Etch-A-Sketch economy
The apparent economy had been built up to appear bigger than it actually was. Since the 1980′s, complex financial mechanisms such as derivative trading and other vehicles allowed multiple levels of a shadow economy to layer on top of the real economy, making the income, assets and growth of each person, company, and government entity appear larger than they actually were.
For the public, the most obvious example of this is real estate prices. A house that was purchased for $175,000 was instantly worth $300,000 eight months later. No gold bars were buried in the back yard, and no extra $1,000 bills were hidden in the walls. The value just appeared out of thin air.The value did not represent the increased value of the location, increased income of the owner, or improved production of the home.
Corporate assets were inflated just the same. Investment banks saw the paper vale of their bond holdings and securities pricing increase just as fast. There was no change to the underlying productive value of the underlying assets, just a bidding war with fake money.
At some point, the values cannot even be sustained with artificial borrowed funds. As the bubbled up prices of all assets lose support, they stagnate, and then fall quickly. Real estate, stocks, and securities hover in mid air, looking for buyers to support their high altitude. Gravity will at some point have to take over.
As the artificially built-up valuations are forced to resolve themselves through the market process, the decline is not a smooth gradual change. Asset values, consumer sentiment, and the economy overall goes through periods where it experiences sudden and steep drops, and then levels off for some time to digest the most recent catastrophe.
The result is an Etch-A-Sketch crash. Instead of the typical V-shaped pattern of market fluctuations shown in streotypical economic charts, the actual pattern for this event is a stair-step shape. remember how easy it was to draw stairs on an Etch-A-Sketch as a kid? Just alternate horizontal and vertical knobs, and you have perfect stairs!
This is where we are going financially. At certain intervals some event occurs. AIG becomes insolvent/ 150-year-old Lehman Brothers goes bankrupt. The economy needs a $700 billion bailout. Stock market drops 777. Fannie Mae and Freddie Mac nationalized. Each story is a significant event by itself, but is actually part of the overall normalizing of the economy. After each disaster, some period of time elapses where nothing major happens. Most people go back to their everyday activities, and the shock of the events wear off over time. It does give people some warning about the security of their own job or income.
The Etch-A-Sketch economy will continue until one of the flo0r-level lines can be supported by real production and income. The problem with this recession/depression is that the production of the US has declined over the past decades. Steel, electronics, durable goods, and autos used to be the backbone of American industrial production. Most of these are now produced overseas.
Technology is one area where the US has some strength, but not necessarily a commanding lead. The great depression 
of the 1930′s ended only because the country cranked up its manufacturing machine, mostly to supply the military for WWII.
There is no great business growth on the foreseeable horizon. Government “busy” work such as building roads and bridges will not fix the problem unless there is actually a need for the roads. A need that will improve the production of the country. We already did the “build roads, bridges and dams” thing. We don’t need to duplicate that. That infrastructure was needed at the time, because we had none to start with.
One solution to getting out of this one could be to develop and build out a new technology, that will give its users an advantage. Some advanced energy theories such as overunity systems would secure the future of the companies and conutry that develops it, and society as a whole. Overunity systems are based on the idea of mechanisms that produce more energy than is put into them. All humans and companies need energy. Finding a way to get it that does not involve consuming finite resources would be life-changing for the species. Whether our ‘eureka” moment is this example or some other world-changing technology, whatever country nurtures industry to develop it will be the next great society. The last major human advances came from mostly American developments. The auto, modern medicine, manufacturing, air travel, and computing are examples.
Part of the problem with building a better business model and industrial base is that most of the obvious ideas have been discovered. We are now mostly tweaking old ideas, making them more efficient. Creating complex financial calculations does not change the profitability of the underlying business production. Derivatives trading is just rigging the horse race and making the horses appear to run faster than they actually do. These are not milestone or breakthrough discoveries that put one company/county at a large advantage over another.
[...] big move towards depression in March? Last week I described how the shape of the decline towards the Greater Depression as a stair step, or Etch-A-Sketch recession. This week there are new [...]
[...] for the next wave? A few months ago, I wrote about the concept that we are in an “Etch-A-Sketch” economy. Instead of a recession where the economic conditions decline, level out, and then recover, the [...]