I’ve been glued to the markets for the past 2 week, spending a lot of my free time reading what people smarter than me think about the situation.  I’ve always been a skeptic of the market, it just seems too good to be true.  You simply put money here, and (historically) you will earn 6-8% on the long term and be well guarded from that 2% inflation number that eats away at your savings.  The basics make sense.  In capitalism, capital generates more capital.  You invest in companies, and as long as those companies grow you gain money, on an aggregate, over time you make money.  Since society as a whole is growing causing consumption to grow it makes sense.

But what happens when birthrates decline, the population levels off, then later starts to decline?  You have less consumers, less demand, the market place needs fewer companies.  Worse yet as technology improves we are designing smaller things, that use less raw materials, and consume less power and are more efficient.  These two both combine to lower demand, but as a whole are a good thing.  This society adapting to live within it’s means.  This is all my amateur perspective, so feel free to tell me if you see it differently.

Paul-Krugman-Keynesians-Fail

Found this funny image macro this week.  Krugman initially said this quote as sarcasm/joke, in a “I’m not actually serious tone.”  It’s a ironic that is what actually happened.

As governments around the world implement quantitative easing programs (printing money) to stave off yet another market downturn, who knows what is next.  Europe’s doing QE, China’s doing QE, the US has done 3 rounds of QE.  You can’t keep expanding the money supply like this without it eventually becoming worthless.  Perhaps this is all part of a race to the bottom in an attempt to have the cheapest currency, and therefore the most desirable exporter.

The free market doesn’t like all this interference from the government.  It is not how a market should work.  Our stock market is no different from the Chinese one, with circuit breaker rules to prevent rapid gains or losses, central banks buying back stock, and manipulating interest rates.  I think the only solution is just to let this machine go and it will come crashing down and quickly find some stability.  The longer governments try to manipulate this thing the longer people will be uncertain, and the longer it will take to correct itself.

The economic opinion that seems the most likely to me, is people will run to government bonds due to chaos in the market, essentially throwing money away because they pay negative interest rates with inflation taken into account.  Maybe mid-end of September there will be a crisis in the bond market and people lose faith in government or central banking.

Our per capita US public debt is higher than our per capital GDP.  Every citizen owes more than an entire year’s worth of productivity to pay off the debt.  We spend 7% of the federal budget on interest payments on our debt.  This is just throwing money away, and it’s can’t continue forever.  You could fianance the entire US Navy and NASA  for that much money and still have several billion left over.

Ron Paul’s thoughts.  It’s not China’s fault, it’s the Fed.

We need politician’s that aren’t mortgaging our future to pay for the present.

Advertisements