New Depression, Old Whipping Boy

Can't be that we're in a Depression, could it? But, yeah... Let's beat up on 'protectionism'. Just what the globalists ordered.

Granted, I've only been studying the likely track for the Second Depression for about 34 years -- since I was introduced to the concept over a couple of martinis at Trader Vic's in Seattle by the late Dr. Paul Erdman; so understand my knowledge of how depressions work is limited.

But one of the key things that seems to be playing out now - as was played out in the previous Depression - is the false assertion that international trade and protectionism might somehow be a part of the evolving global financial mess. Specifically, the headline "President Obama to water down 'Buy American' plan after EU trade war threat" underscores for me how the globalist elites are willing to do anything they can in order to protect their system of worker exploitation under the thin guise of 'global prosperity'.

Since I'm still down with the flu (although it seems to be running its course) let me give you the short tirade about how global trade works:

Rich corporations with no allegiances to any country scour the world for least coast labor and the highest profit margins.

They 'build low - sell high' globally.

What's being called 'protectionism' is nothing more than 'field-leveling' at the worker level and if you haven't followed my suggestions in the past, a 5-minute study of a concept called 'purchasing power parity (PPP) lines it up nicely.

Ok, that's how international trade works. On one side of the equation you consider the costs of making the product in the country of use. If you make a product for the US in one of the US states, you would have to pay whatever the prevailing local labor rates are, taxes, and of course materials costs. If you make it offshore, the equation is cost of production in least-cost country, cost of shipping, currency exchange rates, duties and tariff's (which are pretty much gone) and the tax savings because the goods are now an offshore good.

Easy to see why America's largest IT operation is India and why Kia is challenging upscale German road iron. Got it?

Why You Should Embrace a Depression

OK, you're thinking, if the first Depression was a function of normal financial system overshoot - where prices of certain assets were run up out of all proportion to underlying valuations, which in turn could not be corrected without catastrophic results when pricing power collapsed in the late 1920's, setting off the fall of the house of cards then, where did the blame for Smoot Hawley Tariff Act come from?

Clearly, an increase in tariffs had some impact of international trade:

"Using panel data estimates of export and import equations for 17 countries, Jakob B. Madsen (2002) estimated the effects of increasing tariff and non-tariff trade barriers on worldwide trade during the period 1929–1932. He concluded that real international trade contracted somewhere around 33% overall. His estimates of the impact of various factors included about 14% because of declining GNP in each country, 8% because of increases in tariff rates, 5% because of deflation-induced tariff increases, and 6% because of the imposition of nontariff barriers."

Now let me ask you something - because as an economic fundamentalist I have to make a point here: Where is it cast in stone that we all have to work harder and harder just to keep even? Where is it cast that more trade is better? Isn't it just possible that ever-increasing trade simply ramps up the burn-rate of resource depletion?

If you want to solve most of the world's growing list of environmental issues, here's a dandy - simple solution: Have everyone start working 3-days a week. All of a sudden, greenhouse gases, energy depletion, and all kinds of other problems become manageable. Focus on the stuff that matters: gardening, reading, personal relationships...forget the dollar mania! Let crooked banks fail - the country made it through the crisis in the past, and we will again.

However, as long as the manic high tech lifestyle fixation can be promoted the interests and excessive gambling debts (via derivatives) of the multinational/anti-human corporate giants will be blamed on 'trade laws.'

What's missing from such simplistic analysis? The real causes of any depression I've ever studied seems to come around to unsound money, speculation, excess production of goods leading to a lack of pricing power, in many, a key technology change, and famine.

In the 1930's example, the unsound money became clear when the government had to confiscate gold. The excess production was evident as farmers dumped milk and burned crops because they couldn't get enough money to make their land payments; prices had fallen so low. That was all set up by the fundamental change as gasoline powered equipment replaced 7,000,000 draft animals (mostly horses) that had been used to power American agriculture in the early 1900's. It was the displacement by a key technology that was the kicker. It's notable that as draft animals were going by the wayside, a new technology - radio - was coming to the fore.

Just as the fundamental technology cause of the Great Depression was spelled out by Richard T. Ely in "Hard Times: The Way In, the Way Out" and it was accompanied financial excesses, so too, today's economic depression will, I expect, over time be shown to be a result of Moore's Law in computing having huge impacts on our 'old ways of doing things'. Oh, accompanied by what? Financial excesses and criminal behaviors, just as before.

Automobiles, tractors and their combined massive impacts on the economy of the 1920's caused the displacements which resulted in the 1930's Depression. The internet, massive computing horsepower, and human displacement by robotic automation are all in the process of revealing their huge economic impacts in this latest Depression. Pretty simple concept, huh?

Amazingly, most mainstream economists are busily coming up with new formulaic dispensations from their ivory towers - just like the Keynesians did - ignoring the fundamental dynamics of systemic change.

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What's really going on, as I see it, is that the losers who made bets which have soured because their projected futures gains not take the cumulative impact of underlying technology changes into account, don't want to be held accountable for their debts. They want you to pay.

As a result, the Nation's money is again being debased by printing up more than is justified on a goods production basis. Simple, huh?

The reason you don't hear about realists like Ely, and instead B-schools force-feed Keynesian economics is that the latter argues for Big Government. After all, one of the biggest problems to the Keynesians is that of "Excessive savings".

"To Keynes, excessive saving, i.e. saving beyond planned investment, was a serious problem, encouraging recession or even depression. Excessive saving results if investment falls, perhaps due to falling consumer demand, over-investment in earlier years, or pessimistic business expectations, and if saving does not immediately fall in step, the economy would decline."

Saving money causes depression? I file this kind of stuff under the heading 'crack-pipe economics'.

Let me see here: How did the 1930's Depression work out? Big Government held hearings and concluded in a marvelous example of self-justification that the answer was what? More of the Same! More BIG Government. Woo hoo!

Say, do you think that's why something that cost $1 in 1940 costs $15.40 today, do you? Naw...tell me it ain't so!

Want some more economic heresy? OK. "Why do humans work?"

There's an obvious failure of the economy to perform as touted when only one of my parents had to work 40-hours a week to raise a family and own a house, a car, and a TV...while in today's world, some 40-years later, not only do both parents have to work 40-hours a week, but one just got laid off and the house has been foreclosed. WTF? Two parents working was once a choice. No more - yet the political types insist the Nation has made progress. Oh yeah?

The greatest con in the world is that somehow going from one family member having to work to support a family to both parents working is sold as 'progress'!!!

Keynesian types can be excused, as they are in the business of paradigm preservation. What they have yet to be held accountable for is that in their slander of 'savings' they have caused it's opposite: Unchecked debt inflation.

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So all this related to this morning's headlines how? Lemme see....

Panasonic is cutting 15,000 jobs, shutting plants. Excess production compared with demand has destroyed pricing power; a modern-day analog to the dairy farmers dumping milk in the late 1920's.

"Job Loss, oversupply weakens multi-family" housing outlook for the balance of this year says a report out of St. Louis. Does this mean apartment house prices could come down hard? Maybe...

Bright spot? One of the most interesting headlines of the morning - which isn't being trumpeted by the MSM is the story out of the Reno area that an "Assessor to ask for decrease in assessed property values."

The Keynesian hangover - massive growth of government - continues to build unchecked. This part of an article in "Contrarian Profits" caught my eye:

"As crisis investing strategist and Contrarian Profits editor James Dale Davidson says in the upcoming issue of his new trading service Crisis Strategy Alert…

Senator Charles Schumer, who closely follows the banking crisis, estimates the costs of the next stage of the bailout at between $3 and $4 trillion. If true, this means U.S. banks and broker dealers are effectively insolvent. The system’s capital base is $1.4 trillion. If losses exceed $3 trillion, which amounts to just 1.8% of the derivative exposure of the three biggest money center banks, then the system is just insolvent, it’s deeply insolvent. This is a major change in the financial game. And it’s unlikely that the government can simply ‘fix’ it without causing other severe stresses in the system. "

Turns out a number of states - other than New Hampshire which I told you about earlier this week - are considering petitions to Washington saying, in effect, if we didn't grant you power specifically in an area of governance, we're not going to take marching orders from you.

Examples include Washington State, Arizona, Oklahoma (from 200, and Missouri.

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So when does the American Dream end? Maybe it already has. You're just a little behind the curve since about the only fellow on MSM getting it right is Lou Dobbs who points out with some regularity the absurdity of the so-called US Chamber of Commerce opposing "Buy American" initiatives. Slick paradigm marketing, huh?

"US car sales below 10m despite discounts" says the Financial Times. But that isn't the story. The real kick-in-the-ass is that

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