I found this article over at The Weekly Standard. I think it does a much better job of getting at what I was trying to say for today.
http://http://www.weeklystandard.com/articles/world-crisis_524865.html?page=1
Enjoy.
Saturday, January 1, 2011
Cycles, Seasons, and Trust Systems
Organizations exist. I'll define an organization as a network of defined relationships directed towards a larger purpose. Organizations form pluribus unum to be successful in some goal. Success is a habit and not an event; those organizations that habitually succeed grow and flourish. Those that do not habitually succeed wane and diminish.
The goal of an economy is the organization and growth of productivity, consumption, and wealth, along the accumulation and dispersion of these things. It is a mutually agreed upon system of trust.
What are the goals of an economy? What is a habitually succeeding economy?
An economy is a market. Items are traded. Skills are traded. Time is traded. Wealth itself is traded.
'Price stability' and 'full employment' can be considered goals of an economy, among other things. But for what I'm saying I'll state the goal of an economy the same as I would state the goal of any organization, community, family, or living thing.
The goal of an economy is to continue to exist. The goal of an economy is to continue to be the mutually agreed upon system for trade. All that is required for that to happen is that those involved trust that it is in their interest to be in the system.
To be very specific- the dollar is a unit of currency in an economy. It is paper that is trusted to be of value. It is not a precious metal. It is not a tool. It is not consumable or usable or valuable in any way except as a unit of currency that is trusted to be of value.
Average members of economies don't have much choice in the matter. You can't very well say "Screw the dollar, I'm going to use francs/deutches/whatever instead!" without geographically moving to an area that uses that currency for its economy. (You can, however, speculate, using your dollars to buy another form of currency, commodity, or precious metals, but that's another topic. You can't buy maccaroni from Wal-Mart with silver coins)
Different economies powerfully decide whether or not to trust one another. This plays a huge part in the health of economies- their faith in one another. The dollar, for example, is the world's reserve currency. It is trusted as a stable store of wealth right beside precious metals like silver and gold (which have been historic stores of wealth for centuries). That's why when two countries decide not to deal with each other in dollars anymore (as China and Russia recently decided with one another) it's a really, really big deal.
The Crash (and Postponed Crash) of 2008
I'm going to write lightly on this, because I honestly haven't read enough on the crash's origins to go in depth. There are amazing books and articles on the subject- one in paticular comes to mind that, if I find it again, I'll link back here.
The most important thing to understand about what happened in 2008 is that the problem wasn't fixed. Banks make money through speculating. The thing about banks' speculating is that the banks themselves are such HUGE ENTITIES that they are able to artificially inflate prices, manipulate the market and make big money doing it (and screwing over everybody else in the process). I wish I had some hard figures or sources to show so I didn't sound like another looney whining about evil banksters, but I'm not going to put the time into doing that right now (after all, not like anybody's actually reading this). I'm simply going to state it and leave it at that- banks manipulate markets, and it creates big problems.
Examples of this include the dot-com bubble (bank made), the housing bubble (bank made), and the $4 a gallon gas we saw the summer of 2008 (had nothing to do with peak oil or supply shortages; everything to do with a loophole in bank regulator law prohibiting exactly what the banks did).
Banks manipulate and overvalue things, and it screws with the market and screws everybody who isn't Goldman Sachs. The crash of 2008 was the economy's attempt (referring to it as a living, self-healing entity here) to 'correct' prices to their actual values. The market was not allowed to correct itself. Money was injected into the system (more than $1.5 trillion) to artificially keep prices inflated. It would have been very painful to the market if that hadn't been done. It will be even more painful now.
Change
Honestly I'm very tired and am going to wrap this up.
Because things are one way one day does not mean they will be that way tomorrow.
The dollar is valued because it's trusted to have value. There are a lot of reasons that is the way it is, and I can't begin to delve into the 'why' of that.
Loss of value of a currency is not a freak occurence. It happens. There are obvious examples like Rome and the Weimar Republic (lots of comparisons between 2011 USA and pre-Hitler 1920s Weimar Germany going around right now). A more modern example of currency collapse can be found in 2001 Argentina. Argentina was the "Paris of South America" in the early 1900s, and is now rotting into something out of the third world. A great blog (great resource, really) from a guy living in Argentina is http://ferfal.blogspot.com . If you're into learning what this stuff looks like from an on-the-street perspective (as opposed to macroeconomics) then definitely check him out.
The point of this post (and of what I'm writing in general) is that I think the world we know is changing. Changing does not mean ending. I go to an Evangelical college, and I cannot stand hearing kids talk about how they think what they're seeing means Jesus is returning for Armageddon. It's a rather self-serving thought- when things get hard, that must mean that the end is near.
No. When things get hard, you deal with it and carry on.
Yep, I'm tired. My apologies if this turned into a rant.
Good day.
The goal of an economy is the organization and growth of productivity, consumption, and wealth, along the accumulation and dispersion of these things. It is a mutually agreed upon system of trust.
What are the goals of an economy? What is a habitually succeeding economy?
An economy is a market. Items are traded. Skills are traded. Time is traded. Wealth itself is traded.
'Price stability' and 'full employment' can be considered goals of an economy, among other things. But for what I'm saying I'll state the goal of an economy the same as I would state the goal of any organization, community, family, or living thing.
The goal of an economy is to continue to exist. The goal of an economy is to continue to be the mutually agreed upon system for trade. All that is required for that to happen is that those involved trust that it is in their interest to be in the system.
To be very specific- the dollar is a unit of currency in an economy. It is paper that is trusted to be of value. It is not a precious metal. It is not a tool. It is not consumable or usable or valuable in any way except as a unit of currency that is trusted to be of value.
Average members of economies don't have much choice in the matter. You can't very well say "Screw the dollar, I'm going to use francs/deutches/whatever instead!" without geographically moving to an area that uses that currency for its economy. (You can, however, speculate, using your dollars to buy another form of currency, commodity, or precious metals, but that's another topic. You can't buy maccaroni from Wal-Mart with silver coins)
Different economies powerfully decide whether or not to trust one another. This plays a huge part in the health of economies- their faith in one another. The dollar, for example, is the world's reserve currency. It is trusted as a stable store of wealth right beside precious metals like silver and gold (which have been historic stores of wealth for centuries). That's why when two countries decide not to deal with each other in dollars anymore (as China and Russia recently decided with one another) it's a really, really big deal.
The Crash (and Postponed Crash) of 2008
I'm going to write lightly on this, because I honestly haven't read enough on the crash's origins to go in depth. There are amazing books and articles on the subject- one in paticular comes to mind that, if I find it again, I'll link back here.
The most important thing to understand about what happened in 2008 is that the problem wasn't fixed. Banks make money through speculating. The thing about banks' speculating is that the banks themselves are such HUGE ENTITIES that they are able to artificially inflate prices, manipulate the market and make big money doing it (and screwing over everybody else in the process). I wish I had some hard figures or sources to show so I didn't sound like another looney whining about evil banksters, but I'm not going to put the time into doing that right now (after all, not like anybody's actually reading this). I'm simply going to state it and leave it at that- banks manipulate markets, and it creates big problems.
Examples of this include the dot-com bubble (bank made), the housing bubble (bank made), and the $4 a gallon gas we saw the summer of 2008 (had nothing to do with peak oil or supply shortages; everything to do with a loophole in bank regulator law prohibiting exactly what the banks did).
Banks manipulate and overvalue things, and it screws with the market and screws everybody who isn't Goldman Sachs. The crash of 2008 was the economy's attempt (referring to it as a living, self-healing entity here) to 'correct' prices to their actual values. The market was not allowed to correct itself. Money was injected into the system (more than $1.5 trillion) to artificially keep prices inflated. It would have been very painful to the market if that hadn't been done. It will be even more painful now.
Change
Honestly I'm very tired and am going to wrap this up.
Because things are one way one day does not mean they will be that way tomorrow.
The dollar is valued because it's trusted to have value. There are a lot of reasons that is the way it is, and I can't begin to delve into the 'why' of that.
Loss of value of a currency is not a freak occurence. It happens. There are obvious examples like Rome and the Weimar Republic (lots of comparisons between 2011 USA and pre-Hitler 1920s Weimar Germany going around right now). A more modern example of currency collapse can be found in 2001 Argentina. Argentina was the "Paris of South America" in the early 1900s, and is now rotting into something out of the third world. A great blog (great resource, really) from a guy living in Argentina is http://ferfal.blogspot.com . If you're into learning what this stuff looks like from an on-the-street perspective (as opposed to macroeconomics) then definitely check him out.
The point of this post (and of what I'm writing in general) is that I think the world we know is changing. Changing does not mean ending. I go to an Evangelical college, and I cannot stand hearing kids talk about how they think what they're seeing means Jesus is returning for Armageddon. It's a rather self-serving thought- when things get hard, that must mean that the end is near.
No. When things get hard, you deal with it and carry on.
Yep, I'm tired. My apologies if this turned into a rant.
Good day.
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