Greece now is similar to Germany after WWI

Flag of the Golden Dawn Party, from

After World War One, Germany was forced by Europe to pay “war reparations,” a sort of involuntary debt, in gold, which Germany did not have.  Hitler’s adoption of the politically popular idea of repudiating this debt gave the Nazi party the credibility to win elections.  The rest you know.

In Money, Wealth & War I mention this, and also describe how from the standpoint of Greece, the Euro may as well be gold.  They don’t have it, and don’t control its value.  A socialist-communist leadership has come to power and talked of repudiating the debt.  Today they are offering a new deal, with more “austerity,” and the article linked above describes some pretty terrible human impacts of that.  People who once had a normal life, that now when told by a doctor to take aspirin with meals, have to admit they have not eaten in three days.

In the chart in Money, Wealth & War on the 7 stages of the cycle of money, trade and war, I pointed out how liberal policies (the former Greek socialist state) lead to an over reaction of conservative policies (the German insistence on Austerity) which lead to deflation and the collapse of employment.  I asserted this leads to war, and after productivity destruction, to reconstruction and full employment again.  See chart:

7 stage on white large font

Since then I’ve been mulling exactly how fascism fits in.  It seems that if the economy is mostly destroyed, and reconstruction is not financed by equity investment (whether by governments as in the Marshall Plan, or by private capital if there is a buck to be made, and usually there is), but instead financed by a strict debt which tends to seize assets and further deflate the economy, then the people affected may feel sub-human, denigrated, treated as cattle.

If they have a backbone, this may result in fascism.  In effect, they begin to realize (or believe, if you prefer) that the people who have treated them as sub-human are themselves sub-human.  Then they will repudiate the debt and reconstruct themselves by using the energy of the powerful nationalizing and blaming force.  Once they pin the problem on someone else, they can begin to work to prove the others wrong.

The trouble is, as we know, this story does not have a good ending.  It ends invariably with the actual treatment of the formerly abusive lenders, or any other convenient target, including the socialists-communists who may have contributed to the mess, as sub-human.

We are not immune in the United States.  The Tea Party has a certain element of this.  They are not quite to the point of “repudiation,” but have talked about ending the Federal Reserve, which amounts to the same thing, and paying down the national debt, which effectively destroys money and creates deflation, the conservative over reaction which leads to employment, then collapse.  See The Equity Premium Puzzle for more on how the Fed works.

There is a fascist element in the U.S. as demonstrated again over the weekend by the shooting in a black church in South Carolina.  Another supposed fascist had contributed to four of the Tea Party Republican presidential candidates.  The donations were returned when this was learned.  I just point out various options for how the conservative phase may evolve, and may implement a reconstruction phase prior to an actual war by the use of doctrines of national or racial pride and debt repudiation or its fiscal equivalent.  I.e., simply paying down the U.S. national debt repudiates its necessary role in the increase of the money supply necessary to prevent deflation and employment collapse!

The natural order of things is to wait until inflation actually occurs, and then to begin paying down the debt.  Destruction of money is the correct response to inflation.  No significant inflation is now occurring.

Further, employment is a leading indicator of wealth.  High employment and economic growth must persist until the middle and lower economic classes have repaid the debts incurred in re-training for newer jobs, and replenished the savings they depleted while unemployed.  Failure to allow this, i.e. raising interest rates and/or paying down the national debt too quickly, prevents the middle and lower class from catching up to the capitalist class, which has already caught up by the time it makes investments to create new jobs.  Thus without realizing it, the policies of the Tea Party, and the policies of the Fed, designed to protect the middle class from inflation, are actually increasing inequality.  This leads to many bad effects that I will discuss in future posts.

The irony in this is that Germany does not see the big picture, and the similarity.  They only remember the details, the local currency hyperinflation they had, which I would call the trees, not the forest.  So Germany does not realizing it is treating Greece exactly as it was treated by the rest of Europe after WWI.  Instead of loaning the Greeks Euros that can never be paid back, the Germans should be making equity investments in the Greek economy, aka the Marshall plan or some modern equivalent, to stimulate it and create the business activity that will generate trade and revenue that might actually make Greece a productive trading partner.


Drone Delivery – Example of Crash Rate Equation at Work

2 drones

The FAA, NASA and private company Flirtey have announced the first authorized drone delivery of packages in the USA starting July 17th 2015, see article on Yahoo.

Update June 28, 2015: Dutch women use drone to fly abortion pills from Germany to Poland, where abortions are illegal, see article on BBC.

A lot of people object to autonomous drones, or even the regular kind, even to the point of blasting them with shotguns.  Aside from the invasion of privacy, they threaten the jobs of one of the few growing sectors left – UPS & FEDEX & USPS drivers.  The more delivery drones there are in the air, the easier it will be to hide the ones spying on you, or planning to attack kamikaze style.  So what brought this about?

The crash rate equation (see Economic Optimization of Innovation & Risk) suggests that a very high “value” of the product or service will cause tolerance of a very high crash rate, or risk generally.  Indeed, the drones will be used to deliver medicine to a remote clinic in West Virginia in an under-served region.  Who can argue with that?  The drones will hardly bother anyone in such a sparsely populated area, and the benefit outweighs the immediate risk.

But after a year or two of operation, and no drones in the middle of nowhere running into anything, or anyone, the PTB (powers that be) will conclude that it is safe for your neighborhood, too.  The same guys who brought you massive credit card theft from corporate servers, and who hacked U.S. Government personnel records for employees with security clearances, will then have a miniature air force deployed over the U.S., theirs for the taking at any instant.