CHAOS-ONOMICS: Strangely Attracted to the Truth
Apr 15
chaos-onomics.com
The people of Iraq shouldn't be saddled with those debts incurred through the
regime of the dictator who's now gone.
John Snow US Treasury Secretary
No one has forgiven Russia's debt, regardless of what kind of regime it was and
regardless of the country's clout.
Finance Minister Alexei Kudrin
While reading Robert Fisk's column on the destruction of Iraq's National Library and Archives my mind recalled the research of Jack Goody and Ian Watt whose "The Consequence of Literacy" argued that the diffusion of literacy and literature explained the flowering of Greek thought in the sixth and fifth century BC. In yesterday's submission to GATA, I touched on Santayana's notion that those who forget the lessons of the past are doomed to repeat them. Presuming you find that notion credible, as I do, then you might also wonder how a society manages to forget these important lessons. Natural disasters sometimes claim large chunks of knowledge, while at other times, man himself is responsible. Julius Caesar managed to burn part of the Library of Alexandria in wrestling control of Egypt from the Ptolemys and the Nazis were famous for their destruction of non-Aryan texts. However, there is, I believe, a more insidious rot to which Santayana refers, a lack of faith.
Perhaps the general discomfort among the popular intelligencia with questions of faith in God or faith in Jesus has led to a lack of faith in Caesar, Charlemagne, Thomas Jefferson or Alexander. Then again, maybe it is simply the fascination with evolution and progress that makes learning the lessons of the past seems like a trip into musty archives, to quote the Fed Chairman. This is to argue that while great numbers of people are often acquainted with history, it doesn't serve as the backbone of their decision tree. Consider the hordes of quantitative economist prognosticating on our future based upon, in the best cases, 40-50 years of data. They draw their graphs and run their regressions, using the mathematical forms borrowed from a study of the physical world as if that slice of time is somewhat representative of the whole.
Yet, history is littered with tales of economic schemes that went bust. From my perspective, while I too study recent quantitative data, I remain aware that the data represent an equilibrium state of sorts, and that these equilibria have proven temporary in the past. That is, I try to incorporate my faith in the lessons of history into my analysis. To me, comments like those attributed to, for example, US Treasury Secretary Andrew Mellon, "I see nothing in the present situation that is either menacing or warrants pessimism" (Dec 31, 1929), represent this lack of faith in history which dooms us to repeat it. Of course, in a sense, Mellon was correct if we recall the old saw about a recession being when your neighbor loses his job while a depression is when you do. Mellon must have lived in a nice neighborhood, eh.
Kidding aside, people's distaste for imagining negative outcomes and authority figures' willingness to exploit this human weakness play, in my view, a large part in reducing the importance of the lessons of the past. Most recently, it took the double dip recessions of the late 70s early 80s to evoke sufficient respect for the lessons of economics. While it would be nice to think that such won't be necessary again, I think, a la Goody and Watt that the diffusion of economic pain will be key to inspiring a response. Buckle up, until the powers that be stop spouting "good times ahead" nonsense, little will be done to fix what is broken.
In current events, it appears the offensive in Iraq is paying dividends in N Korea, where Kim Jong-il has dropped his demand to only negotiate with the US. SARS continues to raise fear in Asia with even China's Premier, Wen Jiabao, calling the crisis, "grave" while today's death toll in HK hit 9, the most since the epidemic began. US Industrial production has fallen again this month, mainly but not entirely due to a weather related decline in utility output as factory output fell for the second straight month. Yesterday's equity market rally has inspired foreign equity buying, while Gold and the US$ continue to trade in a tight range. For those watching the parallels between the Gulf Wars, crude oil continues to hold above the highs of last year, thus making talk of the economic benefits of Iraqi liberation a bit premature at best.
==========
Apr 14 - are you with us or ...
Is it just me or does anyone else notice that financially, the powers that be are doing everything they can to do nothing but appear to be in consensus on better times ahead. The Fed couldn't even characterize the economy a few weeks ago, the US Congress can't pass a budget, as if there wasn't enough wriggle room in the off-budget areas to hide, say, the GDP of Iraq, and the G7 can't say anything other than "remain calm, all is well", while passing the buck, or Euro, if you wish, to the UN Security Council. It is as if they are fearful of making a firm decision, preferring instead to keep the investing world in limbo, perhaps in wait for better times ahead.
In my view, and I presume in those who read King Solomon's paean to humility, "there's nothing new under the sun", or Santayana's adage, "those who forget history are condemned to repeat it" as road maps to a sane life, after all, insanity has been defined as doing the same things and expecting different results, the fiat money faithful are at the end of their rope. Yet, as tends to be the case at these times in history, they are unwilling to concede, preferring instead to continue their machinations, seeing in the world what they want to see and disregarding the rest, as Paul Simon sang.
As we near "crunch time", so to write, people are being forced to decide, are you with the fiat money faithful or against them. These decisions can be seen, I think, in, inter alia, the writings of Bloomberg's Caroline Baum, a one time a devotee of the failures of the Fed, who now seems to stand shoulder to shoulder with them. In a recent column she asks, What special ops is Greenspan contemplating? Following on the footsteps of her recent debunking of the conspiracy view of global financial markets, she now debunks the mainstream press coverage of the Fed's preparation of emergency rescue plans as confusing academic debate with real world policy. I have news for Ms. Baum, at one point in time the idea of elastic money was an academic debate, until it became policy. Indeed, this is how policy is made. It is funny, for a bunch of ostensibly pragmatic people, they work very hard of late to do little to effect the world.
Oh well, now I know how Gold bugs felt during the late 60s waiting for the powers that be to admit they were wrong. It is worth noting that the London Gold Pool was closed in 1968 and it wasn't until 1972 that Gold really started to move. Our patience will eventually be rewarded, hopefully sooner rather than later. Meanwhile I'll keep reminding myself to avoid indulging in schadenfreude when the fiat money faithful get their just desserts. |
