Monday, August 20, 2007

Neo-Confederates & a Financial Crash

Despite all the cheery talk and optimistic pronouncements of the last few months, it is fairly apparent that the financial markets are in real trouble. It seems that the theory was that if you created really complex financial instruments out of bad loans that they were then some how not bad loans. That you could spin gold out of straw by making financial instruments so complex few people understand them.

Also, that ever disastrous method of speculation, leverage, was used heavily and extensively.

Amusing as it is to watch the pretensions of various speakers of nonsense come tumbling down, it does have implications for American politics of a serious nature if the economy crashes. More specifically for crack pot and extremist political groups.

Extreme groups are fascinated by potential break downs of society. They see signs of it everywhere, and they are the prey of the sellers of gold. Though I am not really sure what I would do with gold coins in a meltdown of society or the economy. Would a grocer accept a gold coin, how could he know it was gold and how would he price it? If someone offered me a gold coin, how would I know how much it weighed, what percentage of gold it was (fineness, or carats) and whether I was being cheated by a coin with a base metal core? However, extremists are often gold bugs.

Extremists, or any outgroup with different ideas on how to run society and the economy, can find themselves locked out if society and the economy seems to be working fairly well. Outgroups, extreme and otherwise are not likely to get very far with their ideas as long as things work well. With a disaster, the mainstream ideas become discredited in the minds of many, and there is the opportunity for alternative ideas to get a hearing. Indeed, if there is a disaster, alternative ideas should be considered and will be. If it is obvious that the current way of running things doesn't work, then a better method does need to be found.

HOWEVER, the discrediting of one crazy idea doesn't justify another. So of the many alternatives that might be proposed, the challenge is to find the better alternative and shut out the ideas of crazies, extremists, and crack pots.

The Neo-Confederates are very adept at pointing out that some things that are said by people in positions of authority is rubbish. So do a lot of other people who aren't extremists or crazies. Of course the Neo-Confederates explain current problems in the frame work of their ideology. To them society and the economy have these problems because government, society, etc. has been set on the wrong path due to the results of the Civil War and the failure of the United States to follow the ides of their Neo-Confederate conceptualized South, that is a reactionary ideology with "orthodox" Christianity.

However, with there being a crash in the economy, alternative ideas, whether extreme or reasonable will tend to get a hearing. The representatives of mainstream ideas become discredited and unable to defend the status quo, indeed they may be tied up with just defending themselves.

History has abundant examples of this, where disaster overturns the old order and opens the opportunity for negative as well as postive change. Regarding negative change, it would be very unlikely that the communists would have taken over Russia without World War I and the disasterous handling of it by the Czar. The communists would not have likely taken over China without World War II. Other historical regime changes could be sited.

Positive developments are often only enabled through a crash of the old order. The Republicans had run the country for most of the time since the Civil War up to the Great Depression. It was a time of a cyclical economy with big crashes. However, in 1929, there was a really big crash. In 1932 the Democrats won 3/4ths of the seats in the House of Representatives.

I have always tended to think that claims of impending economic doom are the follies of right wing extremists. Ever since 1960s before I went to college and since, I have run across some prediction of economic doom frequently with the offer to sell gold coins. However, I do wonder what is going to happen this time. It isn't just the subprime market.

My conceptualization is that the economy has been kept afloat by cheap credit and dubious financial speculations and financial instruments. The credit is a way to recycle the trade deficit dollars. That is the money goes to East Asia and elsewhere and it is loaned back to the United States, so the economy can keep running. It seems the economy now days is mostly retail, financial things, and housing, and not much in actually producing things. I see the housing market as just one way of recycling the trade deficit. The money then would run through the economy to suppliers, workers, financial institutions, etc. and keep the economy afloat.

With the collapse of cheap credit, how does the money get recycled, besides China and Japan deciding to just give us the money to spend again?

I guess the Federal Reserve can just flood the economy with money to make it easier for banks ect. to meet their obligations and lower interest rates, but wouldn't it result in inflation? Also, wouldn't the dollar fall? Might it block the recycling of the trade deficit?

If there isn't a recycling of the trade deficit, wouldn't there be an unwinding of the whole economy.

I am not a trained economist, but what I do know is that the economic establishment, various financial news reporting organizations just crank out optimism like so much ground sausage. I don't trust the various economic authority figures. I think a lot of them are shills for the financial markets. I think CNN must have a Sunshine and Silver Linings group. It may be that the economy will have a few hiccups and go on. However, I tend not to think so.

The trade deficit of 600 to 700 billion dollars a year requires that many nations are willing to reinvest it all in the United States and keep it here. At some point this won't be sustainable. With the problems in the credit markets how do these countries recycle their money. How many U.S. Treasury bonds do they need? Why would they invest in things of declining value, valued in a declining currency.

I think we live in a sort of bubble economy beyond just the housing markets. However, like I said it might be that we have a just a period of economic turbulence like we have during the Savings & Loan crisis. Though during the Savings & Loan crisis the United States wasn't massively dependent on foreign credit, China was still Red China, and the cold war was on, where would investors put their money?

If instead, we have a real economic disaster, massive unemployment, I think we can expect that extremists will flourish, including Neo-Confederates. In fact, I think that the Neo-Confederates will do better than a lot of extremist groups, since the Neo-Confederates avoid presenting an image with the markings of extremism. It could be a world where American Conservative was the mainstream magazine of conservatism and National Review the descredited journal of conservatism.

There would be an impact on the left also. Socialists might make a comeback. Or what I think is more likely, some new ideology might arise to challenge capitolism.

All in all it would not be good. Probably the governments will find a way out of this mess and muddle through, lets hope so.

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