; greed, debt, inflation, deflation, page-6

Thanks for your replies, especially as they were written in the wee hours of the morning.

I've often thought about what would happen if there was a total economic collapse. There would be those who would be able to carry on with their reserves of available fundings. But a good percentage of our population would be 100% unprepared if the current system failed. That is what I believe the unacceptable would occur when people who are used to getting things as they wish are suddenly finding themselves without any food or shelter. Are they going to conform to the laws of society or are they going to lash out by going on rampaging smash and grabs through our towns?

Most don't realise what the essence of life means. All through time man has adapted to the cycles of living, making the most of the good times in readiness for the the impending bad times to come. A perfect example is humans like to over eat, which causes weight gain issues. I myself could loose a few kilos. But why do we want to over eat? Well we can thank our ancestors for that behaviour as during history man had to endure constantly changing supply patterns of food through his life. If he/she did not prepare for the impending lean periods, he and his family, and possibly the human race, would perish.

The boom periods were spring, summer and early autumn, so they roughly had an 7 month window where they can prepare for the hostile winter months. Creating an over supply of food was they key to ensure that they had enough to see them through. But that was not a good enough guarantee of survival - their supplies of food were always at risk of spoiling or being eaten by outsiders or famished wild animals. So many began to over eat, building up their body fat reserves just in case there was no food left for tomorrow. Those who did not follow this practise perished and the survivors are our ancestors. (Of course the down side of this neat little protective trick is that now we are faced with a rich and plentiful supply of food 365 days a year!)


So the time period I just discussed is yearly. But what about boom periods that go for 5, 10, 20 and 50 years? What does that do and what are the repercussions when they fail? The boom years are an amazing phenomenon which are so prosperous that the majority of society have no problems about supporting those who cannot/won’t look after themselves. Money was there for almost everyone’s need. All one needed to do was to work to gain access to credit because of the belief that the good times would continue by giving us opportunities to work and earn money. And the longer the boom periods go for the more and more risk taking behaviour becomes common, acceptable and even encouraged!

This current boom/bust saw America fall for the ol’ “I thought it would last forever” trick! Their boom period was so powerful, so prosperous, that they arrogantly believed that they could give money to those who don’t work and get away with it. They believed that they can buy virtually all their ridiculously low priced goods from a nation that has cheap/slave labour. They believed that no matter the size of the risk they took that the economy would right their wrong doings. That my friends is a classic case of a nation that gorged itself on everything that was currently available – building the biggest and most expensive houses, buying gas guzzling cars, living off of credit, not needing any savings due to credit and the last – guaranteeing subprime loans in the belief the possible was impossible.

Iceland was the next casualty. Iceland was recently the wealthiest nation on Earth being a model of stability and growth. They too arrogantly believed tomorrow would always be good for them. The world’s banks also thought that tomorrow would always be good for Iceland giving as much money as they needed. Tomorrow came and it was empty. Tomorrow was the complete opposite to what they had anticipated. Had they expected leans times to be possible then they would have ensured that their debt levels were sustainable, and that they had a buffer of savings just in case. But that was not to be.

Dubai is our current example of a nation that believed in its own immortality. Again, a classic example of a nation that not only has eaten all of today’s food, but effectively has eaten all of tomorrow’s food as well. Lack of foresight, lack of realism, lack of common sense allowed such reckless building activities to occur. And the majority of the fundings for Dubai’s brash and arrogant behaviour, as we discovered this week, was the UK lol.

So here we are, up to our throats in debt to the point where much of it must be purged. But, unlike America, Iceland and Dubai, we still believe tomorrow will look after us. We still believe tomorrow’s food supply will be as great, if not greater than today’s food supply. We still are over indulging from today’s and tomorrow’s supply of wealth. We are not building up enough of a reserve of wealth if tomorrow’s food (wealth/money) supply is cut off. We are assuming that China’s and India’s demands will see us through. Is that good enough? Is that acceptable that we have built our lives and future prospects solely only the premise that these nations will give us what we desperately need to continue our insatiable lifestyle pattern? What if the unthinkable was to occur? What if we found ourselves like those other 3 nations that are now the laughing stock of the world? Is it good enough to take that chance? Is it acceptable to compromise the future of our children because we are so greedy that we want the best lifestyle now instead of building our reserves just in case the supply stream stops?

This is where we can seriously come undone. Of late we are witnessing quantitative easing all around the western world. And so far it is without doubt working very well and nicely masking the debt and cancerous issues that lies within the developed economies. And the reason why the devaluing of western currencies is still working is the fact energy is still relatively cheap and that China has pegged its currency to the falling US dollar. We can continue our charade and pretend all is well, as life is still affordable. But what happens if (actually when) oil becomes so expensive it starts impacting on all businesses and everything you buy? Are our leaders going to continue to print money that would actually cause the price of energy to rise even higher? Are they going to keep printing money that would actually cause Chinese goods to become unaffordable? That will be the conundrum our leaders will face. They will eventually come to a point where they have to stop this money printing practise simply because the nations that have building up their reserves would simply outmuscle us in every way. They will have the upper hand in being able to afford more grains, more energy, more dairy, simply because they have the reserves to do so. They have built for tomorrow purely on the lifestyles of westerners living for today.

So if they weaken our currency by 50% we will see fuel costs rise by 100%. No problem as there will be more money available. But what about the fuel crisis – what happens when fuel demand is so high that production can no longer keep up and prices go up 100%? What will that mean? First result of quantitative easing sees petrol over $2.00 a litre. But a double on the wholesale cost due to strong demand could see it over $4.00 a litre! This where we can possibly (eventually) get caught with our pants down. This is where our leaders will want to see the fuel price drop by removing some currency from circulation, allowing the dollar to appreciate so fuel can be more affordable. Those who have cash reserves will have no problem. Those who have very little cash reserves will need to off load their assets to gain access to cash. Those nations that have nothing left to offer oil producing nations for energy will start selling off their gold reserves. You can’t use gold to live on, but its value is legendary. Its feature is that it is tradable, so when a nation has nothing left to trade out comes the gold for what it needs. That is why nations are suddenly building up there reserves of gold; not because of devaluing currencies but simply because it will kick in once the cash inflows have stopped.

So here we are with many living solely for today, but with a small number building up their reserves for tomorrow. Those who live for today – you know the ones, the ones who travel overseas every year with borrowed money, those with the latest cars and mobile phones – they will be the ones angrily pointing their fingers at those who went without today so that they could survive tomorrow’s nightmare. They will want to take from those who built up their wealth reserves for tomorrow – just like when our ancestors faced attacks from unprepared predators.

The difference between now and then is that society has allowed an evolution of fools to exist because of the system of wealth distribution. Normally pre-industrial times would have corrected the imbalance of society by seeing these fools die off bringing an end to them producing parasitic off spring. Are we going to see an end to those who cannot build their wealth reserves for tomorrow? If you believe the unthinkable won’t occur then I wish you and your family the best of luck, because you’re going to need it!