"...Economies are exercises in log-rolling, but with magical logs that expand when more people climb aboard and run faster, and and contract when people slow down or fall off. People can fall off because there’s not enough room on the log, because they can’t run fast enough, or because they try to stand still or run too slowly...
To put it another way: Economies are confidence games.
When people are confidently optimistic (the two are not synonymous), more people jump on the log and run harder, because they think there will be personal profit in it.
But where does that confidence come from? I would suggest that most people form their expectations for the future based on the present and recent past.
How much money do I have?
How much is coming in?
How do those compare to the recent past?
The confidence story I’m telling here: people give huge weight to their current wealth/assets/net worth, and recent changes in those measures, when forming expectations for future growth — far more weight than they give, for instance, to their predictions of Fed behavior (the huge mass of people have no such predictions). This may be foolish or it may not be, but it’s what people do...
...When people feel poorer, they act poorer.
They spend less. So there’s less production.
...So there’s less (demand for) labor.
The log shrinks and slows down.
GDP and employment (growth) slow or decline.
...people don’t just spend more when they feel wealthy or wealthier. They raise their expectations of future wealth, and consume/invest according to that.
You get a positive or negative self-perpetuating feedback effect.
...Given the widespread belief that quantitative easing [Fed money printing] only really achieves any effect by buoying financial-asset prices (I include deeds in that class of assets), is it reasonable to suggest that the Fed is actually (and unconsciously, and arguably incompetently) engaged in [a ponzi scheme?]
"Ponzi finance units must increase its outstanding debt
in order to meet its financial obligations.
A transition occurs over the course of an expansion,
as increasingly risky positions are validated by the booming economy,
that renders the built in margins of error superfluous,
encouraging adoption of riskier positions.
Eventually, either financing costs rise
or income comes in below expectations,
leading to defaults on payment commitments."
"Our Social Security system
is the very definition of a Ponzi, or pyramid scheme."
Congressman Ron Paul
"Nations are not ruined by one act of violence,
but quite often, gradually, and almost imperceptibly.
by the depreciation of their currency through excessive quantity."
Discovered Earth was not the center of the Universe
If there are at least 15,000 professional American Economists,
and less than 1% foresaw the financial crisis,
should many financial industry prognosticators be relied on
for economic expectations?