We’re Fucked…RCS Explains The Current U.S. Economic Crisis In Terms Simple Enough For Everyone To Understand

Yesterday I wrote an article accusing the American political structure of using diversionary tactics to avoid talking about economic issues.  After reviewing what I wrote, I realized that the reason that most people don’t want to talk about the economy is twofold.  First, the real issue has been obscured in language most people fail to understand.  Here’s what Paul Ashworth, Chief U.S. Economist at Capital Economics said about the chances for possible stimulus: “ [it] won’t become a reality unless the recovery loses even more momentum or a more severe flare up in the euro-zone crisis raises the already elevated downside risks.” Errp, WHAT?!? Secondly, math isn’t sexy.  No one wants to talk about financial realities (which, if you know anything about them are unattractive on a level comparable to that of  infected nasal zits) when they can talk about peeners and bajingos.  For the most part, I agree.  I WANT to talk about peeners and bajingos, too, but if this country continues to melt down, it’s frankly not going to matter which tackle you have, what color it is, or where you want to stick it. 

I’m not going to say that the economic crisis isn’t a complicated issue.  It is. However,  most of the complicated problems are direct RESULTS of the inherent failings in the structure of the system.  The problems detailed below are largely systemic, and thus approach some level of undertandability.  If you don’t get something, don’t worry — just take a deep breath and remember that modern economic theory is largely bullshit.

1)      America no longer domestically produces the products that it needs to sustain itself.  Put simply, most of the crap we buy, we don’t make – and even if we DO make it, the materials that we make it out of aren’t produced here.  Case in point: denim.  Even if your jeans have a “Made In America” logo on them, chances are the fabric, thread, buttons, and zippers were manufactured overseas.   What does this mean?  It means that America is becoming increasingly reliant on foreign markets to supply the goods and services we imagine that we require.  There are many social, political, and economic harms to this structure, but the most pressing is: We are dependent on markets that we can’t control.  Meaning: if say China decides to impose trade sanctions on the U.S. and there’s no immediate other market for us to purchase necessary goods from, we’re looking at potentially huge increases in price to the consumer (you).  Those price increases translate to a huge impact on the success of the economy – 70% of which is determined by consumer purchases.  Think this isn’t true?  Check out what happened to the economy when gas went up to $4.00/gallon. 

2)      America is never going to be a viable producer on a world scale unless we change our foreign trade practices.  At the beginning of 2012, the population of the U.S. was approximately 312.8 million people, which makes us the third most populous country in the world (behind India and China).  This is a HUGE and desirable market.  Instead of recognizing this, however, the U.S. encourages manufacturers to produce goods in other countries.  Why?  Because those countries don’t have the same environmental/labor/competition policies that we have in the U.S.  Foreign countries have a cost advantage – they can produce goods more cheaply than we can.  So we wind up with $.89 cent tubes of Chinese Colgate and everyone’s happy, right? Wrong.  That $.89 cent tube of toothpaste (which probably cost less than a nickel to manufacture) first eliminates jobs in the U.S., which makes people unable to afford to buy ANY toothpaste, which stalls the economy (not to mention causes huge problems in American dentition).  Not only that, but it’s a self-perpetuating cycle.  If people need toothpaste, but can’t afford to buy even cheap toothpaste, then someone will make cheaper toothpaste by further exploiting labor and the environment.  In limiting access to our ENORMOUS market by saying, “Hey, we don’t allow goods be produced here via exploitive practices, so (if you guys exploit) we’re not gonna buy your crap either” we create an opportunity for manufacturing to flower in the U.S.  Why aren’t we doing this? Because a small proportion of the American population makes big bucks selling foreign goods, and doesn’t care about you not having a job, or about some 5 year old having a career in tennis shoe construction.  The bottom line: if we change these practices, we help secure a future for America, but your toothpaste is going to cost you more.  It’s going to hurt.  Americans will have to tighten their belts and live without some of their luxuries and within their means. No politician likes to say that.

3)      The economic crisis that we’re in right now stems from greedy risk-assessment practices and cavalier poor investing.  There’s a great analogy here that you can read that explains it all much better than I can: http://www.colinandrews.net/2012-Economy.html.  Right now, we’re attempting to save industry by bailing out the assholes who caused the crisis.  You know, the ones who call investments in foreign production companies “diversification” just to fuck with you?  You’re bailing out rich dudes who took a bad risk who are STILL WAY RICHER THAN YOU.  That’s like saving a drunk by giving him the keys to a liquor store. 

This is your brain on modern financial theory.

4)      All modern finance is illusory.  You cannot possess that which you do not have.  Here’s an example: say you have three eggs, but you really WANT six eggs – and you want them RIGHT NOW.  You don’t have anything to trade to buy three more eggs, so you’re feeling shit out of luck because REALLY, six eggs are MUCH nicer than three – AND Farmer Ted down the road has at least six eggs which he’s a real jerk about.  THEN, out of the blue, along comes a very nice man that says he will give you the three additional eggs RIGHT NOW if you agree to give him four eggs in return for the loan at some negotiable time in the future.  “Heh, heh,” you think, “Fuck you Farmer Ted,” and you take the deal.  So there it is.   You now have six eggs in your possession, and Farmer Ted is put in his place – everything is wonderful, right? Wrong.  It may seem like you own six eggs – you do have the care, keeping, and cost of all six – but, in fact, now you only REALLY have two eggs.  Why?  Because if for some reason you default on the loan (non-payment maybe) you have to return three eggs, plus the additional egg you promised to pay as interest.  All six eggs are not actually yours until you fulfill the debt.  Now, let’s take this a step further.  Let’s imagine that you are a notorious egg breaker.  Every egg you’ve ever had in your possession for more than 33 seconds you’ve managed to shatter.  But, the kind stranger chooses to discount your record entirely, and loans you the 3 eggs anyhow.  Then, when you break all six, demands that you repay him – but you can’t because you always break any eggs that you might have.  So you default, and the kind stranger (who took an admittedly bad risk) says to the rest of your town, “Hey, this jerk broke all the eggs I loaned him, and now I’m going to go out of the egg business entirely and all you guys are gonna lose your fancy egg wiping jobs – WHOA IS ME, WHATEVER WILL I DO?” Then the community replies, “Well, we’ll let it go this time.  AND we’ll give you eight eggs because it really cost you something to have to negotiate over all these eggs, and then you’ll stay open, we’ll keep our jobs, and everybody can buy more eggs.”  Then everybody makes money and everything is fine, right?  Wrong, because then the kind stranger carpetbags out and does the same thing on an even larger scale because now he’s assured that by taking bad risks he can only MAKE MONEY.  It gets worse. Now imagine all the eggs aren’t actual physical eggs, but imaginary ones whose value changes depending on the worth of other imaginary eggs worldwide.  Ultimately, nothing real is being traded.  It’s all about risks, futures, options, and interest rates – none of which have the REAL value of say an actual egg purchased at your grocery store for 3 cents.   You can’t eat the promise of an egg.  Bottom line: no one has any eggs –they only have the possibility of lots of eggs.  This is what is regarded as a sound investment practice in modern finance.  And it is, for the most part, in a world where everyone plays fair and keeps their promises.  Is this that world?  Yeah, didn’t think so.*

Here’s the fact of the matter, folks: we’re not going to get out of this by praying, hoping, or changing the topic to a more fun one (peeners and bajingos).  God has not assigned the United States of America favored nation status (no matter how much Swaggerin’ Jimmy Swaggert tells you you’re special), and even if he has – he said that to the Jews, too — SPECIFICALLY IN THE BIBLE –  and look what happened to them.  We’re going to have to transform our entire financial infrastructure.  This problem has been over 30 years in the making; some of these practices are ingrained in our legal system.  Greed and  utter solipsism regarding the welfare of one’s fellow man/woman on the part of a few (with the tacit acceptance of the many)  has changed America from one of the finest economic centers in the world to what it is today: a bunch of individual rats trying to clamber out of a sinking ship.   You’d better start noticing the looming disaster, even if it’s not a very sexy one.

*If you found this confusing, THAT’S OKAY – it’s not based on reality.  Navigating modern economic theory is the equivalent of being trapped in a very bad Trent Reznor acid trip.  Eventually, someone is going to be screaming for Mommy.  The best you can do is hang on tight and hope like hell it’s not you.

Update: Hey, do I need to write something about why the strength/weakness of the economy in America is important to the average person?  Let me know.  If  y’all want to read it, I’ll write it — and I’ll try to make it sexy.  I promise.  In math we call this “gilding the nerd.”

If you’d like to read more about this topic, there’s a wealth of  information available at your fingertips.  Normally I’m not one for citing wikipedia articles, but the one listed is particularly good.

http://www.washingtonpost.com/opinions/long-term-understanding-of-the-us-economic-crisis/2012/03/16/gIQAUJZSLS_story.html

http://www.cnn.com/2012/03/26/opinion/zelizer-economic-crisis/index.html

http://www.colinandrews.net/2012-Economy.html

http://www.financialsense.com/contributors/arnold-bock/a-financial-crisis-in-2012-is-inevitable-here-is-why

http://en.wikipedia.org/wiki/2007%E2%80%932012_global_financial_crisis

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9 Responses to We’re Fucked…RCS Explains The Current U.S. Economic Crisis In Terms Simple Enough For Everyone To Understand

  1. OLIC says:

    Lalalalalala *turns on Grimm* I can’t hear you lalalalala.

    We’re assholes. And we’re fucked.

    • See! No matter how many times you use the word “asshole” in a sentence, no one ever wants to read about math. It’s such a bitch.

      • OLIC says:

        No, I actually enjoy reading about stuff like this, because I actually give a fuck. I was covering my ears because we really are in shitty economic times. I say I’m learning how to grow tomatoes because of my god complex but it’s really so that I’ll be useful when we’re all living in filth. Come and see the violence inherent in the system!

      • Yeah, and have you read about the Fed’s proposed solution? They’re planning on issuing more Treasury Bonds which no one wants to buy because the interest rate is shit. The interest rate is shit because the economy is tanked and buying Treasury Bonds from country that might not exist in 10 years isn’t smart for anyone. Additionally, creating more Bonds is just like minting more money. An increase in the amount of physical money in the world doesn’t increase the value of money. Usually, it decreases it. Bottom line: keep growing tomatos. Maybe plant some beets. Learn to can shit.
        P.S. Help, help!!!
        I’m being repressed!

  2. Chip LaRowe says:

    Must reread. Comment later. After the vodka. And yes math does sucketh except for a few humans some of which I was wont to attend school. They did numbers and I did words. It was even.

  3. Chip LaRowe says:

    Germany. Iceland. We aren’t alone in this global econ. for all the grief they have visited upon Greece, the Aleman have managed to keep up with manufacturing and hold their own. Math has never been my strong suit, but this much i do know. we take in less now than we did under Ike. He made roads, he built stuff and then still had the audacity to call in a tax on it. Until and if we ever get a reasonable and reasoned opposition on the other side of the aisle no amount of facts will ever sway them. I feel they are few and far between and becoming rarer by the day.

  4. Doc Deal says:

    If any of these idiots knew the wing beat of a European Swallow, we might make progress….
    Hell, I was selling shrubberries to an old woman the other day, and some assholes actually stopped and said “Née” to her.
    These ARE PERILOUS TIMES!!!

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