Today I was mulling around in my mind how people will look back and reflect on this mess if the predictions of the doomsayers prove correct. As you know many of us the are far from optimistic. While the future is hard to predict, as in politics the people who watch and study the economy are becoming more polarized as to the direction of the economy. Many of us are slipping into one of the two distinct camps, one that sees this as an economy slowly on the mend with the worse behind us and the other who clearly takes the position that things are not working. Not only have things gotten worse but the distorted economy and manipulated markets only mask the fact that a day of reckoning is fast approaching and we are facing a bigger and meaner economic set back then any the world has witnessed in modern times.
On the "blue skies" side of this argument are those talking their book and the truly optimistic. They see more jobs being created and are certain that as the economy picks up the deficit will come back into a more manageable range. These upbeat legions broadcast the message that we have learned from past mistakes and things are now on a much stronger foundation and problems are being dealt with. As they spin a scenario of higher corporate profits ahead they remind us how those claiming the "Sky is falling" have always been with us and yet even in the worse days we tend to muddle through. They declare that those who worry that the debt, currency games, and massive reliance on records created and sent off into the clouds will someday come back to haunt us are daft!
In a BBC interview that aired in October of 2012 the governor of the Bank of England, Mervyn King commented that the last few years have given him a deeper understanding of some of Keynes' writing about the 1930s. I have always had my doubts about the long
term "benefits" of QE. And the thought of government indulging in "off
balance sheet" transactions brings back bad memories of all the
too-clever-by-half banking practices that got us in the present mess. As a simple accountant wedded to the sanctity of double entry
bookkeeping, every debit must have a corresponding credit and vice
versa. So if in creating this money as a cash asset, there must be a
liability to balance it out somewhere. Unless my simple accountant's
mind has this wrong, government has merely created more debt and has
merely kicked the can a few years down the road.
Before the financial crisis of 2008, Sir Mervyn says, he had
struggled to comprehend how policymakers had allowed the economic
disaster. My thoughts are if indeed we do have the blow off many of us see coming it will be big, it will be deep, it will shake society to its roots, and it will most likely last for years. We could possibly witness a watershed event in the economic history of the world. We could see people lose all confidence in paper money and those that run both the Reserve Banks and Government. With the recent creation of billions of documents and a massive amount of records being held on computers, this includes complex derivatives, the courts will be overwhelmed and the tangled mess may never be set right.
Currently many traders and investors claim to be playing this close to the vest and riding the markets higher as they are pushed up by a wave of easy money, they intend to rush to the exit before it all collapses into rubble. As usual the masses will be shocked and wonder why the "light never came on", how they, their leaders and fine public servants could have mucked things up and have let this happen. Even while entitlement programs are being shredded, reduced, rewritten, and promises broken, they will look towards government to do more. As they do it will become clear that those in power do not have as much power as many think. Yes, even the powerful will be tossed about by events rather then in control of shaping them.
The majority of people will look back and say, it happened so fast and with so little warning that they could only go along on the ride. We do indeed live in interesting times. In my book Advancing Time I focus on how change is occurring at an increasingly faster rate. One of the biggest changes over the last few decades is in the speed and way we communicate, this will have a massive bearing on the effect and speed of a great unraveling. To many of us, as with the occurrence of other unseemly events that take place in history it is merely a question of when and not if. While we have learned much during the last two hundred years about economics and how to manage our economy we should not be so arrogant as to think we can control greed or change the nature of bankers and politicians.
Footnote; Your comments are welcome and encouraged. If you have time
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