The Answer to Economic Catastrophe; Consumption to Production

This blog is dedicated to Stolichnaya, for without having this cocktail with Blueberry Vodka right now, I probably wouldn't  feel the inspiration to share my two cents about what I think the average schmo should know a little about. Stuff that affects most people every day whether they realize it or not. Like why the stock market is up so much again but you and your pals still can’t seem to get a decent job. Why you hear the federal government is deeply in debt, but continues spending into oblivion and starting wars while your state government is broke and is cutting costs in the most harmful ways. Or why prices are going up so much while it becomes harder for people to afford things. You know, like the quality of your life and stuff.


Before you go back to watching Jersey Shore, it's always good to be at least half informed about the system that slowly reducing 80% of the population into squalor. This is the stuff they should have taught you already but didn't, probably because if everyone knew what was going on, there would be a lot more pissed off people rioting and blowing shit up. I want to share with you right now how the system is deeply flawed so then maybe if you are miserable enough can change your strategy and start creating wealth for yourself. 

I don't know about you but I'm tired of hearing about how bad the economy is from the people who say things like ‘we need to cut spending’ and ‘our government are a bunch of idiots,’ and ‘it was the democrats who did this or that,' as if they are all economists. They watch FOX and Fast Money, of course they know what they're talking about. I always get a good laugh from people, like my server at Denny's the other day, haranguing at me their mis-informed theories at me with such confidence. It’s ok though, I don’t hate them- I normally just sit there and pretend to agree with them. But I like to shed light on the what these FOX and CNN watchers just don't seem to be aware of, in the least condescending a way possible-- and it's not hard to understand either. Once I expose to you this mega flaw, it will be easy to see how the game has changed and will easily put you ahead of 95% of people who rant at you like my server at Denny's when you're trying to order your Moons over my Hammy.

Here we go: Today’s reoccurring economic crises seen ‘round the world comes from about 40 years of credit disequilibrium that has changed the world economy into a game of extraordinary booms, busts, bailouts, bankruptcies, inflation, deflation, and very indebted governments. Hold on: Since the early 70’s, international trade no longer was settled with sound money such as gold, but with debt. The Bretton Woods system, the system that allowed the dollar to to be exchanged for gold if an international trade imbalance occurred, was removed in 1971.

This break from sound money created the situation in which the U.S dollar became the new backing of currencies instead of gold, and the ‘reserve’ currency to the world. What this means is that the U.S government was now allowed to run up absolutely massive debts to the world without ever worrying about losing its gold, which was and will always be the real money. This drastically changed what money was, and dramatically changed the lives and the futures of billions.

Since the end of the Bretton Woods system, balanced trade and budgets for the U.S became unnecessary, and it became convenient to outsource our labor and buy everything from cheap slave labor countries such as China and India instead of at here at home, and then simply buy it with debt. Debt is not gold, but the world accepts it as such. This new debt system helped spur on globalization, and with the help of laughably high corporate tax rates, corporations have moved most of our labor and means of production overseas. Many of our old jobs were replaced by people around the world who will work for $5 dollars a day or less. The government no longer needed a balanced trade economy because of its new taxpayer Black Card, so they allowed our most productive corporations to set up shop outside of the United States. 

Pretty dumb, huh? But what happens next? We as a nation run up all kinds of deficits to the world and pay them with newly created debt, but what are the consequences of this? All of this newly created credit that is given to the producer nations of the world has to go somewhere, right? 

Yup. All of this debt, or money, either goes into that surplus nation’s banking system, or right back here in the assets of the United States. Now, in either case, a bubble will be created somewhere because all of that credit doesn’t get buried under people’s mattresses. Now if that entire nation’s new money gets deposited into their banks, that nation will soon experience unusually high rates of inflation of their assets. This is because of the way banks today multiply money through the Fractional Reserve system, when they receive a large influx of deposits they almost always aggressively lend it and make it very easy for anybody with a pulse to take out a loan and buy houses, start businesses, go to strip clubs, etc.

Now if this surplus money doesn't go into that nation's banking system, the money will just get recycled right back into the U.S. This is because the export nations who sell us our crap are very much dependent on our exorbitant levels of consumption, and by exchanging the dollars they receive from us for their currency, they would effectively strengthen their currencies against the dollar and thus make it more expensive for the United States to keep buying from them. That would be bad for business, so all of those freshly printed dollars come right back to the good ol’ U.S of A in the form of speculation money. Trillions of dollars in foreign speculation money. This money comes back to the U.S and is used to buy our stocks, real estate, corporate debt, or any kind of asset, and the bubbles begin.

But this doesn't go on forever. As history has shown, every bubble pops. History shows the same reoccurring story like a broken record; a country runs a trade surplus for a while resulting in huge capital inflows, followed by large surpluses in their banking system, resulting in cheap and easy credit, which then fuels asset inflation. Eventually prices become too high for earnings, supply becomes too great for demand, and the game is over. Every bubble pops, and the results of a popped bubble are normally what we have experienced here in the U.S for the past two and a half years, which is deflation. The side effects for deflation are low or declining growth, high unemployment, difficult to obtain and expensive credit, low production, and dropping asset prices. 

You can learn everything you need to know about deflation from Japan. Japan went through the same game in the 80's; surplus trade resulting in large amounts of capital entering the banking system, then being multiplied and aggressively lent by the banks which fuels an asset boom, eventually reaching excess capacity and insufficient earnings unable to keep up with prices and then a crash. Bailouts were required to save the financial sector, and the government went broke because of it. Sound familiar? After the crash, Japan entered into what economists call the Lost Decade, which was simply massive deflation spread over 10 years. Japan's government is still very deeply in debt even after all of this time.

The same game is playing out in the United States except we have the world’s drug dealer, Ben Bernanke, on our side. Helicopter Ben has no problem injecting huge doses of heroin- I mean cash- to save the world from deflation. This is actually a good thing, but it is unsustainable, and eventually will result in major devaluation of the dollar. Either way, too much inflation or too much deflation are both bad, but it’s a matter of what’s less bad for now. The dollar will have its day of reckoning in the near future, but not yet.

The example of Japan has played out in multiple countries since the Bretton Woods system was ended and should have been no surprise to anyone that the same thing happened to the United States in 2008. The only difference between us and other countries is that other countries have to produce more than they consume before their banking system multiplies their surplus to fuel incredible asset bubbles with cheap and easy credit. The United States however, only needs an increasing debt ceiling and a printing press. 

It is now April of 2011, and the mainstream news makes it seem as though we are back up and everything is back to normal. We all hear the usual Wall Street guys cheering and laughing the economy on like a bunch of gamblers around a craps table. In truth, they are cheering on the current bubble blowing from Quantitative Easing, also known as Debasing the Dollar. Some economists are calling this the Government Debt bubble, and once this one pops, it's going to be the most devastating collapse ever seen.

The news tells us we are making a comeback, while it is the financial sector that accounts for most of private sector growth since the recession. The financial sector- the big banks- who produce nothing, borrow from the Fed at outrageously low rates and then lends to the 10% of the population that are actually eligible for loans for an easy profit. This is the sector leading our economy’s big comeback. This is NOT real improvement; it is an illusion and the only people winning are speculators and bankers, not productive everyday working people who actually provide tangible value. The same working people who get taxed a third of their income every year, provide the most revenue to the government and benefit to society are left holding the bag because of this unsound system. Real unemployment is easily 20 percent throughout the nation and won't go down because of Ben Bernanke flooding the world with monopoly money.

The only thing that will change are increasing prices, which just make everyone poorer.  If you already have a job, you’ll be finding it even harder to get ahead with your fixed wages. And as globalization and technology progress, average jobs will continue to be outsourced, taken by illegal immigrants, or  replaced by computers and machines. Not only that, more people become dependent on welfare and government social programs, further exacerbating our deficit and make it more obvious that we're socialists. And as states go bankrupt, which they already are, union jobs will continue to be undermined and salaries cut. When there are enough unemployed floating around out there, we will be seeing riots in the streets, just like we are seeing around the world right now. 

The United States is getting closer to social unrest as countries like Egypt, Greece, England, and Spain and many more already are. We have already seen it in Wisconsin where unions are being greatly undermined.  We don't have to fall victim to the game. There are still many people out there who have value to offer the world. Many of us do not utilize our value because we have settled being workers for whatever reason.

The good news is, there is always ways to make more money and easier than ever. The internet can be leveraged to make money with virtually no overhead, and helping more people to become more independent of our failing system. We also have game-changing minds at work, like my good friend Stefan Alexiev, who is creating the next social networking phenom that is similar to Facebook but encourages people to exchange services and goods for money, the modern way.

This is just an example of such innovative, and very much needed solution for people’s independence, and the shift many of us must make from consumer back to producer. Stefan is currently getting ready to launch this new kind of networking site, which is called Hiredfor.com. It is a platform that enables anyone to leverage the internet to showcase their skills and connect locally to people who would find value in what they offer. The goal is to reduce dependence on a job. Hiredfor creates a new marketplace that immediately puts the average person in competition with regular businesses, even creating new markets, to help more people get a piece of the pie with little or no overhead. There is boatloads of money out there, but you can't get it on fixed income. So if you have a skill, put it up for sale and there are no limits to your income.

Hiredfor provides all the tools necessary for an exchange to be made; it emphasizes a rating system to give people ideas of how useful services were, webcam tools that allows advice givers to charge for their advice easily from their computer, Paypal payment services, High quality search engine to match the most qualified producers to buyers in the most convenient locations, and too many more to name. 

It is this kind of innovation and real solutions that help us produce more than we consume. It allows people to actually do what they want and get paid without depending on wages from a job they hate.  At the same time it makes the market more efficient, and provides more services to people that were unknown before because they were never offered in the way Hiredfor allows. Most of all it allows the wealth to spread around for more people. No one should be stuck in a dead end job forever, because that sucks ass. Working for wages is not producing for yourself, it is producing for someone else. It is time to produce for yourself. 

If websites like Hiredfor aren't a practical solution, then I guess the majority of us are screwed. “If you keep doin’ what you are doin’, you’ll keep gettin’ what you’re gettin.” If you are unhappy about your current situation, don’t expect your job to get better, because it is highly likely it won't. While there are still some good jobs out there, there are not enough for everyone. It’s time to do what made our country so rich in the first place, and get entrepreneurial again. I am sick of our society of wage earners and consumers; too much consumption without enough production is the leading cause of our economic chaos. It is time to make a shift back to being producers and provide for ourselves again. The more people who set up shop for themselves, the more free we become. Sign up: Hiredfor.com