Thursday, September 2, 2010

Redefining the Terms

Certain terms have taken on meanings in the discussion of our economy that are no longer the reality. And certain symbols and traditional wisdom are upheld that are no longer relevant. In order to understand the economy and the discussion of today, these things must be understood in a new context. So without further ado, here is the initial Glossary of the New Economy

Homeowner. Redefined as Home Borrower 
Nothing defines the last few years of this economic climate in almost all advanced societies at the elevation of the term ‘homeowner’ and all that it taken to mean. What is commonly referred to as a ‘homeowner’ is actually an individual or couple who have entered into an agreement with a lending institution (a bank) to transfer ownership of a property by temporarily placing the property in a joint deed whereby both the lending institution and the ‘homeowner’ jointly own the property in a relationship whereby ownership is gradually transferred from the bank to the borrower. So redefining common expressions:
  • Keeping homeowners in their homes = allowing the home borrower to remain in the property primarily owned by the bank though he is not keeping up his obligations under the joint ownership agreement. 
  • Expanding homeownership = Beholding more home borrowers to bank debtors and increasing ownership of property by banks. 
  • Propping up the housing market = Attempting to control home prices so that existing home borrowers may continue to occupy their homes and pay interest to their banks rather than allowing market forces to set prices. 
  • Homeownership is desireable = Increased bank debt and indebtedness is desireable 
If the situation were such that normal people could purchase their homes without paying 3 times what they were worth in combined principal and interest, then ‘home ownership’ might be good and could actually be defined as what it should mean. As it stands, very few people are homeowners, while many more are home borrowers.

Investor. Redefined as Trader 
What most people consider to be ‘investing’ is in fact ‘trading’. This is because the financial sector primarily exists to make money off of price movements in the values of assets. Therefore, most of what is considered investing is actually trading on the values of assets in the hope of a financial gain. And, for most people, the actors in this drama in fact are forced to operate as little more than traders in order to merely retain the value of people’s ‘investments’. So, redefining common expressions:
  • Investment Advisor = Person consulted by someone who wants to figure out the most advantageous way to trade their money to make the most gain. Investment advisors are often financial engineers, meaning they use pseudo-science to try and predict how to trade their client’s money. 
  • Portfolio Diversification = Trading in a variety of ways so as to limit the downside of exposure to trading losses. In the worst case, trading mechanisms that have absolutely no reason to exist outside of the financial world, such as naked short selling, betting on failure (derivatives), hedging, etc, are used to try and confuse the issue and make trading gains in any possible manner. 
  • Sound Investment Advice = Advising clients to put their money in trading mechanisms that offer the best short-term probability of going up, irregardless of the benefit to society of such trading. 
Trading is not inherently bad, and in fact most advisors are bound by their fiduciary duty to do their best to make their clients money. However, in most cases, the only way to do this is to hitch their wagon to larger and larger trading organizations (ie, Wall Street Banks, hedge funds, etc) in order to get whatever gains are to be gotten out of the financial system. So, to understand that investing = trading is to understand that when you hand over money to an investment advisor, financial engineer, or other financial professional you are in fact feeding the casino of so called investments that is destroying the economy.

Ensuring access to credit. Redefined as Allowing Society to Live Beyond its Means 
Policymakers and politicians justified the great bailouts of the economic crisis because they feared a collapse in the availability of credit. From individuals to businesses to governments, we live in the age of credits. In a modern society, availability of credit means almost everything:
  • Individuals and families believe they cannot obtain autos, homes, or an education without resorting to credit. 
  • Businesses rely on credit to operate, to grow, to develop new products, and to capitalize everything, from equipment to real estate. 
  • Governments rely on credit to finance their operations. 
Credit is linked to investment, because many investments underlying assets consist of principal and interest on credit that is due to be repaid. While credit may serve a good purpose as the only means to fuel growth, the growth of credit and, later, derivatives (means of hedging against credit losses ) over time has replaced ‘real’ industry as the substance of a larger and larger part of the economy. Credit has therefore become a large part of the economy, which is obviously unsustainable, Therefore, the term ‘ensuring access to credit’ merely refers to keeping this economic illusion going a little longer. 

Globalization. Redefined as Reducing Labor Value
Like credit, globalization is also a tenet of modern economic thinking and policy. Globalization refers to the ability of businesses to locate parts of their enterprise anywhere in the world they can. Globalization is made possible by information flow, transportation, and better automation, and is motivated by corporate profit motives, by emerging economies desire to expand quickly, and by a desire to bring many parts of the world to a higher standard of living. The net effect of globalization, however, is to reduce the value of labor of most kinds, therefore it is inherently equalization (or deflationary) depending on the society.

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