Friday, January 30, 2009

Placebos--the value of Bullsh**

All Americans, especially Politicians, should be forced to read and reread this article. The ‘Crowding Out’ Effect of overlarge borrowing is a basic fallacy, if the funds are deposited in the banking system in the interim; the borrowing simply creating new artificial Reserves. Don’t believe me, but it is true! There is a Problem with the artificiality of the Reserves, though, when they are based upon assumed debt; think of using Stock as collateral to purchase more Stock. Actual Growth based upon Debt is actually very reduced when there is a Second Mortgage. It reminds of Credit Swaps, the dangers of repayment loss multiplies drastically as the repayment is closer to the original debt. Steps 2-6 are intrinsically destroyed if Step 1 has proven a failure. The trouble with Debt is that it is equally unsecured in all its parts.

Understanding of the current economic difficulties can be seen in this article, which is a basic discussion of the Step 1 arena of Debt repayment. Every Economist will protest that Statement, but later Debt repayments are keyed to fulfillment of the original Debt obligations in these sectors. Orders for Durable Goods have been falling for 5 months, a 5.7% decrease in the year’s progression. The loss of business resilience because of lost Profitability impacts Debt repayments–where there are delays, or the accumulation of greater Debt levels. The Unemployment rate reaching 7.2% is also great hazard, in that manageable debt becomes a functional drain of Consumer Demand under the condition of Job loss.

One can find fault with Monetary policy under almost every condition, and this article helps to explain Why this is the case. Placebo options only generates long-term doubt in the efficacy of official policies. The sham of placebo politics can always be critiqued, and knowledge of the placebo placement will always become universally known; the reaction will be to limit and contain any reaction to the placebo. I like Tyler Cowen’s comment that there has been real economic shocks, and such activity will not be contained by imagery. Consumer Spending need to reduce, but also switch to Quality of Product–i.e., longevity of Product. lgl

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