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Friday, June 12, 2015

Solutions to economic collapse



Back in 2008 Iceland did something different from the rest of the world. Instead of bailing out their banks they let them fail. Instead of rewarding the bankers with huge paychecks, they sent them to jail. Bad commercial credit was allowed to suffer market corrections. In the rest of the world commercial debt became government debt.

In spite of all the gnashing of teeth and predictions of doom Iceland came out of the crisis in fairly decent shape. They did a pretty good job of following capitalistic principles. The rest of the world did a weird kind of socialism, not for people but for big corporations.

Greece is in the news once again. It's in danger of default. In my humble opinion they should have defaulted on their loans and done away with the Euro years ago. It's impossible that their debt will ever be paid. Things that are impossible to happen don't happen. More Euro loans are only an attempt to kick the problem down the road a bit further.

There's some worry that Greece could be the spark that topples an already shaky financial system. The bond and derivative markets are well into the impossible zone, so eventually there will be a day of reckoning. Best I can figure is that day may not be all that far off.

What should happen is all those bad bets be allowed to fail. Yes, it'll be chaos, but only for a while. There are really two economies. There's the real economy where goods and services are traded. Then there's the fake economy where huge amounts of paper wealth is generated. That would be fine except the wealth from the fake economy is being used to buy real things in the real economy. It's like we are allowing people to buy luxury cars with Monopoly money. That can't but help mess up the real economy.

When the paper economy fails, theoretically, the real economy should still be there. The farms and factories have not disappeared. There is still a need for goods and services. As soon as a basic banking and financial system is set up to facilitate exchanges, people can get back to work. The mistake being made now is that financial system thinks it is the economy instead of a small service industry designed to facilitate the exchange of real things.

Iceland let the fake economy go away and punished the bad actors. The solution, while not easy, is simple. Those who's living is tied to the fake economy -everyone from bankers to politicians, have a vested interest to avoid the correction. It's going to be interesting to see how it all shakes out.

-Sixbears

14 comments:

  1. This is the basis premise of the Deep Winter trilogy written by Thomas Sherry. His books dovetail with your own thoughts. I think more people are becoming aware of the smoke and mirrors.

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    1. I'll have to check Thomas out. Thanks.

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  2. My investment advisor tool said to get out of stocks today. Am selling everything and moving to government securities. Will see what happens over the next few weeks

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  3. If that had been done here a long time ago we wouldn't be in the mess we are in now. Too bad we didn't throw the whole lot of them in jail. It would have boosted the economy just building bigger ones to hold them all.

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    1. That's pretty much the way I feel about it.

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  4. Hermit's Baby SisJune 12, 2015 at 8:31 AM

    I agree with you, Sixbears, and Amen.

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    1. Well, glad that's solved. We can move on to the hard questions next. :)

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  5. Investments? Who has the extra money to invest?

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  6. The problem is the crooks/inmates are running the government/asylum. So, We The People, will never see an Icelandic solution to the problem.

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    1. I still believe we can. When a crisis hits the nuts running the asylum will not want to be hung from the street lamps. Surprising how fast things can change when their self interest is at stake. One bunch of bozos will throw the rest under the bus.

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  7. More and more often, I find myself saying, "Only time will tell."

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    1. I keep wanting to look in the back of the book to see how it all turns out.

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