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Financial Turmoil As Opportunity to Crawl Out of the Information Gutter

If our consumption of information was analogous to food-diet, what diet plan would we be on? What is the informational equivalent of vegetarianism, veganism, paleo-carnivorism, or Old Roy dog chow? It is hard to see all the analogies. But one can be seen: most people are on an information-diet analogous to eating all of their food out of gas-station-convenience stores. That is, their informational junk food comes from the mainstream media, mainly television.

What a shame. The financial turmoil going on now should be an opportunity to ask fundamental questions about our banking and political systems. At the very least, the general public should learn how our system really works, not just in theory, but the brutal and unseemly realities of it. 

Who is benefiting from the basic policies?

What are the incestuous relationships between banking and political power?

How do they hide it or at least deodorize it from the general public?

Why are the losers so complacent to the winners?

Why is debt held up as the magical path to prosperity? 

How could the chairman of the Federal Reserve ever get such god-like powers in a country that sees itself as a "democracy" and a "republic"?

Could these bubbles and busts ever get so bad that the country reassesses its basic policies towards debt, banking, and political influence? Or will the crises just be used for a bigger dose of the policies that caused the problems in the first place?

From time to time I read editorials that make me think I have learned something fundamental about "our" money-and-power system.  But the editorialist never has to answer questions from the other side, so it isn't really a genuine discussion. But at least it's not the informational junk food of minute-by-minute, play-by-play, ups-and-downs in the stock market.


Ed said…
I am slowly reading The Theory Of Money And Credit by Ludwig Von Mises. I don't think he was writing it for my "pay grade" but I am struggling through it. That is part of the problem with learning "how our system really works", the material that "we", the general public, have to work with is not presented in a manner that is understandable. OR, worse yet it is presented by someone like Klugman or Samuelson both Keynesian economists that firmly believe debt IS the magical path to prosperity.

If the general public could come to grasp just this one principle that good old Ludwig presented that would be a huge step toward answering many of your questions.

"An increase in the quantity of money can no more increase the welfare of the members of a community, than a diminution of it can decrease their welfare."
It is a problem finding economics that isn't written like it is medieval theology, but when you look at its connection with politics, well, how complicated is politics when you boil it down to the essentials?
Unknown said…
I enjoyed your post this time as I am always thinking about how to engage my own correspondents in the economics discussion in an unintimidating fashion. The formulation of your basic questions accomplishes this admirably!
John V said…
Economics is referred to as the dismal science for a good reason. Logic would dictate that the Austrian school of economics is correct (Von Mises). However, the Keynesian school has presided over the greatest economic expansion in history. Some very smart people (David Stockman) would characterize this same period as a great deformation.

The bottom line is that asset price is what pays. It pays your bills and funds your early retirement. Sometimes you need to suspend logic and invest illogically. After all, the markets can remain irrational longer than you can remain solvent. The trick is to avoid those reversion to the mean (to reality) events (1929, 1973, 1987, 2000, 2008, 20??).
Thanks Rod. Sometimes, a post would get too long or argumentative if you tried to answer everything or offer too many conclusions.
Yes, a person has to put their own political opinions aside when investing. We have to invest for the world as it IS, not for the world as is SHOULD be.
Jim and Gayle said…
I defer to John V on all things economic. Aside from that I spent most of my career working in an environment where people were frequently trying to obtain financial gain illegally. The lesson indelibly etched into my mind is that you can't trust other people with your money. Greed and the remarkable ability humans have for rationalization is a dangerous combination.

In regards to bubbles and bust. John V notes the dates of these events in the last century. In my view it is no coincidence that we have had more of these since financial deregulation. We learned something in 1929 and put some rules in place. We learned something in 2008 but money's influence trumped good governing and the feeble effort of Dodd-Frank was effectively gutted and they are still working to do away with the rest of it.

I haven't heard of any serious move to reinstate the Glass-Steagall Act. Why not? If you aren't going to discuss it at a time like now, when are you ever going to discuss it?
Jim and Gayle said…
Elizabeth Warren is supporting a new version of it but, of course, you have to consider the make up of our current congress. It has no chance and as I said, the GOP is constantly working to dismantle Dodd-Frank. Apparently it is going to take something far more serious than the 2008 debacle for anything to happen. We left one gilded age early last century and are in the midst of one now. What do you think it will take for that kind of change? I doubt that I will live to see it.
John V said…
The mistake people make is that they believe their "team", either the Democrats or the Republicans, are the good guys in this debate. The truth is both parties are owned by the banking and other monied interests and are most concerned with maintaining a two party monopolistic system in this country. Fiscal and monetary policy has pretty much stayed the same under both parties. Dollar devaluation, exploding deficits, and systemic bubbles (stocks, housing, student loans, sub prime loans) are the norm despite which party is temporarily holding the gavel. Some politicians talk a good game, but still do nothing, including Elizabeth Warren. Glass-Steagall was repealed at the urging of the Clinton Administration with support from Republicans. Medicare/Medicaid exploded when it was expanded by the Bush Administration with support from Democrats. Dodd-Frank was a silly bill that did nothing to address the core issues of the 2008 collapse. It just allowed the politicians to make it look like they were doing something. Dodd, Frank, Schumer, Clinton...all representives of Wall Street and beneficiaries of huge banking contributions. Does anyone really believe they would kill their golden goose with a new law? You could go all day with examples of how each administartion/congress, Democrat and Republican, have contributed to the country's decline over the past 40 years. Why are Trump and Sanders resonating? Not because of their political affiliations or lack thereof. People may finally be starting to sense that the establishment wings of the parties stand for a flawed staus quo. Unfortunately, which party controls Congress or the White House is meaningless (and that's being generous). As long as the dollar retains reserve currency status, the US can continue to print money and keep the status quo limping along. Change to the system will only happen in response to economic collapse. Hopefully, what comes out the other side won't be even worse than what we currently have.
Jim and Gayle said…
All I can say is that I agree with your comment.