Why the end is nigh...

No, the world isn't going to blow up, or at least if it is I don't know about it.

The end I'm talking about is the global economy, and even more particularly, the US economy.

The topics I'll be talking about are difficult to summarize but I'll do my best. Some of the issues and ideas I'll be bring up have their own sections at the library or courses at schools, and yet here I'll try to sum them up in a couple of paragraphs.

It seems to me that the system itself is completely doomed to fail. It is, by it's very nature, unsustainable in the long term.

I'll use the post to talk about why I think this is the case. I may come back and keep editing this post in order to flesh out my ideas and arguments on the issue further. I may also choose to make more and more posts on the subject, or maybe I'll do both.

I'll start by focusing on why the US economy will fail but I may wander into the global spectrum from time to time. I think arguments like those I'll use in dealing with the US will also apply to all other countries, as all other countries that I'm aware of suffer from the same issues to different degrees.

Here is the bare bones, over-simplified, argument as to why the US economy is doomed to fail:

1. We use a debt based fiat currency. In effect, all of our money is "borrowed" into existence. In order for debtors to pay back their principle plus interest, it is required that even more people borrow even more money into existence or else there won't be enough money to pay back everything owed.

2. Oil and other fossil fuels are finite. We will peak in production of these fuels some day. That day may already be here.

3. Monetary inflation is required for our monetary system. We always need more money to be made so that we can pay back the principle plus the interest. The system itself can not allow the money supply to shrink too much because the effects would be devastating to debtors...and since nearly everyone is a debtor, deflation would be devastating to nearly everyone. In general, falling prices or deflation, is bad for people in debt as they lose income and possibly default. Bottom line is that inflation is basically a requirement of our monetary system.

4. Our inflation requires a growing energy supply or ever increasing production or else our monetary inflation turns rapidly into price inflation. If we aren't producing ever more real goods and services, then what we get is more and more dollars chasing the same or less goods. This will result in real price increases.

5. Real price increases of the sort mentioned above are bad for the currency. They tend to reduce faith in the currency and make future investment less likely. Future investment also means future debt...which according to#1 we require ever more of. Thus, we can't have people lose too much faith in the currency or else they stop going into debt fast enough and if they aren't going into debt fast enough then the system fails. Real price increases will also tend to increase interest rates (though our FED can screw that up to a large degree) and as interest rates go up, people tend to want to borrow less...and again, we need people to borrow ever more money or else there simply isn't enough money for everyone to pay back their principle plus interest which means systemic failures become ever more probable. I believe this condition where we have high inflation and little or no economic growth is often referred to as "stagflation."

6. Our regulations and property laws, including intellectual property laws, are skewed very badly so as to prevent individual workers from being entrepreneurial and converting natural resources and labor into profitable goods and services on their own. In other words, natural "market forces" are badly warped out of shape and are prevented from functioning. Sometimes government policy is to actively encourage the exact opposite of what needs to happen in order for the system to heal. We don't have homestead laws and our 10% unemployed can't just start farming for themselves until they figure out a better job. They can't just enter into all sorts of fields because the barriers to entry are ever greater.

7. The price of oil is artificially, and tenuously, attached to the dollar. Oil is bought and sold in dollars. The worlds major oil markets and major oil producers all use dollars and have done so for 50 years. When the US rapidly borrows more money into existence our price inflation is greatly tempered by this fact because as the cost of oil goes up, everyone else in the world requires more dollars to buy the oil they want and they thus need to suck dollars out of circulation here...slowing down the price growth of everything else for Americans.

8. The baby-boomer population bubble is problematic.


I'll elaborate more on all of the above points more as I go.

Right now I'd just like to point out that I think that a large deal of what we see in the US economy right now can be explained by these points and that looking at the US economy with these ideas in mind it seems like we may, in fact, be headed for a systemic failure.

We have had greater than 9% unemployment and close to 20% under-employment for a couple of years now. The biggest "dips" in the unemployment rate during that time have come from government expansion and things like census jobs.

Our job creation is having trouble keeping up with population growth. Several reasons our employment rate isn't getting higher even faster include the fact that people "fall off" the unemployment rolls, that if people earn even a tiny bit of money they aren't unemployed, that if a young person opts to go to school or just fails to look for a job then they too aren't unemployed.

That's enough for now.

I'll be back for more later.