Many Reasons to Believe that the Economy will not Recover in a Short Time

The Unemployement and the Stock Market are rising for some time now. A new Stock Market Bubble is building up and will explode in the near future. The biggest Bubble is certainly the US Deficit Bubble.

The Stock Market Bubble and the Deficit Bubble will explode as soon as the major creditors (China, India, …) of the US will move out of the Dollar. This is happening already.

The Customers are the backbone of the Economy and the Leaders understand very well that the Economy is governed by Psychology. So Bad News is hidden en Good News is exaggerated. The Expectations of Analysts are always beaten and the downfall is falling slower than before.

The Economy is still in a terrible state and this state is getting worse every day. The unemployement is still rising and will rise for a very long time because companies are getting broke or are rationalizing everything that is possible.

They replace their employees by IT-Technology and Cheap Labor. The customers are not buying, they are saving more and more money for a rainy day or are paying back their debts.

Saving money will not stimulate the economy. It stimulates unemployment. The rising unemployement results in more foreclosures and problems with credit card debts. The Economic Downturn is just at its beginning.

Economist John Williams says that– if the unemployment rate was calculated as it was during the Great Depression the unemployment figures for July 2009 rose to 20.6%. According to an article summarizing the projections of former International Monetary Fund Chief Economist and Harvard University Economics Professor Kenneth Rogoff and University of Maryland Economics Professor Carmen Reinhart,… unemployment could rise to 22% within the next 4 years or so.”

The Scenario of the Current Downturn is highly comparable with the Scenario of the Great Depression with one exception. The current Downturn is much deeper than the other. We are approaching the Biggest Global Economic Crisis in Human History.

The current investors base their policy on positive news and ignore the bad news. They believe the economy will rise when the customer-confidence is rising or when the downfall of the economy is “slowing down” or “bottoming”. They don’t see that a slowing down of a downfall is still a downfall.

The investors, the Doves, act just like the behavioral economists predict they will act. They read the headlines, believe the Hawks and are not aware of the (Money) Illusion the Government, the Media and the Banks are creating. The Hawks know better. They buy Silver, Gold and certainly the best investment, Oil.

Nouriel Roubini has a more realistic view on the economy. In his article Ten Risks to Global Growth he analyses the risks that could block the recovery of the economy and his conclusion is highly pessimistic.

According to Roubini the major cause of the crisis is overspending. Overspending is a normal activity when the Kondratiev-Cycle is in the state of Autumn. The debts are always repayed in the next phase, Winter. In the Kondratiev Winter the economy is purged and cleansed. This phase started around 2000 and will be finished around 2013. In the Winter-State you have to stay in cash or invest is Gold and Silver.

At this moment the investors don’t know what currency they have to chose for their cash-reserves. Usually the Dollar was a Save Heaven but the current policy of the FED to expand the amount of Dollars to an almost unbelievable amount is seen as a huge risk.

The Creditors (China, India, ..) of the US are already creating an alternative currency and are secretly and slowly moving out of the Dollar. If the Trust in the Dollar has gone the US Economy will go bankrupt.

The big problem with the current Cycle is that we have moved to the Level of Earth. In the last downfall of the Kondratiev Cycle other parts of the world were decoupled. They moved in a complementary mode. The Down of one part of the Earth was compensated by an Up somewhere else.

At this moment the complementary parts are synchronized and act and react according to the same rhythm. This rhythm is related to a longer term cycle that almost nobody is aware of. This cycle with a periodicity of 250 years is called the Secular Cycle.

The current level of integration of the World Economy is very dangerous. The production-processes of the Earth are highly rationalized and integrated. When one process stops the rest of the processes also has to stop.

The very high level of rationalization causes cascades or avalanches. The fast and slow avalanches generate sudden bursts of unemployment and financial disasters. The Car Industry and the Financial Industry are good examples. At this moment the avalanches start new avalanches in completely different branches of the tree of the World Economy.

The Crisis in the Banking Industry puts a large part of the Corporate Sector under severe financial stress. Firms that in the past would have been able to roll over their loans, bonds and debts now face a liquidity crisis that may lead them into costly debt restructuring.

This will affect the Banking Industry and will also put a high strain on the Bailout capacity of the Governments who are not able to leant money or inflate money until eternity.

The only solution that is left is to Rationalize even more than the Companies were planning to do. Their only solution is to speed up the use of IT (Use the Internet) and fire the employees. It is very clear that the use of IT in Companies is still in its infancy. Many manual activities can be replaced by software. The total effect will be a worsening of the current crisis.

To stop the cascades governments are starting to Protect and Regulate their Economies. The Worldwide Cooperative Institutions are losing their grip and the Free Market Economy is on its return.

Big Companies are splitted according to the old Boundaries of Power. The expansion and integration of the EG is blocked because the member states suddenly have conflicting objectives. The Rich Countries don’t want to help the Poor Countries because the Rich Countries are getting poorer with the minute.

Not only the poor member states of the EG are getting into big trouble. The same applies to the Underdeveloped Countries. The poor Countries of the World are on their own. Everybody is in the Survival mode and The Fittest, The Rich, will as always Survive.

The world is not only hit by a Economic and a Cultural crisis. The world is also hit by a Climate Crisis. Although human activity plays an important (negative) role the Cycle of the Climate related to the activities of our Sun and the Movement of Earth in our System (the Precession Cycle) is much more important.

The current change in Climate is irreversible and will have a major effect on the world economy. Climate change and ecological misuse are the major factor why Societies collapse.

The last factor and perhaps most important factor is the Energy Consumption of the World. This consumption is not only affecting the Climate but it also facilitates a huge highly integrated Transport-System.

This System is the Backbone of the Integrated Value-Chains of the Western World. The Western World is completely dependent on the transport system for its Industrial Production and the Supply of Food.

The Transport System has a devastating effect on the poor countries in the World. To make enough money to survive they have to export their products to the Western Markets ignoring their own needs.

It is certain that the supply of oil and gas is lower than the increasing demand. The resources all over the world are going down. The total effect of this all will be a dramatic rise in price. This will affect the rich countries and in particular the US. They are already the major importer of energy in the World and when you import something you have to export something else to keep the financial balance in order.

As you already know the deficit of the US is spectacular and the only reason the US is not broke is the special role of the Dollar. If the economy recovers the demand and the prices will rise and the US Economy will slow down immediately.

What is Going to Happen?

Every scenario leads to a long term decline of the Economy, our Culture and our Civilization. The theory of the short term and long term cycles is right and it is very stupid to ignore these theories.

According to the Panarchy Model the world is too connected and this leads to an increasing rigidity in its goal to retain its state. The rigidity reduces resilience and the capacity of the system to absorb change, thus increasing the threat of abrupt change. The world is unable to cope with the changes of climate and culture that are happening now. Therefore we will see the collapse of the accumulated connections and the destruction of bound up knowledge and capital.

The highly integrated structures of the Earth (the Cooperative Institutions, the Big Companies, Governments AND the Transport System) are bound to desintegrate. The impact on the local structures is immens. Communities will have to grow their own food, manufacture and repair their own tools, create their own currency etc etc on a local level again.

Most of these structures have outsourced these functions to places far away and don’t have the skills nor the resources to do this. The fittest, the Haws, will survive but it is unclear if the Doves will accept this situation forever. A Rise of the Masses just like the French Revolution in 1789 (almost 250 years ago!) is possible.

The world is moving to a very fast transformation. The only thing that can be said when we use the Panarchy Model is that it will move back to a stable state before the expansion started and start all over again. The Wisdom of the Old Civilizations that survived earlier Collapses is very valuable. These lessons are very easy to comprehend.

Civilizations die because the humans don’t want to Move with the Cycles, don’t Cooperate and don’t Respect Mother Nature. When Civilizations Collaps even the Hawks lose Everything!

LINKS

Peter Schiff, Why the US Economy will Collaps this Year

How the Fed is cheating the citizins. About Deflation.

Why the Labormarket is Much Worse than we Think

Why the Current Crisis is comparable with the Great Depression

About Behavioral Economics, Why Hawks always Win and Doves always Lose

Nouriel Roubini, Ten Risks to Global Growth

About The Kondratiev Winter and the Generations Theory

About the End of the US Dollar

Why the US Defense Budget will Destroy the US Economy

Peter Turchin, About Secular Cycles

The Complete Text of the Book of Turchin

About the Problems the Real Estate Market is Facing

Why Rationalization is the cause of the current Crisis

About Cascades and Avalanches

Jared Diamond, Why Societies Collapse

About the World Food Crisis

Jeff Rubin, Why Your World Is About to Get a Whole Lot Smaller

About Peak Oil, The Model that Predicts the End of Oil and Gas

About Spirit and Soul

Economic Cycles move Up and Down. We are now in a Down-state, a Recession. To stimulate consumers the Central Banks lower the interest and are pumping a tremendous amount of money into the economy.

Pumping money generates inflation and when inflation happens prices start to rise again. What the economist wants to avoid is deflation.

When prices rise people will buy goods and invest money. When the prices go up you can make a profit. When prices rise you have to buy the goods on the short term because they will be much more expensive in the future. When consumers believe the economy will contract they will start to save money to cope with the problems they believe they will encounter in the future. They will also postpone the buying of (luxury) goods. When they postpone producers will lower their prices and when prices are lowered other prices will be lowered. This is called Deflation and Economists are terribly afraid Deflation will happen.

A state of contraction is just like a state of expansion highly related to Expectations and Expectations are a Self-Fulfilling Prophesy.  If the self-fulfilling prophesy of a down-fall is not broken the economy will shrink until eternity. To motivate consumers to believe in an Expanding Economy Economists tell scientific fairy-tales hoping people will start to believe things are going the right way again.

Social scientists know for a long time that the majority of the people are not rational at all. Humans act on impulse and explain their behavior later. Humans believe others who believe others who believe others. Most of the things that are happening in the Economy are very complex and we need a simple explanation of a trusted expert. At this moment there is one thing everybody believes. Things are going in the wrong direction and One Thing is for Sure.

Bad news travel very fast.

The current state of technology has speeded up the transport of bad news to almost the speed of light. The contraction of the current economy moves much faster than the comparable contraction during the Great Depression.

The economy is controlled by two variables, Production and Consumption.

In a balanced economy the two variables are voided. The consumer destroys (consumes, eats) the products of the producer. The destruction of the product starts a new production-cycle. When the production is not voided producers have to create an inventory and take stock or speed up production. Producers don’t like to take stock. Stock costs a lot of Money.

Producers are just like Consumers highly controlled by their Expectation of the Future. The big difference between the two is the reaction-time. Consumers are able to Act on Impulse. It takes a lot of time and coordination to produce. Producers have to control their impulsive emotions but to sell their products they have to stimulate the impulses of their customers.

In the current economy the time between production and destruction is extremely shortened.  To keep the customer satisfied new versions of products are produced almost on-demand (on impulse). To organize a demand-driven production-line the producer needs highly advanced logistic systems. One of the most important concepts of logistics is to optimize the Inventory. Inventory costs money and space. To produce a product the chains of suppliers are heavily integrated.

Nobody is taking stock and one disturbance in the production chain causes a disturbance in the complete chain. When the impulses of the consumers are suddenly stopped a complete chain slows down and production has to stop.

When the Banks are not able to finance a slowdown of the supply-chain the production has to stop even faster. Again the effect of bad news has a huge and fast impact on every producer in the world. At this moment all the interconnected wordwide supply-chains are collapsing

We are living in a time where negative impacts propagate with the Speed of Light. The political institutions are unable to react to the speed of change that is now changing the world in an instant.

People remember negative impacts much better than positive impacts. The expectation of the Human is constructed to avoid big trouble. The constant sequence of bad news lowers the trust in almost everything that was trusted before.

At this moment Advisors, Bankers, Politicians, the Stock exchange, the Banking System, the Political system, the Medical System, Pension Funds, Insurers, the World Economy, the Climate and much more are not Trusted anymore. Everything is interpreted out of a negative perspective. Not only the economy is contracting but also the trust in the now and the future is contracting. Not only the Economy is in a Depression, many people are Depressed.

Production and Consumption are two important variables but there are really five variables at stake.

The cycle of Expansion and Contraction is balanced by two other variable called Spirit and Soul. Soul is related to the Human Emotions. Spirit is related to Human Creativity. The Four variables move around a Center and this Center is moving around other Centers.

Spirit is the Creator of New Ideas. Ideas want to move Down. They want to be realized on Earth. It is very difficult to determine these ideas because Old Ideas want to be Replicated all the time. Old Ideas have to be destroyed to make place for the New ones. The only way to do this is to enforce Stress on the old replication-system. It is very clear that this is happening at this moment. The old solutions don’t work anymore.

Soul contains the Human Potential and this potential is basically unlimited. When the Soul is Stressed it Explodes and new Opportunities become visible. There are two types of Stress. The Stress to create something New, the Stress of the Artist who is desperately trying to Express something that is there but cannot be Grasped. The other type of Stress is caused by the constant pressure of something that is forcing the Human to do what he really don’t wants to do or is not capable of doing. Let us call this type of stress, Negative stress.

Soul and Spirit are connected to the Destructor and the Controller.

When the Negative Stressed Emotions connect to The Destroyer of the Senses the Human becomes Violent. Sadly enough the Destructive force of a World Wide War will certainly generate an Up-state of the Economy.

When the Negative Stressed Emotions connect to the Expectations of the Controller it will generate Fear. Fear is the Destructor of the Senses. It narrows the view of the Human and produces the simple insight of the Common Enemy. They (not we) are the cause of all evil. A long time ago the Jews were the scapegoat. Recently Islamic Terrorists were the most important enemy. At this moment the “Greedy Bankers”, the Capitalists are the cause of the big economic crisis. If we don’t watch out we are moving into a new Struggle of the Classes.

When people are Afraid they simply stop moving. They wait and see and start to look for protection. In this case Big Brother is always there to help them. Extreme fear generates the need for all kinds of weapons to prevent war and to stop or even destroy the Agressive Humans. The Stressed Emotions create Enemies, Protectors, Weapons and finally the perfect reason to Fight a War or start a Revolution. If we don’t watch out a Huge Violent Conflict is unavoidable.

When the Emotions connect to Spirit, Spirit will generate an Insight. When this Insight has appeared Spirit will Transform the Soul and the Human will be lifted to another Center, a new Frame of Reference, a new View on the outside World. In this case Spirit gives the Expectation Hope, a view on a Bright and Exciting Future. The Creative Spirit is the Powerful Force behind Enthusiasm and Motivation.

We are living in an Illusion. Money is an illusion, the Economy is an Illusion, The Banking System is an Illusion, and the Contraction of the Economy is an Illusion. If we keep on believing this Illusion, the Economy, will slowdown, until it finally stops. At that time we have to cooperate to survive.

We See what we want to see and when we See a Contraction, the Contraction will happen. Our Expectation creates the world it wants to see and when the Expectation is without Hope, the outside world becomes Hopeless.

We, the Humans, are perfectly capable to create a completely balanced economy if we listen to the other, exchange ideas, cooperate and start to implement the ideas.  We will always make mistakes but mistakes generate new ideas and the cycle of Innovation will start again.

LINKS

About the Struggle of the Classes

How to create Enemies

About Suffering

About Unlimited Energy

Why Free Will is an Illusion

How to Shape your Own Future

About Mind Control

About the Emotions

About the Observer

About Synchronicity

About Time

About Paranoids

About Creativity

About the Big Brother State

About the Placebo Effect

About Honesty

About the Soul

About the Union of Socialistic States of America

Government is Nationalizing the Banking Industry. This is just what Karl Marx wanted to do after the Proletariat had taken over Society. Is the US becoming a Communistic State?

When the Economy is Going Up Investors take on Risk. They start to Lend. The longer the Economy is going Up the more risk they take the more they lend until they’ve taken too much.

Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. When this Happens we are at the Turning Point. From that time on the Economy is going Down.

The big problem is that you have to Pay Back the money you Lend with Interest. To Pay Back you have to Earn money. When the Economy is going Down you will earn less money so why should you lend money even when the interest rates are low?

When you expect that your income will go down you will reduce your spending behavior. You will certainly not lend money and the bank will not lend you money either because the banks want to be sure that you will be able to pay back the money and the interest. The Recession will deepen.

When Everybody Expects the Economy will move into a Recession the Economy will move into a Recession.

What You Expect to Happen will Happen.

The Central Banks are not only telling to watch out for a Deep Recession. They are telling we are moving into a Worldwide Recession. This is a completely new phenomenon.

When people believe a recession is near many of them will start to build up an emergency fund. The amount of money in the emergency funds will rise but to make money you have to invest money in something. Most of the time a part of the World is going Up and the other part is going Down. You just have to move your money to the place Where The Action is.

When the whole World is going into a recession nobody knows where to invest money.

We are not only encountering a Worldwide Recession, we are also encountering a “burn-out” of the Worldwide Financial Infrastructure. When you have created an Emergency Fund and the World Economy is going down and the Banking System is failing you really don’t know where to go.

The underlying assumption of all these models is the Power of the Market. The only thing Government has to do is to create the conditions and after some time the Market will restore itself.

Government is lending money for a very low price to the Financial Companies and they will propagate this advantage to their customers. The Customers will start to spend and the Economy will rise again but the Financial Institutions don’t propagate the advantage.

They add a Risk Premium to Save Money for Customers who are not able to Pay Back the Money. When Everybody believes the Whole World is Going Down this premium will be very high.

In essence Banks are Brokers. They have been very successful in bringing two parties (the Savers and the Spenders) together. The savers and the spenders are the Customers of the Bank. They are also the Customers of Government.

Why is Government helping the Financial Institutions and not the Customers of the Financial Institutions?

They believe the Market is able to recover by itself.

Why is the Market not able to recover?

The Market is an Illusion, a Theoretical Construction. The Market consists of Humans. When Humans believe a Theory (a Believe) they will act according to this Believe. If the Market will recover they will Wait until the Market will recover. If everybody Waits nobody Acts. Not-Acting leads to a Recession.

What is wrong with Economic Theory?

The Scientists believe Humans are Rational Beings but Humans are Emotional Beings. Most Humans are doing what other Humans are doing. When they don’t know what to do they just wait until the Markey recovers. The Fear of Losing drives Human Behavior. When this Fear Takes over Control Humans Act without Thinking. They Sell Everything they have to avoid a Higher Loss.

In essence the Government is confirming all the time that we are heading to a Huge Crisis. When we go on the way we are going the Crisis will be the Most Spectular Crisis the World has Ever Seen. The World Economy will come to a complete standstill.

Why is Government not Acting as a Broker?

This could be a simple solution. Just put Your Money where the Action is and the Action in Society is performed by Entrepreneurs. Entrepeneurs are very different from Investors. Investors invest their money in Entrepeneurs. Entrepeneurs Act. They put Ideas into Practice.

Entrepeneurs are Practical people. They know that You have to Earn Money to Invest Money. Their big problem is the Cash Flow. Their Customers have to pay their bills. When Customers don’t pay their Bills they need the Support of a Bank. When Entrepeneurs want to lend money to balance their cash-flows lend money to Entrepeneurs directly.

When Customers want to lend money to pay their Bills lend them the money they really need. You don’t need Banks to do this.

Every Economic Scientist is agreeing on point. Small businesses are the Pillar of the Economy.

There are many reasons why Small Businesses are the Motor of the Economy. The owners are responsible for their own actions. They get broke when their Business Fails. In Big Business You are able to spend or waist money without any consequence. You even get money when you fail. When you own a Small Business you are unable to create big Staff Departments. Big Staff Departments waist money and play Political Games. Small Businesses are the most effective and efficient Economic Instruments. They are also the Source of Innovation.

Why is Government not Supporting Small Businesses?

Government always supported Small Businesses until the Big Malls and the Big Companies were created. The Big Companies are paying a Lot of Money to influence the Politicians. Politicians were able to make big money when they started to do what the Lobbyist were telling them to do. It is time we get rid of Politicians who only want to make big money. To be a Politician is an Honor. You are serving the Whole and not Yourself.

Is US Government doing what Karl Marx wanted to do?

This is the most interesting point. According to Karl Marx, the first action after the take over of the Proletariat would be to Nationalize Banks. There are more parallels with the USSR. The USSR Controlled and Manipulated the Media, Gathered a Lot of Data about his Citizens, Spend a lot of money to Build and Maintain an Army, Occupied many Countries, Created an Elite (The Communist Party) and controlled the State with a huge Almighty Secret Service.

Are we finally moving to the Union of Socialistic States of America (the USSA)? or even worse to World Government.

LINKS

The vision of Karl Marx

About the Broker State and Small Business