"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Monday, July 18, 2011

Update on Future Posts

I will be posting again on a somewhat regular basis - a few times a week at least.  I have been busy lately with personal and business matters.  But I want to mention that my main beliefs discussed on this blog - those of  peak oil, the inevitable terminal end of credit based monetary systems, and a return to a gold standard, as well as the likelihood of an increase in resource wars are ideas that I still hold as inevitable.  And mind you, these ideas are based on a gradual systemic change that is going on in the world around us.  These ideas are based on an ongoing process that is happening right now.  It's not that these things will suddenly happen.  They are happening, at various stages, right now.

I am very pessimistic to say the least.  In early 2007, I believed that the architecture of international trade and finance was breaking apart.  Despite temporary solutions that only serve(d) to delay the inevitable, an end game still exists - it is unavoidable.  There are times that I fear that an investment strategy may be pointless, and the hide-in-the-bunker crowd/the end is nigh may be on to something.

Regardless, we are going through some severe structural changes in the global economy.  A de-globalization, if you will.  Such a process is an unwind of a previous system based on expansionary (cheap) credit and easy access to cheap energy and cheap labor.  The reversal of such a process carries many political and social and economic implications for a world based on hypercomplexity.  As US historian Joseph Tainter has said: "Collapse is the rapid simplification of society."

What does that mean?  It depends on where you live, I guess.  Increased gang warfare in Mexico and the central urban areas of US cities, massive protests in North Africa, shutdowns and strikes in Greece (which I witness firsthand), etc...  These disruptions are happening in different places, in different ways, at different times.  But all the "events" are symptoms that will lead to a greater end game.  They are not independent happenings.

It is not a Greek crisis.  It is not an EU crisis.  It is not a Northern Africa/Middle East crisis.  It is not a Wall Street crisis.

It is something more.  It is the end of a world we once knew, and the uncertain beginnings of a new world that is emerging.


Jim Slip said...

The gold-standard is just a fixed exchange-rate regime.

If there was a slim chance of a return to a gold-standard, then the current debacle of the Eurozone (a gold-standard proxy) just killed it of..

We'll never return to the gold-standard because in economic crises it places the burden of adjustment to the indebted via deflation..

The problem with the current crisis is that a lot of countries are not free-floating their currencies, not the other way around.

Besides, even if we returned, what sort of new world is that? I thought the gold-standard was tried and tested and it failed?

Misthos said...

Hey Jim, good to hear from you again.

If we look at a domestic economy as a closed system, I would agree with you 100%.

And I also want to add that all too often, people disregard the prior run-up of credit growth in the system and are quick to blame the gold standard for the Great Depression.

But there is also an entire world out there, full of scarce resources that every economy can not produce but needs to acquire.

The question then is, how does one country acquire these resources?

What means of exchange is used between countries?

Under a gold standard, a nation either had the gold, or it didn't. If it didn't - it needed to export "stuff" and fast in order to engage in trade.

Under the current government debt based system - credit default swaps, manipulation of rates, and government bond markets function as the only way trading partners can "settle the score."

So I ask, how is that system working out? Gold is independent of nationality. Treasury debt? Not so much.

One further point. I know you are aware of MMT, and I think you go to Pragcap occasionally - I do as well. One reader posted something recently that summed up my argument precisely. Unfortunately I don't remember the commentator - and I want to say that Pragcap has some very bright followers - the comment section is tremendous in my view... but what this commentator said that sums up my argument is this:

"Under MMT we can guarantee a job for everyone so they can all go out and by gasoline."

That's very profound, in my opinion.

If there are two systems, and one system is easier to manipulate, which system will government prefer, and how far will the manipulation go?

And when that manipulation no longer can continue, the system breaks down, and in the ensuing chaos, gold is the only independent system that overrides the distrust and chaos.

Gold by default, not by design. History is full of such examples of fiat collapse and gold restoration.

Jim Slip said...

Pragcap? Apart from reading the news, I get most of my economic-related analysis from Warren Mosler's and especially Bill Mitchell's websites.

I used to cling towards the Austrian school. MMT opened my eyes. Now I consider the Austrian school to be little more than hollow moralizing, whose actions tend to bring dire consequences to whole societies.

Let's face it. If all countries were free-floating their currencies, and if the monstrosity that is the Eurozone never existed, then trade imbalances would have corrected themselves ages ago via the exchange rate function.

I have very little sympathy for the political establishment in Greece, the Greek society as a whole even, but I have even less sympathy for the mercantilistic policies of China and Germany.

boatman said...

comparing the euro to a gold standard is not entirely fair, only somewhat.

1) if the drachma was gold standard in the first place they never would have gotten to this position.

2)a politically and socially disparate group of countries agreed to form a currency union, not a group of culturally joined states.

3) the euro is an example of a world unbacked currency when explaining inter-country problems.

the current fiat system everywhere is this day of globalized interconnected financialzation of everything IS NOT WORKING....and will collapse.

and the MMT'ers continue to believe human beings can presciantly control printable unbacked power....in a perfect world maybe....the world i thought could happen when i was 19....before i learned much about human behavior....something warren, futwiller and mitchell have not grasped.

gold is just the standard out of abdication....what else u gonna use??

boatman said...

ooh, and glad you'll be posting again, mist.


Misthos said...

Hey boatman - good to hear from you and thanks for the link.

Great summary from your comment above on fiat/mmt/gold.

Jim Slip said...


The problem is private credit growth, not public finances. How does the gold standard fix this problem?

The result is gonna be a recession, to which the government is gonna be unable to respond, because the stock of money is fixed (under a gold standard).

Fiat currencies are not the problem. The problem is the deregulation of the financial system and the resulting reliance on private-credit growth to increase the money supply (as opposed to public deficits), as well as the destruction of domestic production due to the mercantilist policies of China and Germany.