Earlier this year in my post titled: "Ideal form of money - Power to the People", I posted how the current money system is doomed, and a new form of money is required. Well today I discovered an evolutionary step towards this future .... bitcoins. (click)
I haven't fully absorb how the system works, and I doubt that the way bitcoins today works is fully flushed out to replace modern currencies....but the mere fact that others are driving to find new currencies is very encouraging. Bitcoins even have an currency exchange! 5 Million USD traded in the last 30 days. (It's a start!)
Below is a short video, that obviously can't answer all questions. In the weeks to come, I'll post more about bitcoins and I'll assess how it matches up to my post from January.
It is only a matter of time that a new, decentralized, people driven (rather than government driven) currency materializes. When that happens (10 years+ from now?) the world will be a better place for the bottom 99% of the wealth population.
For centuries money was based on gold, and some civilizations successfully used fiat currencies for a while. However each form of money has failed to serve man’s purpose over centuries. This is because each form has flaws, and each is not a pure form of money.
Please refer back to my post on “what is money” to understand my position of money in detail. In essence money represents a debt. For example, I give you a bushel of corn I grew; you give me an IOU, and may give back the IOU to make me shoes when I need them.
For sake of argument, there is no difference between a US dollar and “credit”. Both represent the same thing, a debt owed for work done.
The problem with fiat currencies is abuse of the system. It is easier to produce no work, and just create money to get work. This has been the downfall for all fiat currencies throughout time. I recommend you watch the video on my post “Niall Ferguson: Empires on the Edge of Chaos” on to how this manifests.
The problem with Gold is, it doesn’t represent work done and a debt owed. It represents a physical material that it has value as a material. Therefore new work done cannot be symbolized in the form of money, without waiting for some miner to dig it out of the ground, manufacture it, and distribute through the banking system to my account.
In essence, the society can be only as prosperous as the mining production to generate credits for “new work”. In some cases of work, such as I mow your lawn, then you shovel my driveway create a wash, but the gold coin still must pass along the economy, and is required to do another activity.
And at any point, since the gold does represent physical value for material in jewelry or other uses, people can simply melt coins to be used for their business and sell for a higher amount of gold coins in return. Or worse yet, the rich accumulate the coins, removing them from the system, creating money shortages for the less wealthy, causing severe depressions and economic hardships on the have-nots.
The whole idea of gold as money outrages me that people cannot think of money in its purest form. It is suppose to be a guaranteed bond, akin to signing a contract, which work performed can be used to get work in return. It is universal, meaning the person who gives you the currency doesn’t have to be the same person you give it back to.
The problem comes in that individuals, companies, states, or governments would rather just make new money than create work to back the new debt created. This perversion of not having money represent work done and work owed is what we are witnessing by the actions of the Federal Reserve Bank. Ben Bernanke, in effect, is trying to show the world, that US does not have to honor repayment with new work, it can repay with sleight of hand and new paper IOU that will never get repaid with work. It is a dangerous game, which has shown throughout history to typically end with the loss in faith in the currency and destruction of the government’s ability to operate. ** UPDATE ON THIS VIEW, "Bernanke Villain or Hero"
I am more concerned over Ben Bernanke than Osama bin Laden. Americans are aware of the dangers that the concept that Laden and others promote. To kill thy enemy at any cost, with most impact possible given the resources at hand. While Mr. Bernanke is put on the covers of magazines as man of the year and he himself takes credit for taking actions to “make people feel better so they spend more”. In that single statement, admitting, that he has not taken fundamental actions to make the situation improved. Unless you consider feelings as equal as a promise kept and law enforced.
Current Money Summary
Currently, there is two views of money, Fiat and gold based. Both also can have credit issues against them, generating their own form of new money. In both cases they have weaknesses. One for abuse and the other for holding back prosperity of the people. I recommend watching the video “Secret of Oz” for more on this background.
New money attributes
Once again, the problem is societies knee-jerk reaction is to answer with what you know. By choosing past money systems that have repeatedly failed in history, we guarantee the money system will fail again. What is needed is an improved form of currency. One that can do the following.
Enforces that work done is repaid with work done. If work isn’t repaid, that money is lost, and the impact is against the person or company that FAILED to repay the work. They take the hit.
New Money can be created literally out of thin air. All that is required is you perform work, and someone else receives the work. The one receiving the work now has a debt in life that must be repaid. This of course, is called credit. When you have no money, but need to create money out of thin air.
Amount of credit given to an individual is finite, determined by an open market competing for your business. For example, if GM needs more money, it can obtain credit from the market place (creditors) at a rate of interest determined by the market place. A free form of pure capitalism is required, and transparency into the applicant’s finances is crucial for this to work.
No one entity can create new money outside of the process. There is no grand puba called Federal Reserve Bank Chairman that can bequeath new money unto the minions of society. A fair system for all to ensure that work done will be paid back with work done.
Money can be freely transferable to anyone the possessor dictates. This transfer is automatically subject to taxation, with no exceptions. Perhaps a 1% flat tax across all of societies work effort. The tax is to ensure the business environment is concussive for work. This will provide incentive for governments to improve work conditions, as it will generate more tax through more business being done. The government carrot is in effect, like the profit of McDonald's. More business done = more income.
The system is secure, provides transparent accounting, and is governed by an open board. All work done by the board to propose changes to the system (refinement) must be done on a public web site, subject to public voting and public approval of EXACT changes being instituted. All new rules subject to 12 month revocation period by the same public voting system.
I have a slightly slanted vision, based on what I know, computer systems.
What I envision of course is a computerized marketplace where all money is stored electronically. It may in fact be a global currency. However, I am NOT in favor of a global currency, as such the risk of global failure due to corruption is too high. Instead I think what is required is to allow any company to create a system, using open review and process, to be a viable storage of wealth.
Electronic Money
For example, EBAY could create it’s own form of money, and then interface it’s money using a “currency exchange rate” to Amazon. Only in the spirit of private competition coupled with mandated open transparency can result in an evolving framework that will result in an optimal system. Over time, the currency systems that are found to be the most trustworthy will rise to the top.
Let the marketplace of ideas and private enterprise provides a solution. One of the solutions of course, I would expect would the equity exchanges, future markets, and other financial systems. The monetary rate of exchange between systems must be an open, market place where rates are found in a capitalistic fashion. No backroom deals to gain unfair market advantage.
Alternately, a single entity could be created by each country, separate from the government. But I suspect the same human tendencies to corrupt would creep into the system, as always happens with a monopoly.
You may be surprised to learn, that this is already occurring, in a form of new money through a web site called listia. They provide trading of goods without money. But they have a form of credits to help even out the valuation differences of exchanges. I think this system is just a small example of how this would work, but what is also needed is strong transparency, strict financial accounting, and public review of refinement to gain and maintain trust.
With such a system, the goal of allowing new money to come into the system can be accomplished with credit, objects, or services performed, allowing the economy to grow. It also enforces that no one entity can create money at will, that the same process is used for all. That governments or private banking cartels do not have a monopoly access to money creation. This practice is what introduces abuse, currency collapse, high inflation, or just plain old lawlessness and fraud. Unfortunately I doubt my vision will happen in my lifetime. People will try all they know to stick with “what they know” and not dive into “what they don’t know”. For now, it will be Fiat currencies and asset-backed money, both issuing pain upon mankind until demands for a new system emerges.
Such a system could be tested at first in different sites, organically growing as weaknesses are exposed, correct, improve, repeat until a tight, fraud resistant system is established.
Back to RealityI suspect if there is a US currency crisis, the solution will be a new global currency, ripe for same abuses. Or a basket of currencies that represents the single currency, gold, etc. There are multiple reasons, first, people answer crisis with what they know. Second, those who have control of money supply of course, want to keep that control. So the evolution into a new, better system is likely to be a pipe dream that may become a reality long after I am dead. In the mean time people can experience the error prone road of reverting to failed systems in an attempt to fix the prior broken system. And only after other refined broken models are proved flawed and discarded, with a new one be sought.
When reading this post please do not get discouraged about the negative view in the first part of the post, there is a positive ending. I encourage clicking on links to read up on details of other concepts already covered. Grab a coffee, throw some tunes on, and prepare for the rant of all rants , exploring the driving causes of the global crisis.
Demographics is the core issue to economic crisis.
Population demographics is key to promoting growth in all areas if human economic health. The US baby boomer generation is a classic case of how that demographic propelled US economic growth after world war 2. The baby boomer demographic effect was jumpstarted with the end of World War 2, and the US production capacity was in-tact, while Europe, Japan, and other countries involved in WW II production capacity was damaged. With the end of World War 2, America experienced economic growth at first due to the production differential, then extended through the life of the Baby Boomers.
I encourage readers to seek examples of this perspective if needed to understand how key demographics is to economic growth. I myself have posted a similar thought relating to asset price increases in my post “Pyramid Valuation scheme”.
More recently, Japan has been a text book example of the opposite effect of demographics promoting economic prosperity. Japan does not have significant immigration of newer, younger workers, while at the same time the demographic has aged. Japan’s population is entering retirement in significant numbers, resulting in the population skewing to cost vs income. Japan, unfortunately, is entering into this period after pursuing for years Keynesian economics of burning through the countries life savings in an attempt to promote economic growth. ( The US has always done the same, but has only entered into extreme spending since 2008. )
The result for Japan is as their population shift creates an economic imbalance that cannot be possibly be supported by the number of retirees vs number of remaining workers occurs. Japan’s debt to GDP is about 250%. Meaning, if Japan’s economy produces X, the deficit is 2.5X. As anyone who looks at their own personal finances, it doesn’t take a math degree to see this trajectory is headed for Japan failing as a nation. The “good” news is, if Japan’s government collapses, the event solves the economic problem. The “bad” news is, the retiree’s quality of life will be destroyed, and the transition for the Japanese may be a violent one, resulting in a government that may not be democratic.
At the heart of the world economic issues lies this demographic problem. The US and Europe have a similar demographic wave now approaching the same problem. The US is ramping up deficit spending AHEAD of the financial crisis of the boomer retirees. In effect spending the countries life savings to try to maintain quality of life. Similar to Japan’s approach, this is assuring that when the baby boomers need Social Security, Health care, and other services that US WILL NOT be able to able to provide these benefits. Alternatives can be to deny payment of services. However, my economic pessimism comes into play here, where I do not see the strength of leadership to pass legislation to slash benefits of pensions and government services to the aging generation AHEAD of a financial crisis for the US government.
Combine this baseline economic driver, with dependency on China, foreign energy, illegal accounting methods prior to 2008 causing massive mis-allocation of resources, a perfect storm is a brewing.
The good news for the US, if you can call it good news, is other countries have problems that may be worse than the US. Europe has more fundamentally economic issues than the US in some aspects, resulting in the current crisis-of-the-week for their country members. Canada and Australia in 2011 will enter into a real estate crisis, driving a similar banking crisis that America has already entered. Further, China has engage in practice of burying its financial problems by diving into country wide real estate ponzi schemes, producing entire cities built that no one lives in. What we have here is global economic hot potato, where each country tries to make sure they don’t lead the world into the financial abyss.
But I digress. Back to point of Demographics as the underlying issue.
The world is headed towards for the first time in human history, to be a race that is contracting in population rather than expanding. It is debatable when the peak of human population will occur, 2030-2060. Counting which year it occurs missed the point. Since the dawn of organized governments, a shift is near. This shift is driven by the westerners producing less than 3 offspring per couple on average. China has a law making it illegal to have more than 1 child per couple, assuring their own demographic crisis sooner than expected. Only India has a health demographic promoting endless next generations of people to promote economic demand.
This global demographic peak will cause catastrophic economic results under our current economic system. Just about all aspects of asset based resources has depended on a ponzi-type scheme where the next generation is larger, and can absorb the previous generations debts and create demand for assets. (This is focused on number of PRODUCTIVE people vs social recipients or retirees) The mere fact that humans have never experienced a global downward shift in population growth should send loud alarm bells off that society is not prepared for this event.
Now that the problem is well defined, lets explore government re-actions.
Government Actions to mitigate the pending crisis
A key point to understand about all humans is that they answer a problem with what they know. Very few but talented people are able to answer a problem with information they do not know. Let me give an example: Let’s say I ask you to create a filing system for a doctor’s office. How would you do this?
Most would likely answer with buy filing cabinets, and some sort of paper indexing system. I’d propose an electronic system where the office would be paperless, using computer software. Yet other people may have different answers. I could write for pages on ways to solve what up-front seemed like a simple problem with a different answers.
However, the key for this discussion isn’t what the BEST solution is. The key is to understand that the person responsible for solving the problem chooses a solution they think of. Also, out of the solutions thought of, which is economically viable. These two factors, able to even think of a solution, and able to fund the solution drives to what the solution selected becomes.
This is a true problem in society, where the best solution is often not chosen due to lack of knowledge or short term economic affordability over long term economics. I witness this daily in every problem I observe. Luckily I work with some key people that are well skilled in answering technical solutions with what they DON’T know. It’s difficult, made easier by Google, and it’s the right approach.
Ben Bernanke of the US Federal Reserve bank is viewing all problems through the lens of a banker. Ben’s has approached the issues he sees by responding to the problem that many banks are insolvent. By Mr. Bernanke by buying debts at prices inflated by 50 to 75%, printing money and give it to banks at near zero interest rates, paying banks interest on money they deposit to fed (and originally given through purchases!) he has responded to the current problem. There are many other examples of Bernanke’s attempts to prop up the financial system. The problem I have with Mr. Bernanke is his lack of imagination, and he answers with what he knows. But his role in life isn’t to be imaginative. His role is to do EXCACTLY what he is doing. To be a tool of the banking establishment, and answer problems the way a banker would answer them. For this, I give Ben an A+++, he has done a superb job of answering the financial crisis with steps to push out a global banking failure. A tip of the hat Ben, for a job well done to meet your goals.
But these actions do not attack the heart of the problems, which include demographics. Demographics isn’t the only problem, but it is by far the lion share driving the crisis to a head. It is a race against time, until the baby boomers tip the western countries into insolvency. No amount of financial banking ponzi schemes can avoid this crisis. Ben can react to crisis, he can kick the can, he can even inflate money supply in an attempt to make paper assets look great. But a quick fix often leads to a quick fall. It is not a solution, and Ben’s own words prove this. When you listen to Mr. Bernanke, he talks of “to induce consumer spending, the goal it so make the consumer feel confident to spend more”. How does this solve anything long term? Shouldn’t economics be based upon growth of industry? Growing economic fundamentals? Technological innovation to drive productivity? The answer is simple, that’s all Ben can do, he answers with what he knows and is allowed to do.
So the problem isn’t Ben Bernanke directly. Ben, unknowingly is driving the crisis to much worse levels, by delaying reality and allowing leaders to avoid dealing with core issues facing society. After all, drastic steps do not need to be taken, all is great! Just look at the stock market. Ignore 9.6% official unemployment, upwards 16% true unemployment, and skyrocketing debt. True growth, according to Ben’s own words, is making people feel good. And soon, we can expect this to solve the demographic driver?!?
Obama has done similar with what he knows. He tried to pass legislation to attack the health care benefit cost problem that the baby boomers are bringing. If he had succeeded, the government could have forced doctors into debt slavery, to have them bear the cost of funding retirees health care. That combined with Social Security being indexed against inflation EXCLUDING energy and food, two of the biggest monthly cost for retirees, would have kicked the can further for the crisis the baby boomers bring to the government balance sheet. The problem of course, all of this is a band-aide. Obama, who is not a visionary of change, answers with what he and his staff know, legislation to kick the can. Again, I am not condemning Obama, he just lacks the capability to answer with what he doesn’t know. In short, he is not a visionary. Him and majority of congress answer with what they know, legislation in can-kicking.
There are many other actions being taking by various governments. From what I have read, the common theme is answering a problem with what they know, None are answering with what they don’t know.
What we know
Let’s look at the “what we know” as answers that could solve the problem, but no one wants.
Possible “what we do know” solutions
Cut benefits, those who retire can live by kindness of others or work under duress until you die. NOTE: Wages would drop to minimum wage for lion share of retirees, due to too much demand for a job to live.
Have a global event where the aged are permanently retired, possibly through disease. (h1n1 event?)
Force the younger generations into debt slavery, raise taxes to 50-75% of income.
Encourage people to have kids en mass now, and prepare those children for the workforce by as soon as possible, time is of the essence to serve your elders!
A complex mix of all of the above.
Throw in one or two others you can think of. Perpetually increasing population through births has problems that make it not a viable option. Society cost of investment into child rearing at a time of financial duress, natural resource shortages caused larger population, and society willingness to bear more children.
Point is, all are painful events no one wants. The problem is hard, and a solution must be either painful or NEW!
What we don’t know.
This brings us to where I have hope, answering what is a global human race problem, demographics shift. Such a problem deserves to be thought of as solvable ONLY with what we don’t know. After all, this is a new problem in human history! Those who think pulling paper levers, re-architecting social ponzi schemes, are not thinking at the correct view level. This problem must be attacked at it’s heart, how can the demographic issue be mitigated.
The answer therefore does not lie in money, or can kicking.
To arrive at what we don’t know as a solution, first, we need to analyze the issues derived from the demographics. They are:
Ability to work is directly correlated to physical health. So able to be a productive worker can be linked to age-related health issues.
Willingness to work is often related to perception of lifespan. People work their entire lives dreaming of the day they can “retire” and take it easy. Most cannot be inspired to work hard at age 75, when they believe they are about to permanently retire. Lifespan effects willingness to work.
Cost of health care unto society skyrockets with age. (related to ability to work)
More workers than retirees - In essence, further kick the can by having more people producing than living off workers. Or alternately if possible construct demographics to be perpetually structured this way.
You may think of other problems retiree’s bring society, but from a financial perspective, I believe this captures the heart of the big problems.
What if, the diseases that come with age, are equally pushed down the chain, by 20 to 40 years? (News 5-22-12)
And given technology, if we can push the demographics out the new time given to society will likely bring yet the next innovation to kick the can further. (I find it disturbing that I find myself proposing a can-kicking solution, but more time will allow for the next solution.)
Think about it, if you knew with relative certainty, your lifespan would be on AVERAGE 100 in relative good health, working until 90 is not that crazy. Lets look at the “burden” of cost for each person’s unproductive years. Currently in USA, using average life expectancy rates.
Age 0-21, and 65-78, 34 years requiring support, with 44 years work. 56% productive.
Age 0-21 and 87-100, 34 years requiring support with 66 years of work. 66% productive.
This produces about 17.9% gain in productivity! That is absolutely huge!
And of course, if life expectancy can be increased to 120 years on average, the gains are unbelievable.
Now, how realistic is this? The genes have already been found and current research is underway right now to show how to increase lifespan in mice. I doubt these early trials will yield a solution, with lack of funding, many years of testing lies ahead to find the right solution. But if society targeted areas of what we don’t know to solve for the demographics issue, the solution would be found sooner.
Such advancement would delay cases of age related diabetes, cancer, dementia, and other diseases. Each human would have a longer period of higher quality life, extending the quality of life we have accomplished in the last 100 years through physical environment improvements.
In this case, I would expect people gladly having their life expectancy extended to 100 years, in exchange for working until late 80’s. The ultimate “what we know” is we want to live.
The demographic crisis or other core society problems need more answers with what “what we don’t know”. More brain power is needed to creatively propose solutions on addressing the underlying problems society faces and less to dissecting the unfolding of the global financial crisis like critics of a bad movie. Extending people’s lives is by no means the only answer, or proven possible and affordable. I encourage others to propose a creative solution that is realistically supportable by the will of the people. The financial crisis is a reflection of the underlying society structural problems; it is not the root cause.
I am a little skittish about the presenters credentials, but good speech.
Interesting video about overpopulation not at root to poverty, just the opposite.
I recommend watching the full video available on Youtube.
This compliments how gold produces worse inflation/deflation swings than fiat money, explained by Karl here: (A MUST READ, and video below)
Human nature is such that the default behavior is to react to issues, and not spend energy to prevent a problem from occurring.
There are many good reasons to operate in such a way. For example, what you think is destined to be a huge problem, I may see as a non issue. Such debates on decisions fall into the political arena to decide. There is no clear cut answer that can be scientifically proven beyond a shadow of a doubt to be justification for acting before a problem occurs.
Example, your health
As a quick example, we all know that being over-weight increases health problems. Yet are you as fit as possible? Do you have a washboard stomach? Why not? Study after study has shown exercising and keeping fit will lead to a healthier, longer life.
The answer is simple, although statistically you are at risk, there are still some people, no matter how few, where overweight doesn't seem to adversely affect them until well over 70 or beyond. Therefore, all of us justify our lack of being at an ideal physically may not be a problem.
Now, how many people after having a near death or mild stroke experience lose weight and exercise? I don't know the statistics, but I'll but anyone 100 bucks the number of people who get serious about being healthy is higher AFTER having a close call with death or impairment, than those told by their doctor proactively improve their physical health.
What does this have to do with financial investing
I believe part of the financial crisis that was originated in 2000 continuing to today is due to Human Nature to react. Each legal entity in the financial area contributes to the situation with What they know, rather than the best answer.
Ranting and yelling by the FBI, by the US comptroller , or by the people (blogs) can have an influence, but not change the course. The participants will continue to respond with what they know, until it is proven, beyond any shadow of a doubt, and society demands and enforces change.
And therefore the financial and political trajectory MUST come to a huge failure, due to human nature, to have meaningful change. The manifestation of that failure, is debatable.
What about the exception to the rule?
There have been leaders who truly lead, rather than reacted. However, people of such character and independence are scarce in today's US government. Those that are in the government that have an independent, righteous attitude are often cast as fringe, or dismiss-able. They are labeled extreme, or unstable.
So while it is POSSIBLE that the world financial issues will not result in a crisis moment, the US government has not shown the capability to do so. I have well documented each step of the US government in my Financial Ground Zero series.
This post will be used in a subsequent post to make a case for a US dollar failure.
In the history of politics, I dare say 99.5% of all political bodies are heavily beholden to the industries that fund those parties. In a country like Saudis Arabia, the oil companies majority the dominating of influence of politics. In Afghanistan, prior to US occupancy, by far the largest influence would be the warlords selling their poppy seeds abroad. You can go through each country, look at it's prime industry and you will find undo influence in policies.
In the USA, there was a time when manufacturing owned the USA. From the 1950's through 70's, it is clear that manufacturing and local industry ruled politics. Remember when tobacco was given by doctors as a sedative to calm nerves? Even when tobacco was becoming regarded as a health threat, it took decades to get tobacco labeled with a warning. This is no accident. Many US states where funded by the tobacco industry and resisted any changes that would adversely affect it.
For various reasons, the US manufacturing base evaporated, that can be a topic of a different, long winded post. Between the 80's and today, it is clear the largest influence on American politics is the financial industry.
To prove a point, lets take a look at last week. If you haven't heard already, it has been exposed that banks have not been keeping legal documents on the housing it owns, for a wide variety of reasons. One theorized reason is such documents, if produced, could be used to prosecute banks for fraudulent loan practices.
In any event, the problem has been dubbed MortgageGate.
The solution should be straight forward, enforce the law. The banks knew the law, and had to track houses worth upwards of millions of dollars with proper documentation, just like me and you must. Therefore, a bank should not be allowed to foreclose on a home without producing proper documentation.
How SAD is it, that none of these states enforced the law, until this came to light through internet media and small media outlets.
Mortgage Gate Reaction by US government
The US congress and senate passed by a VOICE vote a new law HR 3808 called the Interstate Recognition of Notarizations Act of 2010 that would in effect, absolve banks from having proper legal documents to foreclose on any real estate. This act was waiting for President Obama's signature, when Mortgage Gate exploded across the internet. Thankfully, the exposure of the government altering legal process and excempt banks from following it, applied enough pressure for Obama to not sign the bill.
As for halting the foreclosure process, I for one believe this actually benefits the banks. By not allowing foreclosures to proceed, banks many continue to record the bad loans at full value, and not realize losses until the foreclosure completes. In a strange way, I think the banks wanted foreclosure gate, as an option to stop the realization of losses. But I digress.
Now that the US government failed to pass laws to make it easier for banks to foreclose without documentation, Mr. Ben Bernanke of the Federal Reserve Bank is chiming in.
As a member of a private institution, and not part of the federal government, frankly I don't see how the Fed has any standing to weigh in on this problem. Further the Fed is part of the private banking system, screaming conflict of interest.
Mr. Bernanke is starting the news engine to set the stage to rework the process, in what I imagine will be in favor of the banks. Let me be clear. The US congress can be the only entity to pass federal laws and to spend US taxpayer money according the US constitution. As previously documented on this blog, the Fed has in fact, spent US taxpayer money by backing non-federally backed bad debt notes. Now I am waiting to see how the Fed can rework the foreclosure process for bank benefit, without having the power to pass laws. I expect the spin will be a "banking process clarification", or something to that effect.
Is US Government is Owned by the Banks ?
Consider what you just read. The US congress and senate passed a law to allow the banks to foreclose without required legal documents EN MASSE, in a manner that has no record of who voted for the bill. This to me indicates the congress knew this law was just plain wrong act on their part.
By the grace of the internet and getting the word out about this law's imminent passage, President Obama did not sign into law.
The US government has taken on TRILLIONS of dollars in bank debt, and made it the problem of the US people. Further, the US government has not enforced law process in either creation of mortgages, or foreclosing on those same properties.
Further, banks are allowed to have a "special" accounting standard that in effect, allows the bank debts to not be valued using the common practice of "book value", but rather stated value. This change was enacted as an emergency measurement over a year ago, and still remains today.
There are many reasons why above is being supported by the US government.
The likely answer is lawmakers answer with "what they know" which is, changing laws. They are member of legislative and not judicial branch. As such, the politicians easier answer is to change laws, rather than get aggressive and apply pressure on the judicial branch.. I am not excusing the lawmakers actions, but rather explaining human nature is try to take the quickest, least effort, way to resolve a problem.
The other possible answer is lawmakers are "owned by the banks", and beholden to the money driving the US.
Either way, it isn't good for the common persons bottom line.
A huge problem in human kind is people tend to answer problems with what they know. The RIGHT answer is to answer a problem not just what you know, but also what you don't know.
The RIGHT answer is, the best answer, and should not be limited to what you know.
Above may sound a bit confusing, but I notice this as a problem in every facet of my life. As a very basic example, lets say you asked me how to run a small business. I would answer by organizing every aspect of the company using computer software. Someone else may answer using pre-software era solutions. Someone else may answer some hodge-podge of the two. Yet someone else may answer that running a small business is a bad idea, and give 100 reasons do not do it.
Every answer above in their own way, is correct. But RARELY do you find a person smart enough to answer with an answer they have no experience with as a solution. A great example would be if you asked me, I'd say use Google and find the top two highly rated book on Amazon on how to start a small business, written in the last 6 years and read them.
That answer, shows I am depending on others to have a better answer than my view of the world. And by reading the top two highest rated books on starting a small business, you will leverage the opinion of 100's if not 1,000's of Amazon book readers opinions. The books you target have a much higher probability of being informative, and you will likely gain insight into the best answer of how to start your successful small business.
Again, I can't stress enough how in every facet of life this is a core problem. Some doctors always answer with pills, or past experience. Rarely does a doctor advise "in this case, seek alternative therapy", etc. There is a practical side as to why humans behave this way. Prior to 20 years ago, frankly it would be too much effort to seek "what you don't know" to get the best answer. The effort to try to figure out what the right answer would likely not yield enough benefit to bother. Any answer tends to be somewhat right, just not usually the best.
You would have to go to a library, or some other institution, and out of that SUBSET of knowledge, try to figure out which book is best. Or maybe ask friends and try to network to find a person with ample experience to help you gain insight. And even then, what is the chances the person you find is TRULY that enlightened to give a significantly better answer than just muddling through yourself. Not to mention the cost of engaging a person may be high.
The world has changed
We can now answer, quite easily and cheaply, with what we don't know. The generation under 20 years old will become true experts on answering with what they don't know. I doubt anyone growing up exposed to Google will rely on a book in the library, or physically calling people to seek advice.
They will simply use Google, seek out forums, wiki's, blogs, twitter, or a dozen other methods of communication to gain insight.
One extreme example is CROWD SOURCING. A very popular example comes from china, where a video found shows a woman killing a cute kitten. The internet users rallied to find this woman and punish her. using 1,000's if not millions of participants watching and researching, the woman was found. Granted, this example isn't directly leveraging problem solving, but it does show how something that was impossible just 10 years ago, was done, with near zero cost, by people motivated to find the answer to "who is this woman in this random video".
More mundane examples is blogs and forums dedicated to discussing, dissecting, and distributing information. Another great example of the internet is Wikipediafor documenting "facts" andwiki leaks for allowing information to be accessible to the world, exposing corruption and "evil".
What does this have to do with investing?
One aspect of what I believe we are witnessing is the final assault on the old guard of financial processes. The existing approach is under immense strain as a core, select, few are given the power over the many. The approach of answering problems with what you know will fail in this ever moving, technologically fast world.
The Federal Reserve Bank is a prime example. The Fed answers with what it knows, and how ALL financial problems are solved in the same manner. Either print money, loosen monetary policy, ease credit restrictions, or use any means in its power to "stimulate" the economy. The Fed is trapped by it's own boundaries, of answering the financial issues of the US and the world by it's experience. What is needed is to fix the issues by society improving and enforcing laws, and by politicians leading the nation, not relying on the Fed to "fix this".
For future posts, I will use this sociological description to explain some of the dysfunction we are witnessing, the problem is "people answer with what they know".
This is one of my foundations for arguing against the US dollar, and why it is destined to fail. All entries in this series of posts I'll add the label "Financial Revolution".
