Deflation?
Some people I used to read at peak oil webblog The Oil Drum have formed their own weblog, The Automatic Earth, which focuses on the economic crisis.
This is a very wide-ranging article with many helpful graphics, a few pieces of which I have quoted here:
Deflation is ultimately psychological. Without trust we will see hoarding of the cash which will be very scarce in the absence of the credit that currently comprises the vast majority of the effective money supply. The combination of scarce cash and a very low velocity of money will be toxic.
Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930s, when farmers dumped milk they couldn't sell into ditches while others were starving for want of the money to buy food. There was plenty of everything except money, and without money, one cannot connect buyers and sellers.
Potential buyers will have no purchasing power as they will have lost access to credit and their ability to earn an income will be hit by spiking unemployment. Those who still have jobs will find that they have no bargaining power and there is therefore no wage support.
Sellers and producers will have no market and will themselves lose the means to purchase supplies or raw materials for the things they would like to produce.
If conditions remain frozen for any length of time, they will go out of business. The deeper the collapse, the more protracted the trough and the more difficult the eventual recovery.
...
Unemployment will go through the roof as the prospects for selling most goods and services decline dramatically. In the developed world we are nations of middle men - generally service economies where we make a living figuratively taking in each other's laundry.
Most of us produce relatively little. Even those who do will find almost no market for their exports, and those who could find buyers may not be able to send shipments as credit contraction prevents shippers from getting the letters of credit they need to ship goods. ...
Unfortunately middlemen are almost completely expendable, and the services of others are likely to become unaffordable for the majority very quickly. While there will be a huge surplus of labour, and the few who retain purchasing power will be able to hire anyone they want for very little, most people will have to do everything for themselves, as poor people have done throughout history and as most of the population of the world does now.
Not only will we lose access to the paid labour of others, but we will lose our virtual energy slaves as well. This will represent an enormous fall in the standard of living for the vast majority.
Well Donal...I love the happy thoughrts expressed here. But seriously...I was thinking about blogging about this but it fits so well here.
Especially this quote:
You just cannot have a economy that is based solely on feel good products. Where most people - at best - just shuffle papers around.
You have to actually produce something of value, something that people need and can use and improves the quality of life for all. not just a handful at the top.
C
October 31, 2009 11:51 AM | Reply | Permalink
Do you mean like creating Credit Default Swaps and other financial instruments? It seems the trade in such "products" using the government bailout monies is driving our present recovery on Wall Street. This is a good thing, no?
(End of snark)
October 31, 2009 1:19 PM | Reply | Permalink
To you and me Sleepin...it's a snark. To those clowns on Wall Street and in the WH, it's the real deal.
C
October 31, 2009 2:11 PM | Reply | Permalink
Thanks Donal. I want to encourage you to continue these contributions even if it seems a somewhat thankless exercise. I want to submit this rather longish comment. It is part of a post I chose not to publish because I just don’t want to engage the whole “darkness” critique. Perhaps you will appreciate my thoughts.
I guess there are two ways to approach this whole subject. One is to attempt to understand what is taking place in the hope of finding solutions. The other is to acknowledge what is taking place, accept it and find a strategy for response. The former is fraught with difficulty. Even if I (or anyone for that matter) had the “big picture,” what good would it do? In fact no one has any idea what is taking place so this is really a moot point unless you are employed as an economist or cable pundit. The latter, finding a strategy for response, presents considerations that are so daunting that one often decides to return to the former, the attempt to understand, as the easier problem to solve.
I had a nice conversation the other evening with a man who had a successful business life. In post WW II America it was possible with a little luck for him to achieve everything that we want when we say “middle class” When the conversation turned to the future both of us agreed that we held little hope for the coming generations to experience anything like that kind of opportunity.
My answer for anyone who is not already sunk in the mire of life in the U.S. is “Go West young man.” My ancestors came here to escape entrenched poverty and oppression. Which lesson of history is it that tells me that such is not also the best course to take now? The journey may be geographical or it may be institutional but I think it is time to start pricing covered wagons.
From my great, great, great, great grandfather’s diary.
October 31, 2009 1:07 PM | Reply | Permalink
Thanks for that Larry, and esp. your great, great, great, great grandfather’s diary passage. I've got a little 23 ft. Airstream trailer, and I've been flirting with the idea of taking it on the road. I have a feeling that there is a significant community of Americans out there who've lost their jobs and homes and are reenacting the 21st century version of crossing the plains in covered wagons. The difference is it's probably more akin to the Okies leaving the dustbowl only to find police at the California border turning them back if they don't have enough Do-Re-Mi.
October 31, 2009 1:46 PM | Reply | Permalink
Your welcome and thank you for the great story on your post. My brother likes to say that if you want to change your whole life just let the bus you are waiting for pass by and catch the next one. Everything after that will be different. It's kind of a meditation to think about it.
October 31, 2009 1:55 PM | Reply | Permalink
Your bro sounds like a wise man.
October 31, 2009 2:09 PM | Reply | Permalink
Well said, Larry.
The others who need to know precicely what has occurred are the ones crafting the new Regulations and trying against all hope to not let them get de-railed. There are a few on the case, really.
As far as connecting with a solution, when I started hearing what was likely coming economically, I had my husband fence our little garden so the deer couldn't get in and eat everything, opened up more ground for planting, and froze or canned anything we grew, plus others' extras. We are in a food-buying co-op, so we've been stocking upp on non-perishables (beans and peas and spices and seeds and supplements and toothpaste and whatnot. It gives us an almost false sense of security, because it won't go far in a long depression, but it's a hedge against it.
When the Smarty-pants economic prognosticators rang the alarm bells, I did decide to learn some amount of what was happening, and why. (And boy, do I despise economics.) I did a series for our local Free Press about what I'd discovered, partly so readers might know what to demand of legislators, partly so the whole mess wouldn't be blamed on 'the ignorant, greedy poor people who bought houses they couldn't afford', and partly so folks could prepare a little.
We are impotent in many ways to affect the future of this National Disaster, but learning is always good. Ideas matter. Look at the effects Bill Moyers and Frontlines can have. I think some of the notions are spreading into the MSM from what I hear.
At the CAfe I do sometimes get the giggles about how serious we can get, arguing foreign policy especially. As if it will matter a tinker's damn in the end!
A neighbor dropped by yesterday; he is edging toward being one the Ron Paul-ites. Among other rants he went on, he presented a voting plan he was working on; there would be a required 'None of the Above' box to check on ballots, and he spun on about forcing new elections and candidates if 'None' got the most votes, etc. Beyond asking questions about some of the more absurd aspects of it, I was distracted by this one thing: He said he really hadn't worked all the details out yet. As though once he DID work them out, it would be THE LAW OF THE LAND; and PRESTO! Problem solved.
October 31, 2009 5:27 PM | Reply | Permalink
Ragpicker : You've seen them yourself, Countess. Their clothes don't
wrinkle. Their hats don't come off. When they talk, they don't look
at you. They don't perspire.
Countess: Have they wives ? Have they children ?
Ragpicker : They buy models out of shop windows, firs and all. They
animate them by a secret process. Then they marry them. Naturally
then don't have children.
Countess: What work do they do ?
Ragpicker : They don't do any work. Whenever they meet, they whisper
and then they pass each other thousand-franc notes. You see them
standing on the corner of the stock exchange. You see them at auctions-
in the back. They never raise a finger-they just stand there. In
theater lobbies, by the box office-they never go inside. They don't
DO anything, but whenever you see them, things are not the same. I
remember a time when a cabbage could sell itself just by being a cabbage.
Nowadays it's no good being a cabbage-unless you have an agent and pay
him a commission. Nothing is free any more to sell itself or give itself
away. These days, Countess, every cabbage has it's pimp.
Countess: I can't believe that.
Ragpicker : Countess, little by little, the pimps have taken over the
world. They don't do anything, they don't make anything-they just stand
there and it take their cut.
The Pimps on Wall Street...in Government...in Health care.
But being a Pimp is only good if there are "Johns" to Pimp to.
C
October 31, 2009 2:28 PM | Reply | Permalink
Well, Donal, do you pass out Xanax with your diary? ;-} Here's my P.O. Box No....
Apparently the toxic banks aren't lending because they really have no idea about the extent of their toxic assets, and constantly watch the OTHER big banks, and all are in fear of what discoveries may lay ahead. I wish I thought they were losing sleep, but I doubt it.
Even the service jobs will be declining soon; many services people will be able or forced to do without. What a pickle we are in. Trickle-down Goes Toxic. Acid-rain from the Top 1%.
October 31, 2009 5:03 PM | Reply | Permalink
But what are we really talking about here ? The term money use used repeatedly but what is it ?
To it is a method on trading one group of goods and service for another in a more convenient way that hauling ones furniture around in hopes of being able to exchange some of it for vegetables and clothes.
But money itself has become the be-all end-all even though it and of it self has no intrinsic value. Only value money really has is if you can trade it for something one needs or wants.
When you boil it all down to the bare basics, what each of us is doing day after day is trying to get food to eat and a relatively safe place to stay so we do not die. But through time humanity has built up all this stuff - rationalizations for doing just this. Religion, science, etc. to give us some reason for doing these basic things in the manner that we do.
There is no rule that I can think of that would prevent humanity from doing this basic survival thing in a different manner and still accomplish our ends.
C
October 31, 2009 5:39 PM | Reply | Permalink
I do not think so.
Eggs have recently doubled at my little supermarket.
The End.
October 31, 2009 7:01 PM | Reply | Permalink
and the price of candy!
Oh ho ho!
October 31, 2009 7:28 PM | Reply | Permalink
I'm wondering if we are more likely to see some sort of stagflation:
http://en.wikipedia.org/wiki/Stagflation
But I don't expect to see most wages increasing in a wage/price spiral.
November 1, 2009 7:52 AM | Reply | Permalink