October 11, 2009
Dec. 21, 2012 Mayan End of the World? Nonsense
I always get a kick out of all these people who think Dec. 21, 2012 will be any different than any other day. Nothing will happen at all.
http://apnews.myway.com/article/20091011/D9B8P09O0.html
The Chinese calendar, which has cycles too, simply starts a new cycle when it reaches a point where the cycles within it line up. Does it mean anything? No.
What you should worry about is the next wave of Option Arms mortgages set to reset next year and stay high into 2011. The recession over? That’s pep talk to drive up consumer confidence. You can read about the “options arms” problem — which they are keeping quiet to keep up the confidence — if you just do a google search on it. That’s what’s going to hit because it’s bigger than the sub-prime problem and on top of that is the commercial real estate problem. Mums the word from Washington on all these. THIS is serious. Mayan calendar — get your head on the ground.
To see how serious the Options Arms problem is, the famous Credit Swiss chart of this problem can be seen below:
The gist of a LONG TERM economic recovery comes down to this — new jobs, but from manufacturing, not services. But manufacturing has been outsourced and is not likely to come back to the US. You can talk all you want about the service sector taking up the slack but economies aren’t built that way. In the history of the past 500 years, countries got rich by switching from raw material -agricultural-commodity production (including timber, mining, fishing, etc.) to manufacturing, and they protected manufacturing through tariffs, quotas, subsidies, etc. to get it started. You did not get rich by losing your manufacturing industry. Every country that did that became poor.
Read that again — historically, if you lose your manufacturing sector, you become POOR. And that means the US ….
If you gain manufacturing in your country, real wages go up and poverty decreases. If you lose it the country goes into poverty. It’s almost a rule. The reason is simple:
Agricultural/commodity production is characterized by diminishing returns — as you produce more, your margins go down over time. Plus, being commodities your sales compete against everyone else on pure price, which tends to drive down the price and margins. You can only make it up in volume, but volume makes you even more subject to diminishing returns. So as one economist put it, by basing your country on commodity production, you produce yourself into poverty over time as mines get depleted, fisheries are fished out, timber gets cut down, agricultural land loses fertility or requires increasingly expensive inputs, etc. The next extra unit of production always costs more than the previous ones. You produce yourself into poverty as you deplete your resources.
For manufacturing, however, as volume grows your margins increase – manufacturing is characterized by increasing returns to scale. So the 100,000th handheld calculator or mobile phone costs much less to build then the first. And if it’s an innovative product, sales grow, too. Multiply (increasing sales volume) times (increasing margins) brings WEALTH. That’s the rule. That’s the way countries got rich.
In fact, the countries over the past fifty years that thumbed their noses at the misleading economic advice of the world bank, IMF and so forth to choose the well demonstrated road of tariffs and protections (India, China, Japan, Korea, Taiwan, etc.) are now rich whereas those that listened to “increase your commodity production, etc.” (Ecuador, etc.) are poor and will remain that way until they change strategies. You have to protect your flourishing industries before you allow free trade in, otherwise it will kill them off and the high paying jobs (and ripple effect) they foster.
It’s as simple as that.
Commodity Production:
Decreasing Margins * Increasing[???] Volume (subject to price competition)
Industrial Production:
Increasing Margins * Increasing Volume = Growing Wealth
Guess which builds wealth? You can see it from the formulas. The service sector only thrives if manufacturing is there to demand-pull its services. Otherwise, no jobs. And the financial services industry CANNOT pull the slack without a higher value added manufacturing sector. Never could, never will. That’s an intellectual fallacy, just as it’s an intellectual fallacy to believe in communism … something that suckered in many intellectuals.
If people are encouraged to purchase things within an economy based on DEBT then the economic decline can be tempered until the debt burden is too much. History also shows that’s a terrible way to design an economy, and such a structure gets readily destroyed after a severe downturn which ALWAYS happens due to the banking system and too much debt. Go check countless stock market crashes all the way to the 1700’s and you’ll find a problem being too much debt. Never let the bankers control the economy. To make more money they increase debt to a load that cannot be repaid and then a recession or depression comes. It’s almost always debt, and the same pattern was repeated this time around by giving loans to people who could not afford it, and selling them off because you didn’t want to keep them. It wasn’t a failure of capitalism, but a failure of regulation.
So President Obama wants to stimulate jobs? What jobs? Manufacturing is gone – the jobs that count. Outsourced jobs will never come back because they are cheaper elsewhere and they’ve already been switched over, so why would they come back? Construction jobs are not a long term solution … and to construct what that will increase incomes? Like wars, we spend money but get no financial remuneration in return…you spend and spend and spend but get nothing back but just become poorer.
The only long run solution is to craft policies to restore manufacturing once again because that creates wealth and jobs.
Over the next two years, as the economy hurts more and more, that’s what I’m worried about. Long run sustainability of the economy. Let’s not go into all the issues. Just forget all these 2012 notions. In 2012 we will still be bearing the brunt of an economic downturn because of multiple problems hitting us from all sides — a “perfect storm.”
And US hegemony-supremacy? We’ve put an end to our #1 spot, and it has nothing to do with the spirit of the American people. China is now the manufacturing center of the world, or becoming it — not the US. The US has a shrinking middle class that drives consumption, whereas it’s growing in China, Russia, India and Brazil. Those are first time buyer markets whereas ours is a replacement market for most items, or a market that only grows based on home construction. We’re overextended in debt; China and India are not.
Furthermore, other countries want to drop the dollar as the reserve currency. We are engaged in trillion dollar wars and uncountable money pumping (which has paid for those wars, but countries won’t allow that free pass any more if they drop the dollar standard) that will turn into serious inflation within five years … make no mistake about it. The Fed will be able to handle this coming inflation with as much expertise as they’ve shown in predicting a recession, which means near zero capability. If you trust the government for your investment advice, you are bound to go bankrupt.
Go search on the history of Rome and you’ll find many parallels, including the inability to pay for wars on so many fronts (especially when they bring in no tribute). You’re darn right Obama better re-examine our role in Afghanistan, a region no Empire has successfully been able to handle in centuries — including the Russians and England more recently. The conflux of all these things taken together — the perfect storm – is what you should worry about this generation– not some date in the Mayan calendar. Only if Congress starts crafting policies that foster the return of manufacturing at home and the return of jobs to US shores (a stimulus package will not do that at all — pray tell me how it will) can we even begin to dream of our Clinton-peak in world predominance.
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