August 2010 – Applied Systems Thinking

As I travel around and visit many different places, the disparity in the speed at which the credit crunch is unfolding in different places is readily apparent, and with it the attitudes of local people to warnings of hard times to come. In places where the bursting of the credit bubble is more advanced, such as Ireland, people are generally more interested in understanding what went wrong and what they can do for themselves and their communities. In such places, where homes may already only be worth 40% of the mortgage on them, there is more public recognition and discussion of the issues, even if there is still a great deal of collective denial.

In other places where the impact of the bubble has yet to be felt, for instance Canada, where I am currently, there is still a sense of invulnerability. We haven’t got as far as denial yet. That’s hardly surprising when you can’t tell a crack-shack from a mansion in places like Vancouver. This is bubble psychology at its most extreme, where no one cares what they pay for something, because they think someone else will always pay more, and no one cares what they owe, so long as the monthly payment is manageable in the short-term. Most other Canadian cities are still in the grip of bubble psychology as well, although not to the same extent. Needless to say, the level of public discussion in Canada is abysmally low. Continue reading “Bubble case-studies: Ireland and Canada”

There’s an interesting interview at The Energy Report with John Williams of Shadow Stats ( John Williams: Times That Try Our Souls ), which I wanted to discuss because, while there are many aspects are we would agree with, there are other glaring differences with how The Automatic Earth sees the future unfold. It is worth looking at the article in some depth in order to find the source of the disparities.

Mr Williams’ prediction is hyperinflation, although, like us, he is predicting a great depression. One major distinction between TAE’s view and that of many inflationists is the definition of inflation. It is clear from the interview that Mr. Williams’ definition is increasing prices. Readers of The Automatic Earth will know that our definition is a monetary one – an increase in the supply of money, credit and velocity thereof relative to available goods and services. We have consistently pointed out that using a price definition of inflation removes all the explanatory and predictive value from the concept. Prices changes are lagging indicators of changes in the money supply, complicated by other factors, both globally and locally. For instance, global wage arbitrage has been a major factor driving prices down in recent years, despite a tremendous credit expansion. Continue reading “Nicole Foss takes on John Williams: Deflation it is”