A few notes on the economy

1) While job growth is decent in the US, the essential job picture remains unchanged. The percentage of adults with jobs is still about where it was after the financial crisis, and wages are flat. The last US job report was good, but wages dropped. That is not an indication of a good job market.

2) The Eurozone is flirting with deflation, and commodities have heavily deflated (almost all of them, not just oil). This is due to reduced demand. Reduced demand is bad. Let me repeat, bad.

3) The reason there is reduced demand is because most people are poorer than they were pre financial crisis, and governments are engaged in austerity.

4) The stock market is a ponzi scheme. Its prices are justified by the fact that corporations are being given essentially free money by the Fed (directly or indirectly) and allowed to engage in oligopoly pricing of services which people must have (like the internet, or phone service). This has led to high profits, and some of those profits are pumped back into the stock market, which is in executives interests, so they can cash out their options at a profit.

5) The entire gain of this business cycle has gone to the top 10%, and by the top 10% we really mean to the top 3% or so, with the .1% and .01% being the real winners. The bottom 90% has lost ground.

6) Rich people buy securities. The middle class and below buy goods.

7) While low oil prices are good for many countries, that they are driven by soft demand is not good.

Predicting this economy remains difficult because it is driven by the decisions of a very few people. Less than a hundred worldwide are key. The people who can create money, as credit, are key. They are almost completely unhinged from the economy as a whole: money creation is fiat, and being treated as such.

The great realization of the financial crisis was “hey, we can just create money and give it to the people we approve of and no one can stop us.” The people they approve of, unfortunately, are rich people playing ponzi games. Giving money to bankers who don’t lend to the regular economy (and why would they, regular people aren’t getting raises and don’t have vastly inflated housing prices) does very little for the economy that most people live in.

This leads to strong relative gains: not only are the rich richer, but everyone else is poorer. Austerity lets them buy up oligopolistic assets at fire-sale prices (see dismantling of the NHS in England for an example.) Their money increases, their relative power increases, and these policies are a win for them.

The thing is, hardly anyone has pricing power except people who are in an oligopolistic position. It makes no sense to loan money right now to anyone who doesn’t have pricing power, because they can’t pay it back.

There will be; there are, ways out of this. But they do require creating actual pricing power for the masses, breaking up oligopolies and dealing properly with the energy problem. The creation of some actual competitive markets (gasp!) combined with allowing anyone but the rich to have pricing power would do wonders for the world economy.

But that isn’t something your lords and masters want. The current situation suits them perfectly—compared to everyone else they are getting richer and more powerful. There is no reason for them to change how they are doing things.

Or is there? The resource barons are hurting, and they will want changes. But I doubt they are willing to see anything like widespread prosperity as a solution, because it would lead to a long term collapse of many of their fortunes, rather than a boom and bust cycle which the smart resource barons are perfectly capable of riding and using to their advantage.

Until the calculus of the powerful is changed, or they lose their power, while there will be ups and down the basic feature of the economy of the developed world (Depression) will not change, and the rest of the world will continue to suffer through huge boom bust cycles.

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