Wednesday, August 19, 2009

What is a Recession?

Give a man a couple of bucks, and he thinks he has a right to an opinion. Consider this Guy! Here he sits in an office, and studies the markets for like half a century. Now I am not trying to put down a fellow Nebraskan, and he is right about the fact that there is about an actual Two trillion of U.S. Dollars too much out in the World; he actually mentioned just One trillion, though this Problem has been with Us longer than the financial crisis. People sometimes forget the basic nature of Recessions, which is a market evaluation that Stock and Product within an economy are overvalued, and market values fall as a result of that realization. These people go on to believe that recessionary conditions can be forestalled simply by inciting inflation–a base degradation of the Currency involved. Anyone who recognizes this is not a perfect Solution can make a few extra bucks by writing something for the NY Times.

What is wrong with using inflation to stop a Recession? Well, one has to look at the problem from the position of your average Investor, which the Guy discussed above may not quite understand. There are two basic forms of investment capital in any economy–Static and Variable. Static Capital depends on Contracts of various forms to gain them a stipulated level of Income. Variable Capital rests upon the profitability of business enterprise, rising with extended business performance, falling with contracted business performance. I put this discussion in these terms to possibly help Understand of the problem. Pumping inflationary Cash into the economy has the basic root definition of artificially lowering the real reward of the Static Capital to maintain the reward of the Variable Capital. It is akin to Mommy playing favorites among her children.

We have found the underlying hazard of inflationary pumping of Cash to forestall a Recession. Government, Economist, and Businessman see such effort as excellent, because it immediately sets into motion a consumption cycle which grants them all an increased Reward. It has a real hazard over the long-term. The possessors of Static Capital attain the same nominal reward, but much less real reward; such situation causing much deterioration of the overall level of consumption, especially as Static Capital makes up over 60% of all Capital. This means that the Inflation has injected a permanent downscale in Consumption into the economy; which when considering the models, cannot be replaced by the new reward system for around 11 years. What I am trying to present is the fact that inflationary pumping into the economy only extends the Recession, and therefore, makes it milder by stretching. Recovery is actually fanciful under these conditions, and a Boom will only come with technological advancement or instrumental economic construction. What is really needed is Government funding of new technology. lgl

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