Outlook for a Cold Winter
Cultural Economics

Much of Europe will be brutally cold this winter. Putin is watching the weather with one hand on the natural gas valve. He has a superbly effective negation tool – and he will use it. Bloody conflict in the Middle East, potential conflict in South East Asia, the mess in North Africa and the growing threat of an Islamist terrorist incident within several OECD nations all point to continuing political instability. Are we really dumb enough to think the world economy is somehow immune from the impact of political events?

International liberal money management ideology has created a huge, gigantic, large, humongous quantity of potentially worthless paper money and electronic currency claims all tied to an enormous pile of potentially worthless derivatives. Investors are so desperate for a safe place to park their money; they are even willing to take negative rates of return. The real return on consumer bank deposits is so negative the value of money trapped in the banking system is declining in value.

Institutions are willing to pay the government to hold our money until this scary financial catastrophe blows over. Banks are willing to pay other (preferred) banks to store their money rather than lend it to banks on the not preferred list. Smaller regional and local institutions are feeling the heat.

The financial world has turned upside down. Banks used to be in the business of making loans to businesses large and small based on an assessment of reasonable risk. But a financial crisis monster has frightened them into hording cash. Instead of loans, checking accounts, and financial transactions, they have focused their attention on the perceived safety and potential profitability of financial instruments. Thanks to the democrats, banks are no longer focused on supporting economic growth. And here is a question: do these financial institutions really trust each other?

No.

Higher interest rates might work. Make it in the banking system’s selfish best interest to lend money. Give them back the historic spread between income (deposits) and outgo (loans). Let greed do its thing. But unfortunately that strategy creates another financial challenge. Most governments are up to their respective eyeballs in debt. Higher interest rates mean more government income has to go to service public debt. That in turn will bring on austerity measures, confiscatory taxation, and general public rebellion.

Not a very encouraging.

More quantitative easing will not solve the structural problems plaguing the world economy. Notational derivatives are higher than in 2007. Margin debt and leverage is excessive in the foreign exchange, commodity, stock and bond markets. Interest rates are already so low they are actually acting as a drag on the economy. Bringing them down another one tenth of a percent will be about as stimulating as cold soggy half eaten grilled cheese sandwich.

But that will be the liberal economic solution. They don’t know what else to do. Ideology trumps the common sense solutions of cultural economics.

Governments are rapidly losing their financial management credibility. Geopolitical chaos, stupid (but politically correct) government regulation, irrational (but politically expedient) welfare, lousy energy and industrial policy, insider crony capitalism, endemic corruption  – these are NOT money problems. These are structural economic and social problems crafted by liberal ignorance.

Over and over again we are being told the central banks can manage economic growth. Borrowers and investors perceive too big to fail institutions can depend on the central bank to bail them out if the monetary system collapses. But this assumes national central banks will never fail.

Bad assumption: most are technically bankrupt.

But then why not let the International Monetary Fund (IMF) print and issue its own currency to shore up failed national central banks? Nations could trade old debt for a new international currency. Unfortunately, that will put international monetary policy and the availability of credit into the hands of a few bankers and politicians who do not understand cultural economics, sneer at economic success, and favor worldwide income redistribution. Expect monetary decisions to be driven by politically correct ideology and politically expedient connections.

The potential for disharmony is mind boggling. And the creation of an international dollar will NOT solve either the debt, or the structural problems, that are certain to overwhelm the world economy.

The outlook for global economic growth has deteriorated. But stock market volatility has fallen sharply because investors have taken a “no fear” attitude toward the purchase of potentially risky assets. That scenario could turn upside down in the blink of an eye.

Even if a political event does not trigger a stock market sell-off, confidence in a “business as usual” investment climate is deteriorating. Consumers don’t have much cash left. Posts on e-bay suggest a massive liquidation of assets. If this proves to be the case, that trend could be globally deflationary and the cause of currency wars as nations rush to protect their manufacturing base.

Many of the big guy billionaires, liberal and conservative, seem to be preparing for stock market collapse – and the chaotic social results. Sam Zell tells us that every company that has missed its numbers recently has missed on the revenue side, indicating companies are facing a weakening of demand. “When you got a demand issue it's hard to imagine the stock market at an all-time high.” – Sam Zell

It has been reported George Soros has increased his total SPY puts to $2.2 billion, a new record high. Now that is a real “put your money where your mouth is” bet the stock market is headed down – big time. The masses are nervous in Brazil, Argentina, Europe, Japan, Canada, the United States and elsewhere. Islamist terrorist activity is certain to be disruptive. We are looking at the wrong end of a gun barrel. There are (at least) three key questions: at what point will the proletariat lose confidence in the banking system? Is the collapse of the international monetary system inevitable? Will that lead to bloody political, social and economic chaos on a global scale?

One can only speculate – with trepidation.

Welcome! Cultural economics is the study of how we interact with economic events and conditions. Culture, in this sense, includes our political systems, religious beliefs, psychology, history, customs, arts, sciences, and education. The term "Economics" refers to the extent and process of how we employ capital, labor and materials. If human existence is dynamic, then economics – as a science – must be able to characterize the interaction of culture and economics in contemporaneous terms.

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