CHAOS-ONOMICS: Strangely Attracted to the Truth
Apr 22
chaos-onomics.com
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference.
Robert Frost
While channel surfing last night I came across an ABC News Special by John Stossel, Help me, I can't help myself which had as theme addiction as American icon. Food, sex, drugs, cigarettes, and shopping were all featured as possible traps for the unwary but the moral of the tale was that by understanding the "addiction" as behavioral choice, you could simply decide to say no. More generally the show spoke to the notion of an understanding of limits, or the lack thereof. In that light, I thought the show quite prophetic in asking viewers to take the road less traveled by, a choice I think many people will be making in the months ahead.
I'm not normally drawn to the NYPost but I enjoy reading the musings of business reporter, John Crudele. In today's offering, Here's my plan to inject some life into the economy, Mr. Crudele offers his prescription to fix what ails America. While I think his heart is in the right place, and keeping the addiction metaphor in mind, I think the national economy will only improve when consumers just say no to debt. Weaning the nation from this addiction will not be painless in much the same way that, say, obese people find dieting "painful", or cigarette smokers find the cravings too intense to ignore. Yet, as the ABC report noted, millions of people make these choices every day.
It was with this metaphor in mind that I had previously written about the necessity of economic pain to inspire a change in behavior. As previously discussed, I think the end of the Cold War added significantly to the sense among Americans that the normal limits on their behavior had been moved out or removed altogether. This view manifest in many ways beyond the rise in individual "addictions", including, in my view, the notion of the "new economy", the belief that the business cycle had been repealed and even in Fukuyama's End of History. Yet, it seems that having walked this road, people are now finding that the limits didn't really change at all.
Economics has been dubbed the "dismal science" which is perhaps a bum rap. If I tell a friend that while one cigarette, slice of cheese cake, or beer has very limited health consequences, 2 packs a day, 2000 calories of sweets a day and a twelve pack a day while fun initially will eventually erode your health sufficiently to kill you prematurely, presuming you don't change, am I being a dismal doctor? If I added that the rehabilitation process will be a function of the duration and magnitude of the excesses and thus earlier started the better, would that make me a spoil sport? In my view, this is the truth of the matter. It is always easier to lose 10 pounds than 20. Economically speaking offering debt below the natural rate of interest and without sufficient scrutiny of ability to repay is akin to giving people rebates on cheese cake or cigarette purchases, the results won't be pretty. Hopefully the powers that be will begin to realize that monetary and fiscal stimulus are the well worn path and sometimes, the road less traveled by is the better call.
In other current events, do you get the sense that the Bush administration is beginning to back pedal? Syrian officials certainly noted the change, welcoming the easing of war rhetoric. While Treasury Sec Snow is still holding the line on tax cuts, the Washington Post is floating the notion of phasing them in. I'm intrigued to see if this return to a more diplomatic approach is just a pause or a real shift as thoughts turn to winning another term. Given the, despite rabid cheering on Fox News, rather unsatisfying outcome in Iraq, the "adventures in empire" might have to take a back seat which, given my economic forecast, might mean consolidation ahead.
In the markets, Gold has broken above the $335 level which, presuming it isn't some knee jerk reaction to fears that Greenspan's prostate surgery might go awry, suggests to me that the monetization trade is about to be placed. Keeping rates at these levels with Oil above $30 is a recipe for serious inflation. To the extent the President's team is shifting focus to the 2004 election, public support for belt-tightening will be minimal, until the pain of higher prices and unemployment inspires a search for the next Paul Volcker.
On a closing note, I wonder if Mr. Chalabi, the Pentagon's supposed man in Iraq is about to find out what it's like to be left high and dry like the Iraqis who revolted during Gulf War I. International politics is a high stakes game and having served their purpose in granting cover to neo-con invasion plans, the Iraqi National Congress of Chalabi might now be more trouble than it is worth.
==========
beyond the War, the printing press
It is dangerous to be right when the government is wrong.
Voltaire
While the masses focus on the level of the DJIA to ascertain the health of the economy, and with most hedge funds now short oil and Gold in hopes of the post-War decline, the stage appears to be set for both a "real sector adjustment" and the consequent prices changes . Economists use phrases like "real sector adjustment" to refer to the process whereby the means of production adjust to changing flow of funds. Less euphemistically, the phrase refers to the process of unemployment, retraining and re-employment consistent with more durable flow of funds. It is this process which the state attempts to delay as its occurrence leads the masses to call for a change in leadership.
Those who read GATA commentaries are familiar with the banking cabal's attempts to keep the $ price of Gold down as this relationship is seen as a signal of impeding change. Today's surge in Gold above the $330 level and Oil's ability to hold above $30, which will be tested later this week should OPEC decide to keep production at current levels, suggests to me that despite great efforts to obfuscate this eventuality, the expected adjustment might be getting under way. No, the powers that be haven't thrown in the towel, but their efforts to keep "plugging the dike", if you will, are likely to exacerbate demand for hard assets, accelerating the adjustment process.
As Bill has touched on in recent commentaries, demand for Gold info has ebbed dramatically, yet the case for Gold investments grows stronger. With the Fed committed to keeping rates below inflation the need to hedge against the impending $ decline, virtually guaranteed by the exploding budget deficit, grows by the day. It has been a long, but not unusual, wait as the specs moved in and out of their War inspired Gold trades. Now let the monetization trade begin in earnest. |
