"ps. Mo, not to beleager the point but I was hoping for an excellent, honest and moral military leader to TEMPORARILY take over (I understand the risk too but we need to go All-in here)"

Absolute power corrupts absolutely. You do not get any closer to absolute power than a military leader filling a power vacuum.


"But doesn't the destruction of production/output lead to scarcity and massively higher prices for those items (presumable necessities of life) that are in short supply?"

Not necessarily. Scarcity is only a temporary matter. The best way to illustrate it is as an example.

Let's say the demand for vegetables is 100 units at 1.05 dollars.
Due to our credit bubble, we have 125 firms providing 125 units.
Each firm needs 1.1 dollars to survive and can only produce two units.
In our current market, 125 units are chasing 100 consumers.
In our current market, firms are trying to extract 137 dollars out of 100 units.
The market won't support that. Basic mathematics.
The firms begin selling their units at half price.
However, the population has no need for more than 100 units.
100 firms collapse. The 25 remaining can only produce 50 units maxed out.
Now you have a shortage. The remaining units are jacked up to 2 dollars.
People can't pay 2 dollars, so the sold units are close to zero.
Retailers must bring their price down or collapse.

You can only have interest in an actual economy. If your rate of inflation erodes buying power too quickly, you blow up your economy. If you don't have the 2 dollars, you simply can't buy. You won't get the product, but the seller is toast.

Deflation is just fine in a commodity based monetary system.

If your currency is not debt based / fractional lended, inflation is not necessary at all.

In fact you get to keep ALL of your productivity gains. You never give them up. YOU become the bank.

You guys are way too negative about a military leader taking over, this is how our country was founded and how it will be 're-founded'.

Example George Washington

At Fraunces Tavern on December 4, Washington formally bade his officers farewell and on December 23, 1783, he resigned his commission as commander-in-chief, emulating the Roman general Cincinnatus, an exemplar of the republican ideal of citizen leadership who rejected power.

Washington's retirement to Mount Vernon was short-lived. He made an exploratory trip to the western frontier in 1784,[10] was persuaded to attend the Constitutional Convention in Philadelphia in the summer of 1787, and was unanimously ELECTED president of the Convention.

You know Max, I tend to agree with you.

Forget about all the hi-brow economic analysis, we're in uncharted waters now and common sense and good instinct is MORE valuable IMO than academic theoretical prognostication. [Especially since the obvious culprits have been continuously wrong, have helped to create this mess, and have been criminal in dealing with it].

Honestly, my gut tells me as this plays out and if it gets quite bad, the .mil is likely to step up to the plate to stabilize issues the normal PTB have no earthly understanding of and/or ability to affect.

Either the .gov gets it's head screwed on straight or the .mil is likely to step up in some form.

How is anyones guess, but there is strong leadership in the .mil and they aren't going to stand by while some frikking libtards [or stupid neocons to be fair] completely destroy the country.

It will probably get VERY bad before something happens to trigger a .mil intervention, but the path we're on seems to lead to no other outcome.

What happens afterward is again anyone's guess but I think it is safe to say if things get horribly worse they will step in, possibly with consent of the .gov [who in a last gasp may still try to retain/share power].

Tnben posted:

About population decline...I recently watched the new documentary <i>Demographic Winter<i/>. Here is a link to an article about it:

http://www.catholicnewsagency.com/new.ph....

From the article: "According to a press release for the film, the global birthrate has declined by 50 percent over the past half-century. Fifty nine nations, containing 44 percent of the world’s population, have birthrates below the replacement level of 2.1 children per woman."

___________________


Thanks for the link.

Birthrates across the globe are declining.
The only reason population doesn't appear
to be in decline is because of immigration
and because people are living longer.

The fact that a large part of the population
is aging also drastically impacts the economy.
Ask Japan.

Firstly, I agree with Gen and the deflation thesis. I am an engineer, therefore I believe in Math, it doesn't lie and it is impartial.

However, I would like for Gen/someone to entertain this thought process and see if it is a feasible outcome....

Ok so we are all in agreement that for all intents and purposes, if the major banks/financial institutions marked their portfolios to market they are all insolvent. Along with the OTC derivative mess, they are totally screwed and in need of capital.

The Fed/Gov/Treas have already shown their hand, they plan to keep pumping in as much capital as necessary to keep these banks from blowing up. The only problem is so far they have used $350B of the TARP, soon to be the full $700B, and it isn't doing a damn thing. Just plugging holes.

What would happen if the banks need over $2T of capital? Maybe even more? So the Fed/Gov either pass new legislation, attempting to raise funds by selling Teas debt, or the Fed just raw prints.

Then let's factor in the State and local gov payrolls, public programs, pensions etc. All of this either needs to be paid for or benefits and programs slashed. For arguements sake lets say the gov opts to pay.

My point is this, if there is just massive internal problems with the banks and the gov with selling their debt, and they opt to print in order to recapitalize, I would imagine people would start to lose faith in the US $.

As the $ crashes, people would be interested in spending their $s as opposed to hoarding htem and saving them. Velocity of $ would pick up dramatically, thereby inducing a spiral of people wanting to spend their funny money too.

Does this type of process give credence to the statement that "hyper inflation is a currency event?"

In this case we will not be experiencing "inflation" in the normal sense. Not a huge increase in the money supply accompanied by a means of transmitting it in the economy such as a wage price spiral. Instead it will be a result of a loss of faith in the $ and a currency crash.

I agree with your math. However, is it possible that the math of raw printing combined with a treasury bond implosion lead to a loss of faith in the $ as a store of value? Surely the Fed cannot print at will and the Gov cannot run infinite deficeits without some consequences right?

I don't believe in gold: I believe the Fed MAY do whatever it takes to force people to buy IT, amongst other things.

The Fed makes the rules, like it or not, and they CAN make prices go up... we may get Hitler, but prices could go up!

Jump: Fully 1/3rd of all debt may be unservicable.

That's roughly a GDP's worth, or $14-16 trillion dollars.

We don't have it and can't borrow it. The ONLY solution is to default it.

If we attempt to print that, we blow ourselves to Hell long before we actually print it.

Math rules the physical world. It does not rule humans because no one has cataloged all the variables, or more to the point, properly cataloged them.

I have no doubt mathematics, statistics in particular, can be used to predict human behavior en masse, but not individually, and since when live in a world where one asshat can control the monetary policy of an entire country, statistics are virtually useless.

Well, they are working on the human genome and maybe in my son's lifetime all those variables will be mapped along with the proteins that turn the expression of each gene off and on, etc. Although, I'm sure they'll find some other nifty components otherwise we'd all become predictable and BORING!

I don't really think the genome is useful for behavior prediction. From my experience with machine learning, it's not up to us to decide what are the important variables, you let the computer figure that out from a lot of statistical data about millions of people.

We just don't have enough detailed information about people yet to properly define what a person is, from a computational perspective. What I'm saying is, if we knew how to model a single person, and had samplings from everywhere in the world, we could create a simulation called "Sim World" and predict what will happen tomorrow.

I happen to think there could be a mathematics developed for human behavior analogous to mass, energy, trajectory, momentum etc. that we have discovered for the physical world. The Humanities however is a largely undisciplined field that actually revels in the idea that humans cannot be predicted so the answer isn't coming from there. The physical science guys are just not interested in people.

"You guys are way too negative about a military leader taking over, this is how our country was founded and how it will be 're-founded'. "

Wha?

George Washington didn't start the revolution. If I remember correctly, he was brought in because the initial colonial fighters were getting their butts handed to them by the British. He was brought in to help unify the militias into a unified army and bring them up to military standards.

Question: what will happen if governments find themselves unable to meet their obligations in the terms of salaries, etc? Especially in a deflationary environment?
Lots of agreements are carved into paper in the sense that salaries etc are in a certain amount of dollars. These prices/salaries are generally very difficult to get down.

So if a government or state will find itself out of money, won't it HAVE to print cash to meet these obligations? This since a government cannot be bankrupted? In other words, if a state finds itself in the position where it is unable to meet its obligations, does it even have a choice?
It seems to me that allowing deflation will simply not do, especially if the deflationary force is very large. I know the longer term outcome of hyperinflation is terrible, but short-term it could look attractive, or even the only option to the less economically trained eye (such as most politicians).

Quote:

Lots of agreements are carved into paper in the sense that salaries etc are in a certain amount of dollars. These prices/salaries are generally very difficult to get down.

It's simple. They'll layoff a large portion of the workforce and stop raises for about 10 years.