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I feel that what we are arguing about is similar to how passengers of a slowing down, malfunctioning car argue about which way and what speed they should drive on, but when they look under the bonnet they find that they lost the engine.

Unfortunately today no political or financial leader dares to look under the bonnet, or even if they looked they do not dare to speak about what they found, because they only care about re-elections, or short term effects.

So they try to push the car with all their might and tricks but it cannot be restarted again.

We are continually arguing about how to resuscitate an economic model that has run its course and became dysfunctional for multiple reason, and all those reasons are reinforcing each other making any superficial adjustment impossible.

Both stimulus packages and austerity is based on the belief that we only need temporary adjustments until growth will restart again as if we were in a cyclical process. But this is not a crisis or depression but a system failure as some distinguished experts stated it before on this very forum.

All the bubbles based on the the unnecessary, vastly beyond necessity consumption fuelled by vastly over the capabilities credit, in a closed finite system where constant growth is impossible, producing mostly goods we simply do not need and which are mostly harmful are bursting now one after the other, the seams of our present social and political system (regardless of country or culture) which was created to serve the disproportional profit hoarding and distribution is coming apart.

There are no simple solutions, there is no overnight fix. Our present way of life is falling apart, what we need to concentrate on is how to shorten, and “sweeten” the transitional period, and what we build after.

In this respect austerity is better as at least by not running ahead blindly we are not causing even more problems, and deeper crisis according to the saying “if you do not know where you are going, it is better to sit and do nothing”.

Before we plan or move any further we have to study this global, integral and totally interdependent network we evolved into, and then build new social, political and economical strtuctures based on factual and objective knowledge which is mostly already available around us.

The new world will be based on necessities and available resources instead of false hopes and fabrications, and since we are all interconnected within the same system everything we do will be based on mutuality and true equality which in turn is based on the consideration and acknowledgment of everybody’s individual strengths and weaknesses.


from Zsolt comment in this commentary.

…debt can be used to finance four different financial transactions:
1. productive investment
2. innovation
3. consumption
4. speculation

The first two add to the productive capacity of an economy. When the government builds roads, dams that produce hydro-electric power, or other infrastructure projects, debt is being used productively. Similarly, when debt is used by companies for research and development or new ventures, it may lead to the production of new goods or services, which then can lead to an expansion of GDP.

Debt that is used for consumption, however, is considered a dissipation of capital. Nothing is produced; rather, something is consumed. After something is consumed—such as a basic necessity like food—the debt remains even though the item consumed no longer exists. When debt is added for consumption purposes it enables the debtor to pull tomorrow’s demand forward into the present. As debt is used to expand consumption in the present period, it is in essence borrowing from the future therefore reducing future demand.

Debt taken on for speculative purposes is also unproductive as it can lead to asset bubbles or overinflated prices for assets. Eventually all asset bubbles go bust. The overinflated asset values decline but the debt still remains. Think of the recent housing bust and the technology bubble as an example of speculative bubbles financed by debt for unproductive purposes.


from this article.

So, “Is debt good or bad?”

My response, “Debt for what?”

Debt forgiveness here really involves a whole-scale transformation about how we relate to ourselves, each other, and the world around us. Honoring our debt to nature means that we recognize our pursuit of happiness depends upon our physical sustenance. This will require comprehensive education, re-grounding in natural experience, and recommitment to simple living to pay down the massive debt of ignorant living to which we have grown accustomed.

It will call for an evolution of ideas of the good life that move from physical manufacturing, use, and exploitation of the material world, to one where the material world provides only the bare support needed to explore, expand, and develop our increasingly non-material opportunities and aspirations. I personally find this a heartening and exciting direction, but many are likely to view it as a step down. This will be one of the most important global conversations in the next century.

Conclusion:

One of the greatest barriers to enacting alternatives is getting over the false idea that debt is some kind of either natural phenomenon or moral law. Debt is not natural; it is created by humans and can be erased by humans. There is nothing moral about a nation running up its children’s national credit card to the tune of 15 trillion dollars (with another 100 trillion+ in federal entitlements) and expecting the next generation to pay it. Nor is it morally reasonable to expect individual people, who have worked hard and followed the economic rules, to suffer with life-long debt servitude for mid-game changes in the rules and shifts in the global context.

In point of fact, our current “sea” of international debt is merely a very large man-made lake, damned up by ignorance, greed, and exploitation. The only healthy way to manage current debt is to drain this lake completely through debt forgiveness. It is time to take down the dam and let democratic prosperity flow. True, people will not get their individual material dreams and hopes of unlimited riches fulfilled, but they will take important steps toward preventing a war of humanity against itself, and they will be able to engage new opportunities and definitions of the good life involving working together creatively to build a better, more just world.

Instead of the old dream where we impose static past fantasies on a dynamic future, we can embrace a new dream where we create, explore, express, unfold, and reinvent who we are and what we can be through shared, interactive achievement and improvement. The old economic system based on scarcity and false security is thus converted toward new ends—freedom, health, quality of life, creativity, autonomy, and mutuality.

In pursuing this progress in jubilee, we go a long way to clearing out our past entrapments, inequities, and animosities. We also wisely devote our shrinking material resources toward developing a widely shared and exchanged, mostly non-material, experiential and social currency that multiplies in abundance and increases in value the more it is shared.


from this financial commentary.


Also one quote for thought:


Global youth are much interconnected and cooperative.

Groups not bound by faith or an equivalent shared value system tend to devolve quickly, as the friction of working with others grinds down the will to continue.


from this post.


Is this correct? Similar to a previous post, a man who values community like him actually blogged mainly financial commentaries.

If it is true, the international politics as we know will not sustain very long.



Update: debt, subsidy reform, fuel price rises, political crisis.

Recognize past growth overshoot the limits, coordinate policy globally to orderly deleverage is the only less painful way. Pain is inevitable, and then human will learn.

My comment about the current recession after reading this post.

No single factor explains the inflation gap between developing and developed countries …


from this news.

While US worry about jobs, poor countries worry about food. Pressure is building (accumulating). How long can it be?

We have been used to a more benign environment and a more hospitable planet.


from this post.


I would recommend readers who are interested read his other posts. Interestingly, the man who is spiritual like this (from my understanding of his posts there) also wrote financial commentaries.

Economics can be a science, social science, a system of principles describing how human actually behaves in society level. It will be a great help when we needs to apply these well-tested principles to (perceived to be) problem.

But it is wrong to equal what we want as science. Optimization is not science, it is the way we do to achieve desired outcome, it is engineering. As in applied domain, optimization goal has to be defined. In nonlinear case, absolute optimum will never be known, only local optima can be reached.

Of course there is relationship between science and application, but the explanation focus is the symbol of science, problem focus is the symbol of application. To solve a problem we cannot constrain ourselves to particular domain (e.g. economics only, or psychology only), we needs to focus on the essence of the problem and use whatever knowledge we have to tackle the problem. This is the fundamental principle of engineering.

By the way, System Dynamics can be think as applied dynamics, a useful tool to apply science of dynamics in many problems, especially when transdisciplinary knowledge is necessary.

This is my question after reading M. King Hubbert’s Two Intellectual Systems: Matter-energy and the Monetary Culture.

Interesting quote:


Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely, exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. This disparity between a monetary system which continues to grow exponentially and a physical system which is unable to do so leads to an increase with time in the ratio of money to the output of the physical system. This manifests itself as price inflation. A monetary alternative corresponding to a zero physical growth rate would be a zero interest rate. The result in either case would be large-scale financial instability.

Economy depression and price inflation of commodities right now are not coincidences. Watch out!

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