Jan

23

Thoughts, from Gary Rogan

January 23, 2009 |

 1. A complete worldwide economic collapse has become unavoidable. There is no way out, there are no realistic scenarios that avoid this outcome. The sooner there is a consensus that playing with shifting debt around is not going to solve the problem, the less dramatic this collapse will be. There may not always be an England:

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, traveling to the City to give speeches praising their "financial innovation".

Palindrome is mostly right, but mostly too optimistic, or at least allows for a solution — but it's kinda like saying "if everyone had at least a million dollars we wouldn't have poverty": nice but deficient in real world applicability.

2. The problem with destroying scoring systems, or at least something that invariably happens along with such episodes, is that that the societal order crashes and burns. It pretty much has to, both as a cause and a consequence of something so serious. Usually there is a lot of shooting, fires, homelessness, and hunger that results. It becomes pretty much impossible for a large percentage of people to retain control of physical assets. The oligarchs or Russia simply outsmarted everyone else, and in many cases out-shot them too. They were not always yesterday's communists and to the extent that they are, which is more common now than in the early years, that was because as the ruling party communists were associated with armed elements, some of whom have managed to survive, and in one case even rise to the very top.

We are facing a worldwide calamity unprecedented in peace time. Just as financial manias happen in good time, what I call "bad meme bubbles" happen to prosperous societies during long periods of relative calm: wrong ideas become accepted because applying them doesn't hurt enough to figure out they're bad. During the rising tide even the overloaded boats stop scraping the bottom. Today really, really bad, long discredited and some brand new ideas are all the rage. Costly and massive cures to difficult problems are accepted simply because some guy says that's the way to do it. The "bad meme panic" will start when the destructive power of bad solutions as well the true extent of the problems become apparent. Through globalization the world has become a much tighter coupled, as well as a more complex, system than it used to. Local positive feedback loops are starting to shake the system, and the resonances in more distant parts from the points of origin are starting to appear. Like the doctors from the Middle Ages, the current shamans will apply more bleeding to the patient shaking uncontrollably after a little bleeding only makes him weaker, which they will explain as the consequence of the underlying disease. They will not stop until the patient dies either from the disease or their "cures".


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