Whitslack

Decoupling Set to Increase

I'm definitely in the German camp. That view is what I've been saying all along. The economy was like a soufflé, all puffed up with nothing but air. Now it's falling back toward its sustainable level, and a lot of people are getting taken to the cleaners in the process because they had bought assets at prices that were way too high. But the powers that be will do everything possible to prevent prices from reaching sustainability, even if it means massively devaluing the currency to maintain the illusion of wealth. I can only assume that they believe prices were previously reasonable and are now depressed; I would hate to think that they might be trying to prop up prices at intentionally inflated levels. Regardless, even if prices are actually below their equilibrium points right now, the market will correct that with no need for manipulation by the politicians.

The problem is not a lack of money but a lack of wealth. The politicians seem to think that money and wealth are synonymous, but that is not so. Wealth is the pie; the slices of that pie are the money. More money just means smaller slices, not a bigger pie. You get a bigger pie by producing what is valued by others, but all of this so-called "stimulus" is soaking up capital (including labor) and squandering it, rather than allowing the aggregate self-interest in the free market to reallocate it to productive ends.

If production is the answer, then why is unemployment so high right now? Shouldn't some daring entrepreneurs be snapping up all the newly available workers and putting them to productive use? The answer is that labor is too expensive — for a couple of reasons. Firstly, wages were/are just as overinflated as everything else, which established an expectation among workers of certain wage rates, rates that are now unsustainable in this deleveraging environment. And secondly, the government engages in price fixing of labor via the minimum wage, which doesn't actually guarantee a decent living for everyone but rather only guarantees an irrationally high standard of living for some and unemployment for others.