Economic Clearing – Am I A Zombie?


Arena da Amazônia


The other day Marc Chandler wrote "Negative Interest Rates: Capital's Reproduction Problem"  - I loved the piece but something jumped out at me and I asked to Marc-> "what if the natural clearing of uneconomic capital investment is factored in instead of supported ?" and he responded back to me with "I don't think anything about markets, property or clearing is natural. All social constructs." -> This nagged at me a little while riding my bike today.. I'd like to expand on what I meant.

I come from a point of view of operations.. And in the best functioning companies operations are by definition economical..meaning the moving towards the most production for the least price..with the best resulting product.. that means politics maybe drives decisions with a weighting of 10% to a maximum of 20% (these %'s are a guess for the purpose of understanding the idea as I usually think in percentage terms)

Take Apple Computer .. politics drives very little of their operational decision process.. which has allowed them to grow, innovate and dominate in the last 15 years. I believe that any company that strays to far from a healthy operational process moves towards bankruptcy. I don't believe a healthy operational process can be to heavily weighted with politics, management corruption or management error.

The accepted penalty for poor operational management used to be poorly performing bonds, stock and or bankruptcy.. today in the US that penalty has been deformed in part by Central Banking, and in part by the politics of the day that what I called the natural clearing, bankruptcy .. and the loss of capital has been postponed or altered so that a part of the economy is functioning on a non-economic basis .. what % of the economy is functioning like this and how systematically deep it runs.. is subject to debate...and too big a question for this post.

I have experienced wide spread financial crisis in the past first hand, in Mexico, Argentina, Russia, Ukraine, these cultures ignored a healthy operational process in the past ..and this is a road filled with daily senseless misery for the populations of these countries.. it is not something you can feel or truly understand reading about it or watching a TV show..if you live in those cultures and experience "the heavy hand of government design" making daily life...un economic.. you are filled with frustration.

And as for now, more recent examples we have Venezuela, Spain, Italy, Greece, Portugal and of course Argentina again, the really startling aspect is parts of the EU are starting to remind of the breakup of the most extreme example of governmental heavy hand..the USSR in the past.

As a very real present example look at Petrobras today.. and Brazil.. none of the popular economists and journalists, so excited about the Brazilian miracle of the "Lula policy era" can seem to connect the dots or want to discuss the horrible results of his management or that of his hand picked successor, Dilma.. for the Brazil economy and a once proud company, Petrobras.

And these same short term memory economists and journalists who wrote glowing wonderful half baked propaganda selling Lula's wonderful programs will write excuses..who could have seen "China slowdown" .."oil breakdown" or "who expected the FED to signal an end to the easy money cycle" and these same seemingly can't make the connection how those policies they championed then.. created the dire consequences these countries populations have to live with now, nor do they have to face any responsibility for helping create the environment of non-economic beliefs.

The most pressing problem in Brazil now..imo.. no water.. in one of the world's largest cities, Sao Paolo .. Lula strong armed FIFA for 12 stadiums instead of the originally proposed 6 .. so now Brazil has 4 useless and 2 semi useless stadiums... with an economy threatened by drought to its largest producing region...which the cost of those 6 additional stadiums could have went a long way to address ..add in the huge Petrobras corruption scandal, weakening bonds and currency. All brought by ignoring natural economic forces..

Social constructs aside.. no company, person or government can function for long without being operationally economic.. a simple example .. you don't draw water from a well going the long way.. or with too small a container..

It is preferred by me and others who are operationally focused that the system is not contaminated beyond repair from unhealthy political and corrupt operational practices of our governments, banking systems and corporations.

In my opinion, government's extreme involvement in the "attempted planning of economies " has the same results as drug addiction.. feels good ..but when the drug wears off wake up in the middle of a crowded opium den wondering, ..."Am I a Zombie? "


One thought on “Economic Clearing – Am I A Zombie?

  1. Filiberto Rodriguez

    As proud Mexican, I only can say you are totally right. Today I think Mexico has somewhat learn form the past mistakes, but still we have a long way to go.

    And by the way China made the same mistakes in 2008 when they overbuild for the Olympics, now we are seeing this same mistakes in Brazil.


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