Thursday, June 4, 2009

Graphic Thinking

Mr Richard Shelby, US Senator, said today on Bloomberg TV, "banks which are in distress are not in a position to make loans", so these banks require restoration such that they can extend new loans, then (magically) "confidence will come back into "the system" and the economy will recover". Later today, Bloomberg reported that US consumers are effectively "broke" with a chart showing that mortgage debt is near equal to home values, up from about 50% in about 2006. To which I say regarding the dollars especially those with new ink still drying - "nature abhors a vacuum" a quote attributed to Spinoza, Descartes, even Aristotle. A link to the science of pressure inherent in vacuums is here

So what does it mean?
In a political context, the phrase refers to power vacuums -- if an important person or agency abandons their 'role', another soon takes it's place. In this case, certain, not all of Wall St entered the power vacuum created by the inaction, inability at the SEC, took supposedly legal information, and evaluation and valuation advantages thru use of hidden special purpose entities (SPE's), Structured Investment Vehicles (SIV's), off balance sheet entities, derivatives and credit default swaps - almost forgot the 2000%, 3000%, 4000%, 5000% leverage upon same and more intra-quarter during 2004 to 2007.

Hypothetically, if the number of prostitutes increases will it cause an increase in tricks? Yes. Will the prostitutes' revenue increase? Yes. Will the dollars paid increase the same as the increase in tricks? No. Why? Because as you increase the supply of anything the price of it will go down. And the more tricks provided to the customers the less and less and less the customers will return for services. In other words - they've had their fill. Satisfied themselves. Fully satiated.

The US and its elected public officials are foisting a similar artifice upon the taxpayers and creditors of US debt. Not only are there trillions more dollars (as above, worth increasingly less and less) but there is more and more debt. Get it? Inflation in and of the economy is the hoped for rescue; precisely a Goldilocks economy is the only thing that seems to offer any hope.

Consumer analysis - final demand measures.
You see, the US consumer is, as above near broke, done spending on non-essential items - what more is there left to want? For instance, how many new books, cd's, music, movies, shoes, handbags, Nike's, cars, trucks, perfume, make up, er skin care products, name any other product from and the like can we endlessly continue to order and devote the time necessary to consume or more important, find space in the closet. Fortunately, Congress has not figured out a way to increase the number of hours in a day yet; no doubt someone is thinking about this economic bonanza. Back to prostitution. Once, we have satisfied ourselves - what happens? Correct, we don't have the same urge anymore, hence the demand goes down.

Back to Mr Shelby, the US consumer - the overwhelming 800 pound guerrilla in the world's economy is fully satisfied after satisfying itself during the 2004 to 2007 time frame. And some, myself included, with a larger social economic world view, say over the past 30 years.

One last final observation on consumer spending.

Consumers' conversation with self.

"OH I just have to have that pair of shoes, new breasts, sports car". True.

I'll be sooooo excited, sooooo happy, soooo thrilled, so much more attractive, so popular, a new conversation piece. True.

Until tomorrow.

The let down comes, inevitable, inescapable.

It's not that they are not the perfect color or shape.

It's not that they don't look great.

It's this.

It's largely superficial, self packaging, external.

When the cause of the initial drive and desire comes from within, a conditioned-by-advertising perceived need, a seeming deficit, we are led to think some thing's missing within ourselves, yet this much is true. The answers lie inside.

Is it any wonder, (thanks David Bowie) that Beverly Hills has more psychotherapists per person than most if not all other cities in the US? Wealth, money, spending and consumption does not, can not and never will buy happiness.

Said another way, what is the half life of happiness from buying a new product?
And to close, John Lennon - "all we need is love" - to which I add "and not anymore stuff".

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