Economic Pain and Dislocations

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Hope you all had a wonderful 4^th of July celebration.  America is another year older and another year wiser…

As we all are…one would hope anyway.

But as I type this with only my left hand due a recurrent shoulder separation, the “wiser” part, for me at least, doesn’t translate to all areas of life, evidently.

You see, in an effort to stay in at least reasonable shape, I try to get to the gym a few times a week.

But Tuesday, my shoulder gently hinted to me that maybe that day wasn’t the day to go to the gym, that maybe a little R & R would be the right course of action.

But did I listen?  Did I take the hint?  Of course not. Hey, I’ve got an exercise agenda to keep.  So, I went anyway; and so did my shoulder…a good ways out of its socket, that is.

I can describe a separated shoulder in one word: pain.

Another word would also be inconvenience. Dressing one’s self becomes an exercise in futility and eating with one’s off hand is no demonstration of motor efficiency, either.

A painful lesson for the economy

But honestly, the first word is pain…as in sharp-dagger-stuck-in-shoulder-joint-and-wiggled-around-constantly pain.  And then it gets really bad.

What’s worse is that just to spite me, so I truly believe, my wayward shoulder has yet to return to its rightful place.

Note to self: in the future, listen closely to right shoulder twinge; it never lies to you and is never wrong.  If you insist on doing the wrong thing at the wrong time, there will be a price to pay.

And believe me, today, I am paying the price.

This where, of course, the pharmaceutical industry really earns its salt…as do our great nation’s distilleries.

Unfortunately, in order to gain any real relief from either, I would be in no shape to write this column.  So, in an act of supreme selflessness and self-sacrifice, I proceed forward in full faculty (well, more or less) and with a ridiculous level of discomfort emanating from my favorite shoulder.

This is the point in my article where I cleverly segue from my personal injury story to the employing of same into the service of a larger metaphorical point on the economy.

But which direction to take?   I could easily use the pain and fact of dislocation as a way to describe the Fed’s dislocation from reality…

Because thinking that replacing old, bad debt with fresh, new, and larger bad debt is a smart or effective long-term solution is as stupid as, oh, I don’t know, lifting weights with a very sore shoulder then tends to pop out its socket when it decides that it’s had enough abuse from its owner.

Doing more of the same doesn’t beget new or better results…it just causes more pain and injury. Where else would this apply? How about the stock market?

Pumping artificial capital into the markets to make them look good in the near term is like working out too much but destroying the long-term function of the shoulder joint in the process. A very shortsighted and unwise course of action.

The truth is, the dislocation metaphor applies to most of the economy, doesn’t it?

The housing market is certainly dislocated from interest rates and home prices.  Both have fallen dramatically, yet the market isn’t “acting like it should.”  The housing market is still in a coma.  Only very cheap houses are being bought by investors for cash to rent back to those who used to own them.

And falling oil prices are certainly separated from economic activity.  Relative to the price of oil, gas prices are still way too high and economic activity is still way too low.

And what about inflation?  Inflationary monetary policies—which is what the Federal Reserve are pursuing—have yet to show inflationary results…

Most likely because of the huge and painful dislocations going on right now in the Eurozone economies…

Overuse of easy debt and underuse of sound economic judgment has left Eurozone economies in a great deal of misery and discomfort, and unable to do the heavy lifting that is required to shoulder the debt load that is crushing their economies.

Is “dislocated capitalism” being replaced?

Of course, the Eurozone, as well as the Americans—myself included—will put off painful reconstructive surgery as long as humanly possible…

Despite the danger that such a delay may inhibit the healing process and continue its degeneration until radical action is required.  Such as replacing the whole apparatus, which can be not only much more painful, but much costlier as well.

Is this a fair description of the situation?  Is our economy just suffering from a very painful, but still fixable shoulder separation? Or does the “whole apparatus” need to be replaced?

To put it a different way, “Is capitalism, the apparatus upon which our economy functions, only slightly dislocated, or should we replace it?

From my point of view, it appears we are well on our way to replacing the whole joint.The nation is flat on its back, after all.  But I wonder; are we resting and recuperating…

Or are doped up and lying on a gurney, being wheeled down the hall into major joint replacement surgery?

Come to think of it, I do feel a little woozy.

What do you think?  Am I right…or wrong?

You tell me.  Go to: www.facebook.com/absolutewealth or twitter#thegorriedetails.

Is America’s economy just suffering a painful but reparable injury?

Or does “hope and change” therapy cut all the way to the bone?

And those are…The Gorrie Details.

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2 Comments

1. 

   Lou

   July 6, 2012 at 8:20 am

   I don't pretend to know the right therapy for this economy, however the one we are using does not seem to work and it looks like the prescription being written by those in power is more of the same. It seems to me that there is something fundamentally wrong with the way we regard money and although I read all of the free market people screaming about the end of the world being brought on by the Fed's monetary policies, it seems like a slow death rather than anything catastrophic. On the one hand there is all this money printing going on but it does not seem to create the kind of inflation that one would expect. Then again, I read about all of these companies that have billions of dollars on their balance sheets that they are not spending ande begin to wobnder what happens when they do begin to spend all of this money. Does it increase the velocity of that money and then spur on the inflation monster? Who knows....

   Reply
   • 

     James R. Gorrie

     July 6, 2012 at 1:27 pm

     Lou, See Part 3 of my interview with Craig R. Smith in today's Absolute Wealth for the answer to your question about inflation. JRG

     Reply