Dear DK,

To be honest, I haven't the faintest idea which scenarios we are heading to. To me they all seem to be insufficient.

I can only offer one intuitive perception from my experience when I started from scratch in a critical period in my own life:

In that time I did not have a single solution so I left it all up to 'evolution' itself. I started to feel grateful for that what was at that very moment: being alive, having good health, breathing in and out.

It is my simple truth that if we would stop to find solutions for everything, solutions will offer themselves on our way (path) spontaneously. One knows intuitively inside what solution is really nourishing at exactly the right moment.

Yet this is a most difficult path to walk and can only be practiced if one is prepared to take full responsibility for ones own life and listens to ones own internal wisdom.

Are we ready for this quantum leap?

Listen to this universal and eternal wisdom:

http://www.youtube.com/watch?v=E4mbLt2aEMk

Um, OK, 99% of that went right over my head...

I'll have to sit down with my bro who has a Stanford MBA and has worked in marketing in the tech sector walk me through this whole thing. maybe if i visit him this spring...

I don't understand the financial details. What I understand is that greed and hubris took over starting under Reagan, continuing through the Clinton years, and finally came full circle under Bush. Apparently, bankers, CEOs, and their political buddies knew they were sucking the foundation out of our economy by outsourcing, creating "exotic" investment instruments, and making millions of questionable loans to home-buyers who were not savvy enough to protect themselves (or may not have cared, either, for that matter).

But the quarterly-report mentality ruled, and if an investment gave returns today, no one cared about tomorrow.

Until suddenly it's tomorrow already. Ooops.

I consider my self fortunate (I won't say smart, since I haven't the background to understand the financial theories). I have a job where the company I work for currently faces the problem of having the companies we contract with wanting to give us more business. I don't use credit cards (read: I actually own all my stuff, not the bank), and I don't have an investment portfolio, so I haven't lost my butt in the markets.

I understand people are comparing this to the crash of 1929 and the Great Depression, but when I watch history shows of the Great Depression, those people looked a whole lot worse off than we do today. Those people were in bread lines with no work in sight, while our main problem seems to be how to get the government to help us refinance our big-ass houses we had no business buying in the first place.

So I'm not getting that we are suffering like my grandparents did in the 1930s.

Something about Muddle-through catches my ear. Muddle-through sounds pretty much like what people will try to do if they can, if I know human nature.

And that's it for Yogi's Dumbed-Down Market Report for Sat Nov 15, 2008.

http://www.etonline.com/news/2008/11/67776/index.html

"Barack Obama Releases First-Ever Internet Presidential Address"

Dear DK,

Those scenarios are all based on an attempt to maintain an illusion. There is a 5th scenario that was not mentioned we might call it part of the master plan to bring balance to the world. It speaks volumes that those in management have yet to embrace the truth and still cling to the old system that is flawed in its foundation and especially in it’s execution.

If anyone wants to understand the 5th scenario, then one will need to read what was already written or provided.

But I do want to point out some of my past writings here, perhaps those of the world turn to the wrong authority.

■♀
φ

If we look back to October 2005 in a response to a thread by Deepak I wrote:

"The truth is the money in the world currently only has value because of perception."

"All the people with accumulated wealth only have pieces of paper, or rather bits and bytes, an entry in the general ledger."

"Therefore we are going to erase all the worlds’ incumbent monetary wealth with words."

"I have devised a way without need of legislation or government action to destroy the Illusion of this incumbent wealth and balance the system."

"It is an Illusion that they have this wealth, they really don’t. Much of it was stolen and extracted through manipulation of the symbol. There are those that did earn it and we will take care of them because they will know something the others do not."

"The people with the real wealth are the producers that are actually going to go out tomorrow and provide a product or service."

http://www.intentblog.com/archives/2005/10/when_good_peopl.html

On January 10, 2006 in Response to Mallika’s thread China to Give up on Dollar, Invest in Yen, Euro I wrote:
“Also as we all know I have engineered memes to destroy the fiat currency system and they propagate as we speak.”
“The good thing is that just in time we should have a new one to replace it, if we don't then it wasn't in divine order.”
“The beauty of the system is that it requires no legislation to enact it. It does not require congress to do anything. That is the genius of it. It is actually enacted and activated by consumer choice. A choice the consumer will make because it is consumer friendly and not subject to inflation, theft, or manipulation”

http://www.intentblog.com/archives/2006/01/china_to_give_u.html

On on April 03, 2006 in response, to Deepak’s Chopra’s thread “A Remedy for Fear” I wrote:

“You see for my Final Magic Act I will make the world's currencies disappear before your very eyes, for they are all based on perception. Do not "fear" there will be something new to replace them but be wise in where you place your wealth and where you derive it. “
“For in the blink of an eye there will be dissemination of intelligence and I shall make it gone and you will not have what was earned through illusion and upon a foundation of ignorance.”
http://www.intentblog.com/archives/2006/04/a_remedy_for_fe.html

Mark My Words

On the divine comedy side: Derren Brown for those that do not know, is an English magician, psychological illusionist, mentalist, painter and self-professed sceptic regarding paranormal phenomena.

I posted a challenge to him on his forum about 5 years ago. He never responded that I know of.

■ε■

A challenge to Derren Brown to perform the greatest Magic Act ever performed.

You can create an Illusion

I will destroy an Illusion

Let's see which one grabs the most attention.

Remember attention is a marketable product. We can split the attention sales.

My Act.

I will make all the fiat currency on the planet vanish into thin air from whence it came. Now if you are in on this trick with me you can get very wealthy, we are going to magically transform it into the new tangible, asset based currency called tangibles. This is very much like turning nothing up my sleeve into a dozen roses.

With one reservation my performance takes 1 - 3 months to perform, I am not sure of the true power of the triggers, or the speed of memetic propagation. I can assure you no one can see it happening, because the words move like a thief in the night.

Remember the value of fiat currency is based on "perception" and illusion is all about perception.

A little background, the early 1980s recession was a severe recession in the United States which began in July 1981 and ended in November 1982.

As a result of this recession my family lost everything stealing the American Dream. I thought how can this be we were doing all the right stuff producing value and working.

So I sought an answer to this injustice and a remedy. I learned that recessions were not natural but were contrived. They did not really effect the wealthy that often benefited buying assets for pennies on the dollar. They affected ordinary anonymous people like me.

But perhaps I am not so ordinary.

My hope is that you all will see through the illusion before reality breaks down your door, and turn your allegiance to the true authority whose name is TRUTH.

All in good fun of course in the games we play.

Hey Yogi,

It is not easy to understand the finance stuff because the truth is obscured with complexity by design.

I understand more than most because I have had to program it in the past and have studied it from a systems analyst perspective. I don’t understand the complex financial instruments either and that was their intention, they did not want anyone to understand them.

I am sure you understand this.

In a value exchange system all participants must contribute value to the system equal to the value that they extract. If a third party that produces no genuine value as recognized by the other participants extracts wealth from the system an imbalance is created. It creates disarray and conflict between all the other participants who cannot retrieve all the wealth they created.

Hopefully a member of congress or the new president can articulate this for the many.

The Dummies guide to finance.

Derivative = bet

Credit Default Swap = insurance on bet

So why don’t they just call it that? It is the Art of Deception and obfuscation.

Yes as in gambling, and what value does a gambler produce to justify the millions they earn?

Dear Dr. Matai--Thank you for this beautiful analysis. Your work always illuminates and inspires. I find that I enjoy it so much I simply must have seven cups of coffee and shake some new insertions and assertions all over it, and extrapolations. I hope you don't mind and that you actually enjoy my upstart craziness. And thank you again for the wonderful perspective.

A fan

Pre- and Post-Crash:
From Deflation to Inflation to Deflation
Mix and Match since 1923
D.K. Matai and Jane Núñez
November 14, 2008

"Speculation" is the practice of engaging in financial transactions that are risky but potentially profitable. (Some speculation is necessary in order for new businesses to be financed, which is why the stock market was created. Speculation is not a dirty word, but some of the varieties of speculation ARE dirty words.)

"Arbitrage" is the simultaneous buying and selling of the same negotiable financial instruments or commodities in different markets in order to make an immediate profit without risk. (These people are cynically gaming the system and subverting the original honest intention of the stock market- they take oh so much more than they "give.")

Against a permanent backdrop of human greed, passing the hot credit potato, and/or baseless financial papers (the creation of which has been immensely facilitated by the computer age), various seemingly perennial phenomena writhe around and wiggle into place in different configurations and proportions through time, as in the following cycle:

1. deflation/stagnation and deleveraging
2. rescue
3. the muddle-through phase
4. hyperinflation
5. rescue
6. the muddle-through phase

again followed by

1. deflation/stagnation and deleveraging
2. rescue
3. the muddle-through phase
4. hyperinflation
5. rescue
6. the muddle-through phase

again followed by

1. deflation/stagnation and deleveraging etc etc etc again and again
2.
3.
4.
5.
6.

..............................................................................
Nowadays, deflation is happening near the speed of light because of the internet, mobile/satellite communications, and high-performance computing. Thus, it is now possible for an economy to move around among the various phases (which may be occurring and recurring simultaneously at different levels) much faster than was practicable before World War II. And hyperinflation, which previously was thought to be exclusively the product of oversupply of government-issued money, now can occur also as a result of de facto "money" issued by the private sector in the form of financial papers, nearly baseless sometimes. So definitions and the sequencing factor are gradually shifting with the times, but apparently the cycle remains fairly consistent through the years, although now virtualized, etherized, and five dimensionalized. Let us now look at some definitions of the various phases of the aforementioned cycle and then later consider each phase in more detail.
........................................................................................

DEFINITIONS

"Deflation" is a state of reduced general economic activity, including lower prices and a reduced supply of money and credit. "Stagnation" is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth). "Deleveraging" is the reduction of financial instruments or borrowed capital previously used to increase the potential return of an investment. (Deleveraging can mean the dumping of hot potatoes on down the line, the rats running out of the ship that they have gnawed holes in and leaving everybody else to drown.)

"Rescue" means to save somebody or something from a dangerous or harmful situation, to prevent something from being discarded, rejected, or put out of operation.

"Muddle through" means to push on unknowledgeably to an unexpectedly favorable outcome despite the odds.

"Inflation" is an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money.

.........................................................................................................

DESCRIPTIONS OF PHASES

Deflation, Stagnation, and Deleveraging:
In a seemingly endless feedback loop, the value of investment assets and the prices of products and services keep on falling. Decreasing consumer prices and declining investment (because of investors' unwillingness to carry large debt loads to fuel their decreasingly profitable investments) cause many businesses, factories, and support sectors to shut down, further dampening the circulation of money, decreasing consumer demand, and causing out-of-control unemployment and declining living standards quarter in, quarter out, with a severe and ongoing headache for some governments in their wish to provide stimulus in the face of declining revenues. This scenario in many ways describes what occurred in the United States in the 1930s after the 1929 Wall Street crash and is what economists are trying now to forestall.

Rescue:
Some governments print money to try to stave off a recession/depression and end up stoking large-scale inflation just as the Weimar Republic in Germany did in 1923 following World War I. Hyperinflation is the flip side of currency collapse, which then leads to multiple unexpected catastrophic domestic and transnational events (black swans).

The Muddle-Through:
Fiscal stimulus of the economy in the face of the meltdown is one tactic over which there is direct public-sector policy control, so a possible scenario is superficial recovery or muddle-through made possible by central-bank cash infusion into the finance sector, despite the currency devaluation effects of such a money injection approach. Instead of outright cash injections by government, however (government spending per se is relatively slow and occurs at some future point), more likely would be a move toward the high-velocity stimulus component-the cutting of taxes or the offering of tax holidays to specific business sectors as a way of stimulating them. Thus it may be that after a time of lingering uncertainty in the minds of people and businesses, the governments' massive stimulus packages and central banks' money injection interventions begin to act as a partial, deferred offset to the financial crunch on them, and in fact that crunch may actually begin to ease up for a time. Markets may revive, although some of the eight bubbles have been only partly filled in by the cash injections. Life will go on in a new muddled way: politicians will stop panicking and will get re-elected, and a new bigger set of internal bubbles will be preparing themselves for collapse a few years later, say, 2015 or 2020. This is similar to the scenario post the dotcom and 9/11 crashes in 2000-2001 and the muddle-through that later occurred through 2007 on the back of extremely low interest rates, extremely significant credit card, car and housing loans, and other bubbles. Incidentally, the fiscal-stimulation tactic is not available equally to all economies. Countries without foreign reserves and countries with large finance-to-productivity ratios can prime the pump thusly in only a very limited way and at the risk of turning their banking crisis into default on their national-debt-servicing obligations.

Inflation:
Inflation is an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money. Inflation can eventually result if the government has put huge amounts of paper into the economy and private financiers have run unfettered, granting credit irresponsibly and pouring staggering amounts of baseless "money" into the mix, as can happen if the economy is allowed to function wildly and without proper guidelines (see article with the fourteen things). Eventually, there will occur another and another phase of rescue in the opposite direction, another and another period of muddling through, and another and another period of deflation, stagnation, and deleveraging, ad infinitum.

...................................................................................................

As of late November 2008, we appear to be in a phase that combines aspects of hyperinflation and deflation both. And in fact, the two in a sense must always appear together in order for one to be countering the other. The corresponding muddling-through phases themselves are thus multifaceted and bidirectional, since people are muddling through both hyperinflation and deflation at the same time, with the attendant countervibrations and shocks. Hyperinflation is being countered by deflation (and vice versa) at the speed of light, and a sort of sympathetic vibration is being set up as the two states undulate back and forth into and out of each other. The notion that government alone can supply the rescue impetus is being every day given the lie. The private sector seems to be providing, albeit slowly and inexpertly and sometimes cruelly, its own policing mechanism. The issue then becomes one of how to administer an essentially healthy unfettered economy, one that has every natural tendency toward self-correction but is in need of skillful direction and guidance lest it rattle itself into total dysfunction.

Several mind-boggling specific phenomena, well publicized, have emerged from the inflation stage this time around, a time of too-easy credit and its inevitable deflationary countering by very rapid divestment of ever more valueless credit paper such as high-risk mortgages. In general, the finance sector's unbelievably massive and pervasive house-of-cards derivatives and debt pyramid/Ponzi scheme (the "Eight Bubbles") increasingly manifests itself in the form of trillion-dollar black holes into which capital off the balance sheet routinely vaporizes on down the line into increasingly unlucky but still greedy hands, until the floor falls out from under the whole fragile, cynical, shadowy mess, credit dries up, lines form outside bank doors, homes are foreclosed on, and people begin to panic, forcing action from some entity that will see itself as responsible for trying to save the day-classically the government.

Accordingly, in response to the terrifying and escalating vaporization of "money," governments (via central banks) are trying to feed and levitate the system by pumping trillions of dollars of liquidity into it. The spin from this itself, if not skillfully managed, will precipitate another disaster. If skillfully managed, it will lead to a much-needed buffering and an increased sense of trust in the market-trust being indispensable for proper market functioning. Skillful management, then, will have to be based on the understanding that government is less and less a commercial-type player in the market with wads of cash to throw around but is instead a mediator and a normalizer, a setter and definer of proper protective procedures that ensure fairness and nonexploitation of the undefended and innocent who enter the market in good faith, unaware of the howly ravenous eyes and blood-dripping fangs of the wily arbitrageur wolves (slathering) and other unscrupulous types.

Unfortunately, as things now stand, the government seems unaware of or unwilling to accept completely its evolving role in this regard. The infusions of government money (or tax breaks) are being administered in a way that needs to be made to reflect more clearly a new direction, a transparent overarching plan, a well-guided central purpose for the sector. Meanwhile, the aforementioned vibrating-waves scenario has, at least in the short term, been potentiated instead of gentled. The sudden inrush of cash to rescue the finance sector is generating two opposite north and south directional vectors of its own-hyperinflation and deflation-which collide continuously to create several vortices as the markets change direction nearly every day, exhibiting high volatility. The consequence of being caught up in the resultant eddy currents of those vortices is that some asset classes levitate and give the impression of rising, albeit temporarily, and other asset classes fall or simply cease to exist as their underlying asset base vaporizes within the gravitational pull of the nascent financial black holes. For instance, the present frenzy of deleveraging (getting rid of bad paper and replacing it with "good") reached a dark peak when the demand and prices for solid commodities (food, fuel, and raw materials) went into hyperdrive to trigger unrealistically high prices and the resultant catastrophic demand collapse (stagnation) we are currently witnessing.

We need to begin to think more in terms of the existence and repetition and counterbalancing of inflation and deflation as a normal cycle, operant upon various stages simultaneously and at different rotations internally, much like the internal workings of a Swiss watch. And we need to think of the financial forces at work as emanating from new and ever-expanding sources. For instance, perhaps a modern-day equivalent to governmental printing of more fiat money has already manifested itself between 1995 and 2007 in the inflationary form of the unstable and now-hollow tundra of complex securities and instruments that private financial institutions created and sold. Banks and brokers were, in effect, busy printing their own proprietary issues of "money" via complex securities such as derivatives, and as a result their supply of "money" grew to exceed by at least one order of magnitude the money already printed by central banks and currently in circulation.

Central banks at first naturally continued to focus primarily on monetary growth and money velocity, utilizing old metrics rather than acknowledging the wider spectrum of public money and private "money" taken together. Eventually, however, even government began to get the picture. How could the governments and central banks not recognize this new phenomenon, since securitization and derivatives, the tools of liquidity creation, were a central obsession of the entire financial industry? In fact, central banks did at some point begin to play along, humming the hymns of privatization and deregulation. These quadrillion-dollar private-sector currencies-paper assets-have fueled the globalization process, mergers and acquisitions, massive and unprecedented world GDP growth, and large-scale industrial/infrastructure projects, until natural boundary conditions kicked in-i.e., the earth did not actually contain raw materials and natural resources in sufficient quantities to back up the printed papers.

Naturally, some central bankers maintain that they have been and are still in charge because they can print fiat currency at will and can set interest rates at near zero if they like. This might be called governance by magic. What if they can no longer exercise sufficient control and have become co-dependent on the parallel printers of "money"-manifest as paper assets-who happen to be the private financial institutions? What if the formerly omnipotent central bankers and regulatory authorities have in fact been strategically affected by what the private financial institutions did from 1995 to 2007, during which time the policing of the global financial system was inadequate and cross-border arbitrage opportunities exploded? We must free ourselves of the obsolete myth that money infusions by central bankers can totally resolve the mess in the real economy when actually they cannot, because the paper fueling the real economy was not issued by them and large quantities of it reside off formal balance sheets in a non-transparent way. Central bankers' best and most truly needed contribution now and in the foreseeable future lies in the realm of providing sound guidance and proper oversight to the finance sector (see the article about the fourteen needed changes), in addition to conducting concerted lobbying for procedural improvements that ensure a fair playing field for all players, sophisticated or not, in the stock market, in respect for the market's original purpose.

It does, unfortunately, still seem to fall to the central banks to mop up the ongoing toxic liabilities and to fill the black holes, a task that may or may not be feasible for it ad infinitum given the unprecedented scale of this challenge. The quantum of asset price deflation under way following the collapse of the quadrillion-dollar paper asset house of cards is so large that all the king's horses and all the king's men may not be able to put Humpty Dumpty together again. The former power base of central bankers has probably been permanently eroded given that the center of gravity has now shifted to the financial markets and their participators who negotiate the equation of deflating quadrillion dollar plus paper assets, the quantum of which dwarfs government-issued currency.

Mr Yogi and myself seem to be in the same boat, workig on the same wavelenght, and I fully endorse what he has written.

The things will unfold ultimately for the better. I am very positive on this count. If we look at the past history of humanity, inspite of present upheavels, generally speaking humanity is better off.

The economic meltdown has given the world a lesson, that wealth and prosperity resides in your mind, in correct upbringing, honest work etc and not on the paper currency.

.
.
.
.
.
.OOPS OOPS OOPS
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.
.
This version is better!!
.
.
.
Dear Dr. Matai--Thank you for this beautiful analysis. Your work always illuminates and inspires. I find that I enjoy it so much I simply must have seven cups of coffee and shake some new insertions and assertions all over it, and extrapolations. I hope you don't mind and that you actually enjoy my upstart craziness. And thank you again for the wonderful perspective.
A fan

Pre- and Post-Crash:
From Deflation to Inflation to Deflation
Mix and Match since 1923
D.K. Matai and Jane Núñez
November 14, 2008

"Speculation" is the practice of engaging in financial transactions that are risky but potentially profitable. (Some speculation is necessary in order for new businesses to be financed, which is why the stock market was created. Speculation is not a dirty word, but some of the varieties of speculation ARE dirty words.)

"Arbitrage" is the simultaneous buying and selling of the same negotiable financial instruments or commodities in different markets in order to make an immediate profit without risk. (These people are cynically gaming the system and subverting the original honest intention of the stock market-- they take oh so much more than they "give.")

Against a permanent backdrop of human greed, passing the hot credit potato, and/or baseless financial papers (the creation of which has been immensely facilitated by the computer age), various seemingly perennial phenomena writhe around and wiggle into place in different configurations and proportions through time, as in the following cycle:
..............................................

THE CLASSIC CYCLE

1. deflation/stagnation and deleveraging
2. rescue
3. the muddle-through phase
4. hyperinflation
5. rescue
6. the muddle-through phase

again followed by
1. deflation/stagnation and deleveraging
2. rescue
3. the muddle-through phase
4. hyperinflation
5. rescue
6. the muddle-through phase

again followed by
1. deflation/stagnation and deleveraging etc etc etc again and again
2.
3.
4.
5.
6.
..............................................................................

Nowadays, deflation is happening near the speed of light because of the internet, mobile/satellite communications, and high-performance computing. Thus it is now possible for an economy to move around among the various phases (which may be occurring and recurring simultaneously at different levels) much faster than was experienced before World War II. And hyperinflation, which previously was thought to be exclusively the product of oversupply of government-issued money, now can occur also as a result of de facto "money" issued by the private sector in the form of financial papers, nearly baseless sometimes. So definitions and the sequencing factor are gradually shifting with the times, but apparently the cycle remains fairly consistent through the years, although now virtualized, etherized, and five dimensionalized. Let us now look at some definitions of the various phases of the aforementioned cycle and then later consider each phase in more detail.
........................................................................................

DEFINITIONS

"Deflation" is a state of reduced general economic activity, including lower prices and a reduced supply of money and credit. "Stagnation" is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth). "Deleveraging" is the reduction of financial instruments or borrowed capital previously used to increase the potential return of an investment. (Deleveraging can mean the dumping of hot potatoes on down the line, the rats running out of the ship that they have gnawed holes in and leaving everybody else to drown.)

"Rescue" means to save somebody or something from a dangerous or harmful situation, to prevent something from being discarded, rejected, or put out of operation.

"Muddle through" means to push on unknowledgeably to an unexpectedly favorable outcome despite the odds.

"Inflation" is an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money.
.........................................................................................................

DESCRIPTIONS OF PHASES OF THE CYCLE

Deflation, Stagnation, and Deleveraging:
In a seemingly endless feedback loop, the value of investment assets and the prices of products and services keep on falling. Decreasing consumer prices and declining investment (because of investors' unwillingness to carry large debt loads to fuel their decreasingly profitable investments) cause many businesses, factories, and support sectors to shut down, further dampening the circulation of money, decreasing consumer demand, and causing out-of-control unemployment and declining living standards quarter in, quarter out, with a severe and ongoing headache for some governments in their wish to provide stimulus in the face of declining revenues. This scenario in many ways describes what occurred in the United States in the 1930s after the 1929 Wall Street crash and is what economists are trying now to forestall.

Rescue:
1. To try to stave off deflation, some governments print money and decrease interest rates (and can end up stoking large-scale inflation just as the Weimar Republic in Germany did in 1923 following World War I). 2. In order to fight inflation, government can reduce its expenditures and central banks can raise interest rates and allow for slower growth of the money supply, thus using unemployment and the decline of production to prevent price increases.

The Muddle-Through:
Fiscal stimulus of the economy in the face of the meltdown is one tactic over which there is direct public-sector policy control, so a possible scenario is superficial recovery or muddle-through made possible by central-bank cash infusion into the finance sector, despite the currency devaluation effects of such a money injection approach. Instead of outright cash injections by government, however (government spending per se is relatively slow and occurs at some future point), more likely would be a move toward the high-velocity stimulus component--the cutting of taxes or the offering of tax holidays to specific business sectors as a way of stimulating them. Thus it may be that after a time of lingering uncertainty in the minds of people and businesses, the governments' massive stimulus packages and central banks' money injection interventions can begin to act as a partial, deferred offset to the financial crunch, and in fact that crunch may actually begin to ease up for a time. Markets may revive, although some of the eight bubbles have been only partly filled in by the cash injections. Life will go on in a new muddled way: politicians will stop panicking and will get re-elected, and a new bigger set of internal bubbles will be preparing themselves for collapse a few years later, say, in 2015 or 2020. This is similar to the scenario post the dotcom and 9/11 crashes in 2000-2001 and the muddle-through that later occurred through 2007 on the back of extremely low interest rates, extremely significant credit card, car and housing loans, and other bubbles. Incidentally, the fiscal-stimulation tactic is not available equally to all economies. Countries without foreign reserves and countries with large finance-to-productivity ratios can prime the pump through fiscal stimulation in only a very limited way and at the risk of turning their banking crisis into a situation of defaulting on their national-debt-servicing obligations.

Inflation:
Inflation is an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money. Inflation can eventually result if the government has put huge amounts of paper into the economy and private financiers have run unfettered, granting credit irresponsibly and pouring staggering amounts of baseless "money" into the mix, as can happen if the economy is allowed to function wildly and without proper guidelines (see ENDNOTE on earlier article by Rinaldo Brutoco containing the list of fourteen things needing to be done in order to remedy the current crisis). Eventually, there will occur another and another phase of rescue in the opposite direction, another and another period of muddling through, and another and another period of deflation, stagnation, and deleveraging, ad infinitum.

...................................................................................................

As of late November 2008, we appear to be in a phase that combines aspects of hyperinflation and deflation both. And in fact, the two in a sense must always appear together in order for one to be countering the other. The corresponding muddling-through phases themselves are thus multifaceted and bidirectional, since people are muddling through both hyperinflation and deflation at the same time, with the attendant countervibrations and shocks. Hyperinflation is being countered by deflation (and vice versa) at the speed of light, and a sort of sympathetic vibration is being set up as the two states undulate back and forth into and out of each other. The notion that government alone can supply the rescue impetus is being every day given the lie. The private sector seems to be providing, albeit slowly and inexpertly and sometimes cruelly, its own policing mechanism. The issue then becomes one of how to administer an essentially healthy unfettered economy, one that has every natural tendency toward self-correction but is in need of skillful direction and guidance lest it rattle itself into total dysfunction.

Several mind-boggling specific phenomena, well publicized, have emerged from the inflation stage this time around, a time of too-easy credit and its inevitable deflationary countering by very rapid divestment of ever more valueless credit paper such as high-risk mortgages. In general, the finance sector's unbelievably massive and pervasive house-of-cards derivatives and debt pyramid/Ponzi scheme (the "Eight Bubbles") increasingly manifests itself in the form of trillion-dollar black holes into which capital off the balance sheet routinely vaporizes on down the line into increasingly unlucky but still greedy hands, until the floor falls out from under the whole fragile, cynical, shadowy mess, credit dries up, lines form outside bank doors, homes are foreclosed on, and people begin to panic, forcing action from some entity that will see itself as responsible for trying to save the day-classically the government.

Accordingly, in response to the terrifying and escalating vaporization of "money," governments (via central banks) are trying to feed and levitate the system by pumping trillions of dollars of liquidity into it. The spin from this itself, if not skillfully managed, will precipitate another disaster. If skillfully managed, it will lead to a much-needed buffering and an increased sense of trust in the market--trust being indispensable for proper market functioning. Skillful management, then, will have to be based on the understanding that government is less and less a commercial-type player in the market with wads of cash to throw around but is instead a mediator and a normalizer, a setter and definer of proper protective procedures that ensure fairness and nonexploitation of the undefended and innocent who enter the market in good faith, unaware of the howly ravenous eyes and blood-dripping fangs of the wily arbitrageur wolves (slathering) and other unscrupulous types.

Unfortunately, as things now stand, the government seems unaware of or unwilling to accept completely its evolving role in this regard. The infusions of government money (or tax breaks) are being administered in a way that needs to be made to reflect more clearly a new direction, a transparent overarching plan, a well-guided central purpose for the sector. Meanwhile, the aforementioned vibrating-waves scenario has, at least in the short term, been potentiated instead of gentled. The sudden inrush of cash to rescue the finance sector is generating two opposite north and south directional vectors of its own--hyperinflation and deflation--which collide continuously to create several vortices as the markets change direction nearly every day, exhibiting high volatility. The consequence of being caught up in the resultant eddy currents of those vortices is that some asset classes levitate and give the impression of rising, albeit temporarily, and other asset classes fall or simply cease to exist as their underlying asset base vaporizes within the gravitational pull of the nascent financial black holes. For instance, the present frenzy of deleveraging (getting rid of bad paper and replacing it with "good") reached a dark peak when the demand and prices for solid commodities (food, fuel, and raw materials) went into hyperdrive to trigger unrealistically high prices and the resultant catastrophic demand collapse (stagnation) we are currently witnessing.

We need to begin to think more in terms of the existence and repetition and counterbalancing of inflation and deflation as a normal cycle, operant upon various stages simultaneously and at different rotations internally, much like the internal workings of a Swiss watch. And we need to think of the financial forces at work as emanating from new and ever-expanding sources. For instance, perhaps a modern-day equivalent to governmental printing of more fiat money has already manifested itself between 1995 and 2007 in the inflationary form of the unstable and now-hollow tundra of complex securities and credit instruments that private financial institutions created and sold. Banks and brokers were, in effect, busy printing their own proprietary issues of "money" via complex securities such as derivatives, and as a result their supply of "money" grew to exceed by at least one order of magnitude the money already printed by central banks and currently in circulation.

Central banks at first naturally continued to focus primarily on monetary growth and money velocity, utilizing old metrics rather than acknowledging the wider spectrum of public money and private "money" taken together. Eventually, however, even government began to get the picture. How could the governments and central banks not recognize this new phenomenon, since securitization and derivatives, the tools of liquidity creation, were a central obsession of the entire financial industry? In fact, central banks did at some point begin to play along, humming the hymns of privatization and deregulation. These quadrillion-dollar private-sector currencies--paper assets--have fueled the globalization process, mergers and acquisitions, massive and unprecedented world GDP growth, and large-scale industrial/infrastructure projects, until natural boundary conditions kicked in--i.e., the earth did not actually contain raw materials and natural resources in sufficient quantities to back up the printed papers.

Naturally, some central bankers maintain that they have been and are still in charge because they can print fiat currency at will and can set interest rates at near zero if they like. This might be called governance by magic. What if they can no longer exercise sufficient control and have become co-dependent on the parallel printers of "money"--manifest as paper assets--who happen to be the private financial institutions? What if the formerly omnipotent central bankers and regulatory authorities have in fact been strategically affected by what the private financial institutions did from 1995 to 2007, during which time the policing of the global financial system was inadequate and cross-border arbitrage opportunities exploded? We must free ourselves of the obsolete myth that money infusions by central bankers can totally resolve the mess in the real economy when actually they cannot, because the paper fueling the real economy was not issued by them and large quantities of it reside off formal balance sheets in a non-transparent way. Central bankers' best and most truly needed contribution now and in the foreseeable future lies in the realm of providing sound guidance and proper oversight to the finance sector (see ENDNOTE on earlier article by Rinaldo Brutoco containing the list of fourteen things needing to be done in order to remedy the current crisis), in addition to conducting concerted lobbying for procedural improvements that will help ensure a fair playing field for all players, sophisticated or not, in the stock market, in respect for the market's original purpose.

It does, unfortunately, still seem to fall to the central banks to mop up the ongoing toxic liabilities and to fill the black holes, a task that may or may not be feasible for it ad infinitum given the unprecedented scale of this challenge. The quantum of asset price deflation under way following the collapse of the quadrillion-dollar paper asset house of cards is so large that all the king's horses and all the king's men may not be able to put Humpty Dumpty together again. The former power base of central bankers has probably been permanently eroded, given that the center of gravity has now shifted to the financial markets and financial-market participators who negotiate the equation of deflating quadrillion dollar plus paper assets, the quantum of which dwarfs government-issued currency.

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ENDNOTE ENDNOTE ENDNOTE
.................................................

Saving the U.S. Economy
through Trickle-Up Economics

Rinaldo Brutoco

THE FIX
(SUMMARY)

--buy up and renegotiate troubled mortgages and provide credit counseling to homeowners who hold troubled loans

--freeze interest rates at today's levels on adjustable rate mortgages and home equity lines of credit and prohibit lending institutions from further capital calls on mortgages and home equity lines of credit

--allow bankruptcy courts to modify applicants' mortgage payments and make it easier for consumers to use bankruptcy to discharge credit card debt

--get control of the unregulated market for credit default swaps and prohibit the issuance of any new credit default swaps

--increase margin requirements for all stock purchases, in order to continue reducing leveraged, speculative purchases of all stocks, including equities, bonds, and commodities

--reevaluate short-selling rules to prevent short sellers from speeding up crisis-induced downward spirals in share prices

--restore a needed wall between investment banking and commercial/retail banking

--undertake a massive project to rebuild and expand American infrastructure

--reduce our defense spending

--enact a universal healthcare system and require pharmaceutical companies that sell drug products in the United States to sell at the lowest price they charge for the same product anywhere else in the world

--cease the taxation of companies for the dividends they pay out

--reinstitute the federal one-fourth-of-a-percent securities transfer tax

--demand the effectiveness, fairness, and probity of the powerful oversight or supervisory panel created as part of the bailout plan

--create a temporary financing fund for state, county, and city government entities
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Asgar Fakhrudin and yogi one:

From what I've been told by quite competent economists here in Switzerland (these guys eat DK Matai well informed economic writings for breakfast) we have yet to see the beginning of a meltdown that will hit full force in 2010.

Of course many of us are not feeling much of the effects of this "global financial meltdown". That may be due to the fact that what these central bankers are afraid of is what they know is still to come. They even know we can't pay our way out of this one.

My advice? Start building strong community relationships starting with friends, family and neighbors. We are going to need each other if we are going to survive what is coming.

As far as Stan's suggestion about farm land and tractors? I'd consider the farm land but maybe more manual means of agriculture. We are about to see petrol priced out of the common mans ability to purchase. With community we will have the means to sustain ourselves on local levels.

dear Laurence,
It every place and time - and maybe especially now, strong community relationships are inherent to survival and growth.

It is a wonderful time to be living!

love,
~ Kate

that first word,
being
IN

;-)

Dearest Kate:

With the fullest of agape I agree.

It has always been and is the most wonderful time to be living.

RE: Post 3

Yogi-One, you really, really crack me up. Thanks for making me smile!!

Co-operation 'could beat recession'


People need to work together rather than focus on individualism if society is to tackle recession and other social problems, two leading thinkers have said.
Neil Lawson and Stephen Thake have been commissioned by the social policy research and development charity Joseph Rowntree Foundation to examine issues of social evil in the 21st century.

Mr Lawson, the chairman of independent democratic left pressure group Compass and a Research Fellow at the Global Policy Institute, will join Mr Thake, Reader in Urban Policy at London Metropolitan University, for a debate in London.

Mr Lawson said: "All the problems we face demand that everyone work together to achieve shared goals. The credit crunch, the problems with financial services regulation, the shortage of affordable transport, the closure of post offices, the need to regulate labour markets and of course climate change, all demand greater collective co-operation.

"None of them are issues we can solve alone as individual consumers. In no instance is anyone saying the answer lies in more freedom for the market. The market is the problem, not the solution."

Mr Thake added: "Many people may think it odd that individualism can be considered a social evil. But it is when it morphs into narcissistic self-absorption; when it is driven by greed rather than need.

"It is a question of balance and we have got the balance wrong. Selfishness is a consequence of greater individualism and greed is a driver of consumerism.

"Without understanding the drivers it is not possible to find a point of entry and social evils will remain unsolved."

The social evils debate is taking place at the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) in John Adam Street, central London.
http://uk.news.yahoo.com/21/20081118/tuk-co-operation-could-beat-recession-6323e80.html