Elephants in the Brambles: There Ain't No Cure For Love

Fascists can try to control markets, communists can try to eliminate markets, but there is "nothing new under the sun", only new names for the same phenomena repeating over and over. And that repetition always gives rise to the collective feeling "it's different this time".

One wonders whether Karl Marx would have proposed the deliberate end of free markets if he had come after Freud instead of before. It seems to me the entire idea of communism is a classic example of Utopian Thinking, which is always based on the belief or wish that reason is stronger than instinct. Which is a bit like saying the house is stronger than the foundation - you see what I mean? - at best a false dialectic, at worst dangerously wrong.

So. The latter half of my title borrowed from the title of a Leonard Cohen song, his poetic way of saying the instinct complex does not succumb to legislation. Or, biology isn't a negotiation, it is given, not invented. Marx might have at least considered this idea before giving himself over to Utopian Idealism if he had "read his Freud".

But he didn't, that would have been too easy, and as usual the progression of history (and herstory) is rather a mess. But it is as it should be, and is supposed to be, as it is the ongoing process of the biological, of which we humans are a full part, Freud's essential contribution, if we may boil it down to the one most important thing. We always find the way to deny the implications of "full", as the implication is not at all comfortable. Freud again: All neurosis is born in the instinctual fear of death.

One might say the Utopian Notion is equal to and the exact same as the notion we can and will rise above biology, our foundation, without the parametrics of that biology imposing limits. But the reality is a given foundation supports a certain load, and no more.

The markets, being an essential element for the condition of society, are interesting. They are continually being meddled with by the idealists (legislators), and the thieves (speculators). This is a stasis ripe with irony and paradox: many of the idealists are thieves in a state of rationalized self-delusion (regulators cum robber barons), and many of the thieves are the "healthy flora" of the gut, necessary for whole and healthy function.

In communism - the elimination of free markets and implementation of state planned production and distribution - there is no way for markets (society) to "find their way", as the model arbitrarily imposed on the biological condition is (infinitely?) too simple. Real (so called black) markets erupt spontaneously, else the biological condition would have nowhere to go, and in the form of that entity, it would die.

In fascism - the denouement phase of an established political order - we again find sweet irony and paradox: the market that is assured by the establishment to be safe may in fact be the most dangerous of all. It is the market wearing the assurance of health that is in fact a system in collapse and fighting for life. The collective immortality self-delusion becomes the danger to participants in that market, one can never be sure of survival (much less health) at the critical juncture. But we, being biological, will fight, then fight some more.

And the markets go round and round the merry. First the patient crashed, then was saved, then put on meds, then jump started with stimulus - a few times already! Can the patient be stabilized? It seems to have come back from death's door and emerged from coma. Or is that just the ventilator doing it's thing? Can it stand on its own two feet? If so that (crash and recovery) V on the chart is just an anomaly. We shall see, but in larger context it will probably take a few more years more to know.

Bear Markets

You may find this chart interesting (below, click for bigger), showing the previous bear market, duration approx 17 years early '66 to late summer '82. Bear markets tend to last 20 years mas o menos. This one started in '00 and is thought to be worse than the 70's bear, being the "correction" pattern of the entire growth cycle from the end of the depression bear market. That fits the fundamental reality with Europe, Japan, and US all having "default" levels of debt weighing down growth (not the case in the 70's bear).

The question becomes is the worst over, or to come? The universally denied higher probability is (in my opinion) "to come". Governments will try to prevent and avoid, the question then becomes how desperate will they get? Established political orders are literally fighting for their lives, it is just not completely obvious yet.

This economic depression (corrective cycle) is very possibility bigger than the so called Great Depression. Fundamental economic conditions across the developed world certainly support that view. Counter to that view is govts saying "hey don't worry, we got this!" OK.

A "Real" Inflation/Deflation Indicator

There are several metrics used to reveal levels of economic activity. Some of the more accurate are said to be consumed levels of the fuel and construction commodities, in particular crude oil, copper, steel, aluminium, lumber and the like. Of these, consumed levels of crude oil is said to be the most telling.


Aggregate global consumption of any commodity is difficult to calculate, so economists like to use price as an indicator, since rising and falling price will directly reflect demand.


But first I think we have to ask and answer the questions, what gives an indicator it's value, and what makes it accurate?


Obviously, for it to have value, it has to measure something of relevance. Less obviously perhaps, for it to be accurate, it has to make that measure using a method of the highest signal to noise ratio possible. The less relevance or accuracy of the indicator, the lower it's value.


I'm going to stipulate that crude oil priced in gold is the most relevant and accurate price based indicator of aggregate global economic activity we currently have at our disposal. We don't want to use crude priced in US Dollars because USD has become very problematic as a measure of any fundamental economic condition. USD has a very low S/N ratio, caused by a lack of "anchor": since it can and is being printed with no regard to underlying economic activity, it is very "noisy" as a measure of said activity.


To digress a bit, I would say the dollar's only useful measures are twofold: how quickly it multiplies against itself, ie how fast is it being printed, and whether it can mount anything more than "snapback" (reaction) rallies as it continues a secular decline in value (purchasing power). In other words, it's most useful measure is now only whether we have entered into a run-away spiral (hyper) phase in the economy in either the direction of inflation or deflation. Other than those gross (but potentially useful) measures, it is mostly "noise".


To get back to the main point, the case for using crude priced in gold as a measure of aggregate economic activity has multiple elements: 1. the aggregate use of crude is thought to be the most accurate measure of activity, 2. price is thought to be the most accurate measure of demand, and 3. gold has become, by virtue of the incredibly high "noise" levels in USD (in particular since the onset of the "long crisis"), the most trusted functional currency.


And since oil and gold are both priced in USD, by pricing either in the other we completely eliminate whatever "noise" the dollar would contribute to the final measure.


In addition, a secondary but not insignificant point, is that both crude and gold are considered "alternate" currencies to USD, because of the noise issue with USD. This cancels the potential for gross out of phase characteristics. In other words we are comparing variations on a theme, or apples to apples.


So what we are left with is perhaps the best single measure of true savings vs true spending on the global aggregate scale. And since the impulse to "save" is the key deflationary force, and impulse to "spend" is the key inflationary force, we have a true measure of direction of inflation/deflation on the global aggregate level.


Bottom line: if price of crude in gold is moving up we have a condition of aggregate global inflation, and vice versa. Here is a an example chart (click for larger) of what that looks like on a monthly time frame.