This would be a good time to evaluate the nature of money and its role in the economy.
Econ 101 says money is both medium of exchange and store of value, but that's nonsense.
Blood is a medium, fat is a store. Roads are a medium, parking lots are a store.
We are linear, goal oriented creatures in a cyclical, circular, feedback driven reality and while markets need money to circulate, people see it as signal to extract and store.
It is the social contract and accounting device that enables large societies to function, but we treat it as a commodity to mine from society. The signal to extract and store.
As a medium, its functionality is its fungibility. We own it like we own the section of road we are using, or the air and water flowing through our bodies. It's not our picture on it, we don't hold the copyrights and are not individually responsible for its value, like a personal check.
As such, it is a quintessential public utility, like roads and needs to be understood and treated as such.
By now, it's become extremely obvious that the financialization of the economy amounts to an economic Ebola virus, as all structures, networks and organic value melt away.
Given it is a contract, storing the asset requires generating the debt to back it and the effect is this enormous centripetal vortex, pulling all value into an ever tighter circle.
Considering the Ancients devised debt jubilees thousands of years ago, as circuit breakers for this exact problem, it's not like it should be any mystery as to what is going on, but the levels of ignorance that people, both at the top and bottom, are capable of, is beyond belief.
As the executive and regulatory function of society, government is analogous to the central nervous system, while money and banking, as the value circulation system, are analogous to blood and the circulation system.
There was a time when government was private and now private banking it certainly having its own, "Let them eat cake." moment.
The question is whether they can retain their levers of control, or are they finally going too far.
Well, Mr. Auerback, you know what they say... Capitalism is great until you run out of somebody else's money to spend. Oh, wait. That was supposed to be socialism, wasn't it? How could it be that such a viciously capitalistic country as the US has an actual debt level of $28T (and counting, the latest round of 1% giveaways hasn't hit the treasury's ledger yet) whilst possessing a GDP of roughly $22T (annualized from the first half of 2021's GDP #s). This equates to a debt to income ratio of 125%. Who's running out of other people's money? I think this will be the real problem but I'll get back to that.
You make some very good observations about the cluelessness of the Fed. I wish somebody would climb to the top of some high peak and shout it out to the country. The Fed's misguided policies which do, in fact, lead to bubbles, coupled with inane government economic policies and irresponsible Congressional profligacy and ideological rigidity are going to sink us again. I really wish you would develop this line of thinking but you start talking about employment... You do, in fact, make some very persuasive arguments about the causes of jobs going begging. Sadly, I'm not persuaded. I believe they will die a death by a thousand cuts delivered by my friend William of Occam. It's not the typical Republican line of the lazy bastards just won't come and work. It's not the typical Democratic line that there's some social issue that is causing this to happen. It's much, much simpler. The people to fill these jobs don't exist anymore. What?!? You say...
Think about it. First of all, we are still losing those oft mocked Boomers to retirement. What better time to retire than when I'm gonna get laid off anyway. Screw it, I'll just retire. Secondly, COVID-19 has been a great mortality. More than 600,000. That's a lotta dead stiffs that we might well not have had otherwise. Sure a bunch of them were really old people who wouldn't be working anyway but a lot of them weren't. A great mortality really screws things up. Thirdly, look at the jobs that are going begging. Most of them are low paying crap jobs that employers regularly abused. Sorry, I can't give you 40 hours (and have to give you benefits). No, I can't give you regular hours. etc, etc. Who wants that? I'll bet that they figured out how to make ends meet without getting sucked back into three part time jobs a week or they went back to school to qualify for a better job (the kind that aren't going begging) or something else creative.
No, what I panic about is the debt, coupled with the trajectory of the USs aggressive dash towards hegemony (which we will never reach) and the trajectory of the growth of the rest of the world in spite of our best efforts to stop it or at the very least subvert it. And coupled with our present situation. Inflation is up to what, 5.4%? That's nothing. It's also reflective, I think, of Donnie Murdo's tariffs. He was a fool to think that the Chinese would be paying those. The government is spending a lot more than it is taking in in taxes. We've got to find people who will lend us the money. And the question is, at what interest rate? You can bet they won't be able to sell it at the fed funds rate. Banks might be able to borrow at a quarter point but the government won't. I remember the 18% interest rates of the 70's. Let's hope that it doesn't get worse than that. Our debt to income ratio was also a whole lot smaller then.
There is an ancient Chinese curse -- May you live in interesting times. And I think they are going to get very interesting. The debt limit re-imposition happened on Aug 1st and we will hit the new and improved debt limit sometime very soon. The use of "extraordinary measures" will extend the decision point on into the fall. Then what happens? We default? Surely you jest. We do away with the debt limit and we can spend as fast as a drunken sailor on a Saturday night? Not likely. Congress realizes that it can't trust itself. So we'll get new debt limit after the Republicans get some ridiculous concession from the Democrats on some bill that has nothing to do with the debt.
How bad does our inflation have to get before everybody realizes that the value of any government bonds they hold is evaporating faster than ether in a petri dish and we lose our preferred reserve currency status?
This would be a good time to evaluate the nature of money and its role in the economy.
Econ 101 says money is both medium of exchange and store of value, but that's nonsense.
Blood is a medium, fat is a store. Roads are a medium, parking lots are a store.
We are linear, goal oriented creatures in a cyclical, circular, feedback driven reality and while markets need money to circulate, people see it as signal to extract and store.
It is the social contract and accounting device that enables large societies to function, but we treat it as a commodity to mine from society. The signal to extract and store.
As a medium, its functionality is its fungibility. We own it like we own the section of road we are using, or the air and water flowing through our bodies. It's not our picture on it, we don't hold the copyrights and are not individually responsible for its value, like a personal check.
As such, it is a quintessential public utility, like roads and needs to be understood and treated as such.
By now, it's become extremely obvious that the financialization of the economy amounts to an economic Ebola virus, as all structures, networks and organic value melt away.
Given it is a contract, storing the asset requires generating the debt to back it and the effect is this enormous centripetal vortex, pulling all value into an ever tighter circle.
Considering the Ancients devised debt jubilees thousands of years ago, as circuit breakers for this exact problem, it's not like it should be any mystery as to what is going on, but the levels of ignorance that people, both at the top and bottom, are capable of, is beyond belief.
As the executive and regulatory function of society, government is analogous to the central nervous system, while money and banking, as the value circulation system, are analogous to blood and the circulation system.
There was a time when government was private and now private banking it certainly having its own, "Let them eat cake." moment.
The question is whether they can retain their levers of control, or are they finally going too far.
Well, Mr. Auerback, you know what they say... Capitalism is great until you run out of somebody else's money to spend. Oh, wait. That was supposed to be socialism, wasn't it? How could it be that such a viciously capitalistic country as the US has an actual debt level of $28T (and counting, the latest round of 1% giveaways hasn't hit the treasury's ledger yet) whilst possessing a GDP of roughly $22T (annualized from the first half of 2021's GDP #s). This equates to a debt to income ratio of 125%. Who's running out of other people's money? I think this will be the real problem but I'll get back to that.
You make some very good observations about the cluelessness of the Fed. I wish somebody would climb to the top of some high peak and shout it out to the country. The Fed's misguided policies which do, in fact, lead to bubbles, coupled with inane government economic policies and irresponsible Congressional profligacy and ideological rigidity are going to sink us again. I really wish you would develop this line of thinking but you start talking about employment... You do, in fact, make some very persuasive arguments about the causes of jobs going begging. Sadly, I'm not persuaded. I believe they will die a death by a thousand cuts delivered by my friend William of Occam. It's not the typical Republican line of the lazy bastards just won't come and work. It's not the typical Democratic line that there's some social issue that is causing this to happen. It's much, much simpler. The people to fill these jobs don't exist anymore. What?!? You say...
Think about it. First of all, we are still losing those oft mocked Boomers to retirement. What better time to retire than when I'm gonna get laid off anyway. Screw it, I'll just retire. Secondly, COVID-19 has been a great mortality. More than 600,000. That's a lotta dead stiffs that we might well not have had otherwise. Sure a bunch of them were really old people who wouldn't be working anyway but a lot of them weren't. A great mortality really screws things up. Thirdly, look at the jobs that are going begging. Most of them are low paying crap jobs that employers regularly abused. Sorry, I can't give you 40 hours (and have to give you benefits). No, I can't give you regular hours. etc, etc. Who wants that? I'll bet that they figured out how to make ends meet without getting sucked back into three part time jobs a week or they went back to school to qualify for a better job (the kind that aren't going begging) or something else creative.
No, what I panic about is the debt, coupled with the trajectory of the USs aggressive dash towards hegemony (which we will never reach) and the trajectory of the growth of the rest of the world in spite of our best efforts to stop it or at the very least subvert it. And coupled with our present situation. Inflation is up to what, 5.4%? That's nothing. It's also reflective, I think, of Donnie Murdo's tariffs. He was a fool to think that the Chinese would be paying those. The government is spending a lot more than it is taking in in taxes. We've got to find people who will lend us the money. And the question is, at what interest rate? You can bet they won't be able to sell it at the fed funds rate. Banks might be able to borrow at a quarter point but the government won't. I remember the 18% interest rates of the 70's. Let's hope that it doesn't get worse than that. Our debt to income ratio was also a whole lot smaller then.
There is an ancient Chinese curse -- May you live in interesting times. And I think they are going to get very interesting. The debt limit re-imposition happened on Aug 1st and we will hit the new and improved debt limit sometime very soon. The use of "extraordinary measures" will extend the decision point on into the fall. Then what happens? We default? Surely you jest. We do away with the debt limit and we can spend as fast as a drunken sailor on a Saturday night? Not likely. Congress realizes that it can't trust itself. So we'll get new debt limit after the Republicans get some ridiculous concession from the Democrats on some bill that has nothing to do with the debt.
How bad does our inflation have to get before everybody realizes that the value of any government bonds they hold is evaporating faster than ether in a petri dish and we lose our preferred reserve currency status?