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EYE-BALL’s Herman on – Materialism Part II – The matter of a possible USA debt default…

July 28, 2011
Herman O'Hermitage
Materialism Part II – The matter of a possible USA debt default…
By: Herman O’Hermitage

Herman O'Hermitage
In the antiquities materialism was the study of matter (see Democritus c460 -370BCE). In our world it can be several things that include consumption particular with a twist of greed. In the philosophies, it is all related but not relevant here.

Modern right wing philosophy and ideology has evolved with much more modern names, that include Mass Market, Free Markets, Market based economies, and the real insult to intelligence, self regulated markets. Don’t overlook Free trade.

In our immediate past history, we have the crumbling of the Eastern Bloc, and the “Berlin Wall”, Americanisation and Californication. The rise of the third world to emerging nation status. Also the rise of Mohammadism (Mohammedism – I trust the spelling does not insult), Tiananmen Squareand the liberalising of China, Free Trade (GATT & WTO) and not forgetting to include what we call the Euro zone (the unification of the European states into a common market).

All of this has transpired to find a world deeply out of balance. Trade imbalance, per capita GDP imbalance, currency imbalance and so on. The biggest today is debt imbalance, see Greece, Ireland, Portugal, Spain, Italy and the USA. Who could possibly imagine America not being AAA rated?

By the turn of the millennium; with computers and information age technologies – (including Y2K) – giving rise to unparalleled international trading, securisations to credit default trading, we had unparalleled growth. The flow on to emerging and 3rd world countries like China and India and Mexico and Ireland was so patently clear. Those that aren’t convinced – you are simply doomsayers.

“But, what about Band-aid and Live-aid and the raping of forests and pollution”. “You, just watch free markets will fix that”.  It is called WTO – it means free trade.

So Euro moves to phase II and adopts a common currency with cheaper borrowing costs for all constituent countries other Germany. Bin Laden declares a holy war (jihad) on the West. Down comes the World Trade Centre, Wall Street is closed for 7 trading days only (WOW).

America (the Coalition of the Willing) invades Afghanistan, then Iraq, (they will be short wars), Guantanamo Bay and the spread of terror and (importantly) the rational world spurns the leaders of Coalition of the Willing.

They install more leftist government.  The housing asset bubble fuels a consumption orgy and America’s over-belief in the free market – (see the sub prime crisis) – became the Global Financial Crisis with massive bail outs by government of the banking and insurance sector to prevent Armageddon. Throw in proliferate spending programmes by many governments trying to re-ignite consumption and we arrive at the possible American Government debt default.

Maybe the consumption model needs more explanation. You can clear excess production by driving consumer demand or lowering price (producers margin).

When incomes are rising or perceived to be rising demand increases, (shifts to the right). In the business cycle, any contraction in demand is generally because of an unexplained shift in the demand curve to the left. (generally termed a loss of confidence). Sadly shifts to the left or right tend to spiral. Hence, governments need interventionist tactics to slow and reverse.

We need to curb too much (excessive) exuberance, and equally prevent too much negativity. When interventions slow but don’t reverse the cycle you might call that stagflation. (Might). Most importantly that pretty well sums up the USA. No apparent growth, falling currency, high and unacceptable unemployment, no trend in inflation, yet.

USA are under going a catharsis. As Y2K was cathartic, so too was September 11, 2001, so was sub prime, so too was the fall of Communism and Tiananmen Square and so on, those warnings were ignored. The US’s attitude during those events was “our model is not broken so don’t fix it”. You can ask – where the USA ignored the plight of the suffering in Tiananmen Square or the communist equation then now – why should Russia or China care about the US now. Because as we speak, China and Russia are the USA’s major creditors.

During the great depression in Australia, twice salaries were cut by 10% to try to rebalance the imbalance of that scenario and very importantly the “haves” started caring for the “have nots” (quite possibly simply out of self interest). The initiative changed the mindset of the people at large where, to keep their jobs those remaining in work all had to share equally (a dramatic change of pre depression mindset). Some historians will have you believe that none of that worked either, only the outbreak of World War II got the world back to work and therefore some semblance of balance.

Right now on Capitol Hill much of the politics is still ultra Darwinian “survival of the fittest”. It is generally called brinkmanship.

Why hasn’t Congress suggested pay cuts for all civil servants including politicians? Such a move could implore the Wall street types to start showing some charity. The current uncertainty has made the existing US government bond holders consider such an outcome, a loss on their investment. New debt will be priced more attractively, therefore existing debt will be devalued. Erstwhile the American Dollar is already going south and continuing so unabated. Gold is opposite (negative correlation). Trying this would be preferable to a wider ranging war (or wars) than we currently observe.

Pay cuts have been employed in Greece, and in Ireland there is simply no work available, move to Britain. Industry in the USA will need to shed more jobs, quite possibly the military included. Could the US try retaining all employees on reduced hours or pay? Wisdom is that you cut the dead wood first. That maybe well and good, however in this circumstance, then, the next most marginal group will also contract their consumption out of fear, fear for the next round of redundancies and retrenchments. Less demand is lower sales and/or lower margin. This also means that, those who retain their jobs are actually enjoying higher disposable income. Morally, should they consume more voraciously or feed some others?

I do not believe for one second that I have the answer, but I do implore a change of mindset. A catharsis. Widen the argument and try more alternatives and possibilities. Brinkmanship is not working. Capitol Hill please hear us.
According to Carl Sagen’s string theory; a butterfly fluttering its wings in the Andes can cause an avalanche in the Himalayas. All you butterflies out there please flap your wings. Flap them voraciously.

It is better than another world war to address our imbalances.


Herman …

Links to Previous Post by this Author …

28th July 2011 – Materialism Part II – The matter of a possible USA debt default… Herman O'Hermitage
24th July 2011 – The Predator … Herman O'Hermitage
21st July 2011 – Democrazy… Part V – The art of using smokescreens. Herman O'Hermitage
20th July 2011 – Democrazy… Part IV – The Dirty Digger at the parliamentary inquest. Herman O'Hermitage
13th July 2011 – Democrazy… Part III – The Italian Sovereign Debt Crisis, the IMF and your superannuation. Herman O'Hermitage
12th July 2011 – Democrazy… Part II – The News of the World Scandal. Herman O'Hermitage
10th July 2011 – Death and Taxes Part III – the Carbon Tax Detail – Why is the devil always in the detail. Herman O'Hermitage
4th July 2011 – DEATH and TAXES – Part II – Efficiency in Government . Herman O'Hermitage
30th Jun 2011 – Death and Taxes – who pays the PENNY man. Herman O'Hermitage
28th Jun 2011 – Democrazy… Herman O'Hermitage
26th Jun 2011 – Canberra Comment… Herman O'Hermitage
24th Jun 2011 – Materialism… Herman O'Hermitage
18th May 2011 – The Solar Electricity Debate… Herman O'Hermitage
6th May 2011 – The Assassination of BIN LADEN – the urban myth begins… Herman O'Hermitage
4th May 2011 – “Un-Australian.com.au” – on what being Australian means… Herman O'Hermitage
18th Apr 2011 – Asset Inflation – Herman O’Hermitage takes it to task … Herman O'Hermitage
9th Apr 2011 – POWER – in the Political sense – or Fuelling Industry? Herman O'Hermitage
  1. July 28, 2011 at 8:46 pm

    Brilliant post Herman – covered all that is current and goes a long way to explaining how we have all arrived at this equinox – keep up the good work … Guru …

  2. July 28, 2011 at 8:52 pm

    Herman – The clarity may not be obvious to all – but having followed all your work in recent years – this subject certainly brings your strengths to the fore …

    The witches brew is ‘toil and trouble’ – and that is where we have arrived … perhaps some magic potion or super natural phenomenon will provide an answer – mortal men will fail as sure as the evil that has caused this ‘catharsis’ …

    Please post more on this subject as we slide into that future where fear and trepidation will perhaps become the norm …

    Eye-Ball …

  3. Herman
    July 29, 2011 at 9:09 am

    While reflecting on my writing I was pondering the very fast train disaster in China earlier this week. The information and analysis so far puts it down to China’s aggressive modernisation and therefore reckless incapacity to embrace the concept of balanced growth.

    The OECD reports that China is now lessening their application of the foot to the accelerator. They are finally recognising the inflationary effects. You can only wonder where OECD gets their information from. Is it their own research or supplied to them by China itself.

    If you translate China’s behaviour at WTO after their entry, I would take the whole lot with a grain of salt. After 250 plus reporting by China against other member nations for free trade infractions the Doha round of trade talks has totally broken down, and appears to be, the beginning of the end of the WTO. Good while it lasted.

    But I do not totally dismiss the scuttlebutt that China is developing state of the art aircraft carriers and plans to produce 6 of them in the first stage. I can only wonder which of the 7 seas they intend to patrol.

    Have I ever shared the myth of Sanbao the Sailor. Some say he is the western myth of Sinbad. The phoenicians could not say Sanbao, so phoenetically it was Sinbad. In a replica of a viking long boat he sailed the seven seas. You won’t find anything about him in Western history. just some more fodder for thought.

  4. April 11, 2012 at 9:34 pm

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