Topic: The Economic Pain Won't Stop (Read 341 times)

It "will" stop, but not before it hurts everything way too much. From inflation to unemployment to many other stuff the world economy will be in big shambles. Is there a way to get out of this? Sure governments will find a way to pump up more cash and help out the companies in need and basically recover from this in long term but it will not be anytime soon, it will take years and years of building back up before we can reach where we were and actually go above. That is why I am saying it "will" and not it will, because it will pass but at what cost?

For example 2008 passed, we are right now doing better in stock market than what happened in 2008, we are higher than 2007 previously before it went down as well, but it took is almost a decade to reach there.

At this time we are still facing the financial crisis and because of the virus and this is not quite good because from the previous weeks the stock market and also the cryptocurrency fall down again and many people selling their coins and buy a lot of things they need for survival and this is not good to the economy but still we cannot do something because there are no still cure in the virus and we are looking forward on it to make it back to normal again and brings up the market of the economy one of the good things we need to do is to have some contribution to the market and still circulating the process.

Yes, this is true. The economy is possible to collapse because of the financial crisis that is happening in every country that are affected of the virus. Economic recession also possible to happen because like what you guys said, the people might pull their stocks or investments in different businesses which may result to sudden drop of it. If everyone has this kind of mindset probably a lot of businesses would stop even after the quarantine because of the panic of people. If this is gonna happen the government should have plan for this, financial crisis is indeed visible in our country especially on the poor people. Unfortunately, people would be skeptical about the situation that is happening now cause no one knows what really gonna happen in the next few months. I am certain that once this economy fail a lot of people would protest and panic more.

As your country is affected by the virus, expect that your economy will also be affected and can cause crash. As well as the use of crypto is also affected because of many factors that are also related to the market. The stock market is really affected because business will be closed that results to another downfall in its investment. Pulling investment is one of the possible solution that you can think of so that losing money will not happen to you and also you can hold you money and use it for more necessary things. Economic problems will really occur during times like this, panic brought a lot of failure and damage to the market because they are too anxious about their money, which is not the right thing to handle this financial oppositions.

After World War I, the classical gold standard had been destroyed and was impossible to recover, because too much paper money had been issued by the US and European countries.  In theory, the world went to a 'gold exchange standard,' where both dollars and pounds, in addition to gold, could serve as reserves.  Also, individual savers were only able to redeem paper money for gold if they were converting a lot of money.  In reality, dollars had begun to replace gold as the foundation of the system.  The rise of paper money became the core driver of the bubbles of the Roaring 20s.

Yes, trading stocks on margin loans did exacerbate financial instability, but isn't that how it always works in the modern world?  The loans issued to the public to buy stocks (or to buy products) were a financial asset, and was 'new wealth' created out of thin air, as long as the (high) estimation of the borrower's creditworthiness held.  The bank and the system had every incentive to make sure this was the case, and that the stock market bubble would continue.  This is just a different type of asset from today's corporate bonds issued to buy back stocks and enrich the executives.  There's no basic difference.  (Those same corporate bonds, BTW, have just been found to require a Fed bailout.)

Ultimately, the nature of the system is always that the elites issue assets and use state power to prop up their value, in order to benefit from blowing a bubble.  When the bubble must burst, it's the public who will bear the brunt of economic hardship.

As for the 'degrowth' movement...

Thanks for bringing this up, as it's a related and appropriate topic.

Yes, extreme consumerism is only to be expected in a world of high imbalance between tickets and seats.  Management will have a great incentive to paint a few seats with bright colors and demand double or triple tickets for the 'high status' conferred by those seats.  It will help reduce the imbalance, and this will likely promote a culture of consumerism.

(There's the question, 'isn't this economic growth?'  Who is to say a new seat is growth, but a better looking seat is vanity driven consumerism?  That is a very interesting question that we should probably explore sometime.  Here we limit ourselves to the basic mechanics of the system, and using bright colored seats rather than a new seat is just a common-sense-friendly convention.)

So, if the system goes through a reset, the no. of tickets (or at least still-valid tickets) will be much more in line with what the theatre's capacity can handle.  Almost every customer will be poorer in tickets, either by deflation or inflation, or both.  They become more sober, focused on what they really need, and have less desire for expensive seats.  At the same time, the theatre has much less incentive to promote expensive seats.  The culture of consumerism is reduced.  People spend less time chasing hard-to-come-by tickets and more time using their existing tickets wisely.  Their judgment gets better and they are less addicted to a high lifestyle.

That said, we have to remember, the basic nature of the modern system of state-controlled money is that the elites benefit by issuing money and other financial assets.  So the 'too many tickets' problem will return, and the different phases of the cycle are only different in how much tickets-seats imbalance there is.

So, in order to protect the environment, our culture and our happiness, it is necessary that we deny the ability to manipulate money and financial markets to the state or any other entity.

Contrary to the popular view, the free market never ruled society.  Since money was always a controlled market by the elites, the real economy can't possibly be based on true supply and demand, since all 'wealth' is based on how much state-controlled money each person has.

Before central banks existed, the Roman Empire would debase coins by mixing more and more base metals into the gold and silver, but maintain the same coin values.  Power was what allowed it to get away with this in the short to medium term.

In more recent 20th century history, it's true that government got more and more involved in the real economy (and not just the money system.)  But if truth be told, the shift was from one form of socialism (more hidden) to another (more explicit.)

Thanks for the good insights.

I believe, mainly, that wars are the result of the financial elites putting governments and countries at each others' throats, on purpose or not.  Basically, elites in different countries jointly enjoy the fruits of asset bubbles during the boom phase, but will argue over who shoulders the burden of keeping the system from collapse, during the inevitable fragile phase afterwards.  This is what happened between the US and China, and also between Britain and Germany a century ago.

It really doesn't matter if the bankers nudged countries towards war, pandemic, etc.  The political elites have all the incentives to go that way on their own.

20th century history suggests that crises result in currency devaluation against gold, and wars resuls in greater financial repression by the victor.  However, if you look back further, war always added to pressure towards devaluation, since warring governments had to print lots of currency to finance 'useless' efforts that would be of limited help to growth after the war.  Thus the 'too many tickets' problem was always made worse by war, and gold always went up when war was coming.  Granted, the top-dog British and American currencies never devalued until 1934, but those were days when the peg against gold was considered sacrosanct, especially for the world's top power, and every effort was made to preserve it.  Today, the price of all non-state monies have been flexible, so it's less embarrassing for the elites to devalue.  Devaluation would help lessen the deflation required, and thus lessen political instability as a result of the war or crisis.

It's not that the elites want devaluation plus deflation, it's that they have to do this reset, or the 'everything bubble' would burst in a disorderly fashion, and things would be even worse for them.

Again, I'll look up the degrowth concept...

Yes, there has been huge inflation in all fiat currencies over the long term, but, at least for the world's 'top' national currencies, the rate has been low from year to year, most of the time.  Even during the 70s, dollar inflation was no worse than an average period among many lesser currencies.  If a crisis like today's were to cause obvious inflation, that still looks bad, from the elites' point of view.  (The postwar Bretton Woods 'gold standard' was the loosest of all versions of GS in history -- only governments and central banks were allowed to redeem dollars for gold.  At the beginning of the 'international gold standard' during the mid-to-late 19th century, GS was much stronger, as gold coins circulated freely in Britain and US during normal times, ie anyone could exchange paper money for gold at any time, in any amount.)

The crisis of 1971 was a run on gold by the world outside the US, that broke the peg.  It was a great victory for monetary freedom against the financial-imperial-system.  (However, if you read mainstream economics then, you would be told gold was defeated by being demonetized.  Well, to resolve the difference of opinion, you could ask the dollar price of gold since 1971.)

Let me look up 'degrowth...'

Give this a spotlight, it is very true elites are the ones behind every massive change in world, why? coz basically money runs the world even it is just a piece of paper with unknown but set value. Not only effective but the only way to restart the market.

The world runs on the edges of wealthy families, they have tons of cash and equivalents that may value more than a country does. I remember what one of the senator here in my country has said, " We have so much money but we can't use it because the malls, supermarkets and most of businesses are close during these times" made me realize that money is only valuable when there is something you want that needs that value, in contrast to time and family that is priceless.

gold seems to be a reference for all currencies around the world. and when the crisis occurs, many investors do save heaven to gold so that their assets are safer. besides that with gold will be accepted throughout the world. and everyone recognizes that gold is a high value item

War is the best and most efficient kick to get the free market working along with easily available, highly motivated manpower. That is why this theory about the world elites' propagating wars, or of bank cartels financing both sides of a war ring so true. The positive take that this reset will in fact devalue fiat is something we would all welcome but will they allow this? If the crisis is man-made then this scenario would have been already thought of.

For example, people would become wary of mobility after this. To some extent, even consumerism may come down. @Buwaytress mentions degrowth, which is an alternative to the continuous pursuit of growth in consumption, demand and supply. There is a very real chance that if this situation persists for few months, people all over the world will realize that they do not need to be spending and consuming all the time to be happy. There is hope that the media and culture driven consumerism may find itself halting to some extent. We may begin to value real things like family time, resource optimization and sound money. That would be quite an happy ending.

Actually, I think inflation has already exposed the true nature for all to see, and we see one example as it did post Second World War when the theathre owners got together and said, you know what, let's have every ticket issued tied down to a reserve of gold.

In the entire period until 1971, not a single bank defaulted. But then, we all got tired of the lessons and went bank to fractional reserve (and now zero reserve).

I mentioned the theory of degrowth in an earlier post -- what do you think of this as an alternative model to economic growth?

Before the Great Depression, the United States embraced pure liberalism which was based on laissez-faire and after the new great depression, the concept of neoliberalism involved the role of government.

The end of World War I not only left huge debts, the destruction of the trade market between Europe and America and the imposition of high taxes on the people.

The development of industry in the United States changed society the agrarian United States became an industrialist. The consumeristic lifestyle becomes a new pattern. Initially, production was adjusted to the number of requests, but over time the entrepreneurs produced more goods. So to attract buyers, producers provide credit to buyers.

On "the roaring twenties" the economy of the United States developed abnormally rapidly, which eventually triggered speculation in the stock market. The majority of people invest in stocks with a "buying on margin" credit system. So the speculators by owning 10% they can own shares, the rest speculators borrow from brokers (brokers) or banks. Speculative demand for stocks is what plays a major role in increasing prices so bonds rise.

Although not a major factor in depression, this activity makes depression more intense. The billions of dollars that should have been used to develop production and pay wages were diverted to the stock market. The demand for bonds increases and then encourages dishonest practices. When stock prices fall, the demand for money from investors increases. Whereas banks cannot fulfill all these requests, eventually there is credit pressure.

Capitalists regulate financial turmoil by regulating the supply of money at irrational levels. the collapse of the financial sector and the relatively high debt bondage that changed the behavior of the private sector and triggered their efforts to improve their financial balance sheets. America cannot do anything because historically they owed the FED.

I agree with the ending like after the second world war even though that period was only brief. To speed up recovery and stop new diseases, one must return to gold or silver or use gold and silver as the underlying money for printing. Furthermore, transforming the banking system. The bank changed from an interest system to a profit-sharing system. Banks can also make a profit from services, not from interest. Back to the gold currency system so that it can suppress the action of speculation.

It's a domino effect why markets are losing money. It's not just about panic but it's a good strategy to pull out. Imagine all of the investors going to think with this crisis, They are gonna think that because of the crisis, lot of people are gonna pull out there money. That's what's happening right now why markets are dumping and losing money, people are pulling out their investment thinking that the other's will gonna do that too. Honestly, it's a good strategy so you will not be a bag holder and lose money. It's not panic, it's a strategy.

Answering this question was part of my goal in the original post.  I don't have the inside information to predict short-term events, but, in the medium to long term, if you think of the theatre analogy, it makes sense that the elites will want to deflate the values of stocks and bonds.

Doing so will minimize the inflation necessary to reset the system.  That's the financial view.

Another view that will reach the same conclusion is the real-economy view.  During the asset-bubble era, many people worked to serve the beneficiaries of the bubble.  Now they have to be 're-purposed' for the whole new set of demand in the new economy.  The cheap and efficient way to achieve such retraining is to give them pain by deflation, so they sober up and work hard for not much money.  So deflation will be applied to the extent that is politically sustainable.  The deflation of stock and bond prices only directly hurt pretty rich people, and so is politically 'cheap' as well.

These unemployment projections are off the charts, truly unprecedented. According to the St. Louis Fed, the unemployment rate could reach 32% (47 million workers laid off) in Q2: https://www.usatoday.com/story/money/2020/03/30/coronavirus-unemployment-could-top-32-47-million-lose-jobs-fed-says/5091156002/

Somehow the stock markets remain buoyant, hovering near last week's highs, even as the death and unemployment projections get worse. Are we near an inflection point, on the cusp of a bearish reversal? Or will the relief rally continue?

Thanks.  Unfortunately, the mainstream analysis often looks at details and misses the big picture.

Every financial crisis is caused by having issued too many financial assets and using state power to prop up their value one way or another.  Essentially, it is a state-controlled market designed to benefit the politicians and bankers at the expense of the public, over the long term.

For example, the stock market bubble of the 20s was caused by the same 'search for yield', ie too much money chasing stocks into a bubble, as subsequent bubbles.  The cause of this 'search' is the artificially low interest rates set by the central bank.  Interest rates are the price of money, and should never be controlled by the authorities.  That is why Henry Ford said, if the average person understood how the system really works, there would be a revolution tomorrow.

It was also no surprise that there was a 'lack of demand' after the asset bubble burst.  The central bank money driven asset bubble had created a distorted economy.  For example, there are too many makers of private jets today, and back then too much industrial equipment was made, based on a distorted level and distribution of 'wealth' (really, claims to wealth.)  So when asset bubbles collapsed, people making these things lost their jobs.

Yes government programs will create some demand.  But note that they never created enough programs to pull US totally out of Great Depression.  It's a losing battle to generate a big economy using non-free-market operations, so they only did enough to ease the worst suffering.  (And that will be the same today.)  With war, state-run efforts can be efficient, because people believed in the war.

After the war, Washington was in such a powerful geopolitical position, that it was able to dictate the terms of the postwar financial system to other governments.  The result was that all governments supported the dollar by using it as reserves, just like gold.  This was a true reset by vastly increasing the demand for dollars.  In our theatre analogy, other theatres solved all our problems for us by honoring our tickets even above their own tickets.


I would agree to a large degree.  Except I think this time a good part of the reset will take the form of inflating our debts away, and 'devaluing' fiat money against gold and cryptos, in effect.

During a panic, people lose a lot ... Not only materially. They lose their common sense.
I am deeply convinced that during world and global crises there are a huge number of people who become truly rich and do revolutionary things, which they then use all over the world. Do not panic friends! We can do little, but the last thing we must do is panic.

The root of the problem of the Great Depression 1929 was the accumulation of debt and the amount of investment in the large stock market so that consumption was low and caused over-investment and caused an economic bubble.

Causes of the great depression of 1929:
- The fall of the stock market (Stock Market Crash) black Thursday
- Bank failure
- Declining public purchasing power
- Import duty tariff policy that applies to European countries (smooth Hawley tariff)
- Prolonged dry conditions drought condition and the Bowl dust

The general view among economic historians is that great depression ended with the advent of World War II. Many economists believe that government spending on war causes a recovery of the great depression more quickly although some assume that it does not play a very large role in the recovery, it helps in reducing unemployment. America's entry into the war in 1941 finally removed the last effects of the great depression and brought the unemployment rate down.

The lessons to be taken, when American debt is piling up, America needs a war to be able to print new money and do a dollar reset value, because the old dollar has been printed thousands of times or the paper is thousands of times more than the guarantee. Covid 19 is a form of biological war whether it was started by America, or started by China or a conspiracy between China and America, which is clear America is now preparing to print new dollars, The FED has lowered its benchmark interest rate to zero and Trump has prepared an economic strategy war.

The tickets are all financial assets, including fiat money, bank deposits (which are really debt,) stocks, bonds, etc. that are issued by our ruling elites: politicians, bankers, central bankers, corporate elites, etc.  Allowing stock markets to go down amounts to devaluing certain types of tickets, something that was mentioned in the original post.

It's true that fiat money issuance has no technical limit, and that the entire economy and system are addicted to over-issuance (as compared to the values of real wealth -- goods and services) which manifests itself in low interest rates too.

But we have to remember, while fiat money can physically be printed to infinity, that is probably not going to happen, and if it does money's value will go to zero.  (This was basically what happened in Germany in 1923.)  Our rulers don't want that to happen.

In fact, today's state of financial asset inflation (what I called too many tickets for the seats available) is a vicious cycle and not sustainable.  Our rulers themselves want to see that torn down, eventually (even though it was they who both caused and benefited most from the asset bubble.)  The coronavirus gives them a chance to do just that, and put the blame on something other than their system, for the pain that will come from the deflation.

Shows in the theatre are goods and services in the metaphor.  They are real wealth, and there will always be those.  The issue is, at what price.  Because of the over-issuance of claims by the politicians, bankers, etc., over the long term, there's really no alternative but inflation.  We can see this, for example, in the dollar prices of everyday items today, as compared to, say, 100 years ago, in the US.

So in your metaphor the "tickets" are the printed fiat money-USD and euro and the "seats" are the banks and corporations or maybe the industrial facilities.I've never seen someone to compare economy with theater.
According to Anatole Kaletsky,the debt creation and fiat money printing can continue forever and it can be considered the only economic "perpetuum mobile".The banks,markets and companies are addicted to debt and negative interest rates.Abandoning the current financial system will cause a financial Armageddon.I don't agree with fiat supporters like Kaletsky,but they are still very popular.

I enjoyed this metaphor of modern banking system. I also want to add something. In 1976 the dollar references to gold were removed from its statutes, the international monetary system was made of pure fiat money. From this point, there were no shows in the metaphorical theater, only printed tickets and the "manager's" promises.

Think of the modern system as a theatre whose management has sold more tickets than there are seats in the house.  Our rulers benefit primarily from issuing money and debt at no cost, so the incentive for them is usually to issue more.  (As a result, there are more claims to wealth than actual wealth, i.e. goods and services, at current prices.)

During 'normal' times, the ticket holders are confident that they can always get seats with their tickets, the show is continuous, and they don't all try to go in at the same time.  However, when that confidence is broken by some event, exposure, or whatever, the theatre manager must make difficult choices:

Deflation/default: invalidate (or devalue) certain types of tickets.  This is probably the most painful approach: financial markets crash, 'wealth disappears,' and people lose jobs.

Inflation/devaluation: make 50-minute tickets good only for 30 minutes.  This is probably the least painful, as it spreads the pain evenly and proportionally according to wealth.  But this will be management's last resort because it exposes the true nature of system for all to see.

Financial repression: announce a 'temporary' ban on entering the performance hall.  We must be flexible with moral principles at critical times!

Imperialism: make other theatres honor our tickets.  Give them a share of the benefits, or threaten them with 'regime change,' or both.

Economic growth: build more seats.  Unfortunately, growth is not directly under the control of our rulers.  Companies must come up with new products that the public will pay money for.  Sometimes, ideas just aren't there.  (Even worse, during times of big asset bubbles, with their concentration of artificial wealth, new products tend to appeal only to the lucky.  Demand for these products disappear quickly when asset values go down.)

That's basically it.  Those are the only choices.  Historically, Western countries tended to spread the pain among multiple bad choices, to make each approach less draconian.

So, it would be a mistake to think that deflation and default would be spared their fair share of use.  The central banks will of course make a show of using monetary 'bazookas' to 'save' markets and the economy.  The reality is that avoiding asset deflation entirely would put too much of the burden on the other approaches.  When a virus can be blamed for economic pain, there's all the more reason in favor of deflation.  Yes, Fed action will save us from the worst structural disasters, but there will be deflationary pain.  (Don't buy stocks yet!)

In the early 1930s, the Fed did nothing as banks collapsed, people lost their deposits, and the US entered the worst of the Great Depression.  For the 2008 crisis, the Fed's Kashkari has just admitted the Fed didn't do enough to ease the pain, even though, just as today, the Fed made a show of rescuing the economy.  We shouldn't expect this time to be different.

Ultimately, theatre management must greatly reduce the imbalance between tickets and seats, for the sake of long-term stability.  The virus provides a great opportunity to do this, by receiving the blame for any pain and disruption.  Making rich holders of stocks and bonds pay part of the price will be too tempting to ignore.