So, the markets were up Monday, and now they have almost completely erased all of the gains made on Monday, and look to end up the week lower than they started it… exactly like I figured they would.
Unless the fundamentals get fixed, all of the bailouts in the world won’t fix things. Liquidity simply isn’t the problem here.
Now, many people are claiming that liquidity wasn’t the problem in the thirties either, and that having fiat currency is the root of depressions… which is stupid because depressions were common when the US was using the gold standard, in fact fiat currency has helped to prevent many depressions, but it is not a perfect system. Fiat currency is inflationary, whereas the gold standard tends to have sudden resource expansions and contractions due to unexpected changes in supply. The end result of a gold standard (or a silver standard) is a volatile economy, much like the one that existed in the 18th and 19th centuries, with regular cycles of boom and bust. In fact, the depression at the end of the 19th century was by all measures except total length much worse than the great depression, with jobs being scarcer, hunger more prevalent, and many, many more people being completely wiped out financially. This was under the gold standard, but was the result of a speculative bubble, much like the current economic crisis. Of course, that depression was ended with the judicious use of cheap oil and the creation of many new industries… options that simply aren’t there this time around.
In fact, our market and employment patterns are very much like that fierce depression (not identical, just similar) and the measures being used to combat this depression are targeted at something completely different, in fact they are such that they are likely to end up excascerbating the problem.
Whatever we do, we only have so much time left with a high energy civilization… maybe it is time to try something a little different, a little lower energy, while that is still relatively painless.