Economic meltdown: The remedy appears to be more status quo thinking.

The world standard for exchange or is there something better?

The meltdown is occurring. The dominoes are falling. Governments have been living above their means. The adjustment will be hard and long. The key factor is the development of the Knowledge Economy.

by Tom Thorne

Let's stop kidding ourselves. We are in for a rough economic ride. Politicians across the world especially in the United States and Western Europe have been spending a way more than they take in for too long. It is now time to pay up and be responsible for all that debt. However, politicians are still playing silly games and so it looks like status quo thinking will continue. If you and I did this kind of thing the sheriff would be at our door declaring us bankrupt.

Many people have their focus on the daily and hourly fate of the stock markets as they watch their savings evaporate. It would be wiser to more closely watch the world banking systems and the fact that they are now reluctant to loan each other capital. They also may not have sufficient funds to pay out a demand for a deposit. Remember 2008 when banks in the US and Europe got into trouble and had to be bailed out by governments. That will be tougher to do this time. This is happening especially in Europe. Capital from the banking sector will now be in short supply to be locked up with no place to go to create enterprise. That is guaranteed to take us down a peg or two across the world's macroeconomy. 

Some good news and opportunities...

Companies have about $1.2 trillion US sitting around doing nothing but collecting low interest rates. This money needs to be put to work. In short, the private sector's wealth can be used now as a economic stimulus rather than relying on governments to create economic activity which would serve to only mount more public debt.

But there is no simple answer to the current meltdown. Get private business spending and creating jobs would help. Begin to examine where the next economic opportunities are lurking. Of course this will mean learning new things in the political arena and in the private sector which may be difficult. Escaping old ideas is not a strong point of the current world economic order.

The opportunities in the global marketplace are being missed as the old economic ideas fester or come home to roost.  It takes conceptual thinking to see where the opportunities lie in a world defined by knowledge-information technologies. The big picture on this front is wiring the world and removing barriers to information content put up by nation states. A removal of any censorship of information and knowledge is step one to creating and sustaining new economic activity. More need to escape old ideas.

Knowledge based economies is where the Unseen Hand is at for the moment. The next step in communications techniques is clearly world knowledge services spawned by internet network's ability to draw data and information together and turn it into profitable knowledge. Another opportunity is the development  of new high technologies such as nano techniques. 

Capital is needed to develop genetic techniques for medicines and treatments. There's a lot to do but when we see the recent dithering in Washington we can only wonder where those political heads are at. They are certainly not ready to engage in innovation.

The real change means escaping old ideas...

Ultimately, the notion of an economy based on one or two main currencies such as the US dollar and the Euro will end and be replaced by an internet exchange system that will remove the need for national currencies and false controls such as the Chinese place on their Yuan. 

The internet is in place for a world currency based on the value of knowledge and performance. This new currency will trade for a time along side the old nationalistic currencies but eventually it will eclipse them creating a true world currency that will be based on a much more rational approach than any nation state can assign to establishing values.

It is becoming too risky at speed of light trading to have the Congress of the United States play political games with the current world standard currency and its value. Because of speed of light trading a new much more stable economic system needs to be developed. 

This is why I say that no nation state's currency can or should be used as a standard at the speed of light to measure economic performance. Ultimately national currencies as a world standard for economic activity cannot be tolerated unless a lot more discipline is exercised by their politicians than have seen over the past months.

Why is gold's price so high?

Gold is now at $1775 US an ounce as I write today. A month ago the aging economic systems we currently pilot each day on world stock markets pegged this commodity's value at $1600 US an ounce. Gold is an old idea. It is tangible and scarce and therefore valuable defined in old economic terms.  

Gold is not worth over $1700 per ounce. That is by any standards inflationary especially when its value is expressed in terms of a debt ridden currency and US treasury bills which everyone really knows is at a false value but in a state of denial, continue to use it as a standard measure of economic performance.  A $1700+ gold price represents a hedge against US and European  government debt.

Gold is an old idea superimposed on a speed of light trading system. The US dollar is in serious trouble when one ounce of gold trades for $1775+ expressed in a currency that purports to be a world standard. This is evidence that to pay a debt the US will have to come up with more US dollars to make payment which or course increases the interest rates charged.  Hence Standard and Poor's downgrade of the value of the US currency is in my view completely justified.

So we go into a meltdown. Participants and commentators of the status quo approach to the world's economy try to calm the negativity. But the truth is the system is unable to cope with speed of light economic world. The information changes too fast and the decision making systems are too slow when everyone relies on the US dollar as a standard of exchange. The US dollar is a habit we seemingly cannot escape.

© Copyright 2011, Tom Thorne, All Rights Reserved.

In other news this morning 11 August 2011 : Gold is reaching $1800 per ounce.