The Printing Money strategy

If you can successfully avoid some of the pitfalls, printing money aka Quantitative Easing can get you out of trouble. 

So there is a mountain high of debt threatening insolvency (Box 1). If you have control of monetary policy, you can print money, which Bernanke had done in a big and scary way. Fortunately it is mostly the experts that are scared. If it had frightened the man in the street, confidence would have totally evaporated and this con will not work.

Box 2 will produce Box 3: Currency devalues. Now the debt becomes cheaper. Remember for this strategy to work, confidence must remain intact.

The stock market goes up (box 4), saves many investors from margin calls etc., The economy is supported. There is less layoffs than expected. Wait for a while, nobody believes the end of the world is nigh. Confidence goes up further leading to business investment. Also worn out equipment need to be replaced. Now all these must get traction before Box 6 assert itself.

Not in this NaviMap, but Box 6 is now determined more by financial markets that actual supply and demand. In fact, the prospect of subpar growth would have serve the economy with cheaper commodities. Only after Box 5 have taken off confidently would Box 6 negative influence asserts itself.

The printing money strategy works best for economies with sophisticated financial markets. America fits the bill the best. They are getting away with their con once more.

Risks of Bubbles in Soft Commodities



In NaviMap analysis, the Box 1, 2 and 4 is warning that the conditions for creating an asset bubble exist. Let's for a moment remove Box 1 "Economic Growth" from the picture. Then there should develop between Box 2 and Box 4 a  counterbalancing loop. The logic is like the population balance achieve from herds on limited grazing grounds. In reality, unless there is an unemployment problem, a reinforcing loop exist between Box 1 and Box 2.

In a primitive economy, there should a dashed line between Box 4 and Box 1. But in more advanced economies, it is a promoting line. E.g., an advanced economy will make capital investment in agriculture (Box 6) attracted by rising product prices. Furthermore, a developed economy have alternative ends for agricultural produce, i.e., bio-fuels.

Result: Spiralling agricultural commodities prices.

The long term bull case for such commodities is intact, but even in the short term, you could easily over pay for such assets especially Box 3 is an infrastructural support for speculation.

Government hates volatile prices. Under pressure to keep prices stable to pacify voters, it will time releases from strategic stockpiles (Box 5). This only make it doubly hard to invest.

Box 8 is to accomodate the possibility of Black Swans and Box 7 represents generational power that eventually reverse the logic of this NaviMap.

The totally successful monopolist

 

The ultimate successful monopolist will have

1. A virtuous cycle between Strengths and Opportunities.

2. A reinforcing loop in its favor between Opportunities and Threats because its Strengths had triggered it.

3. Threats that yields weaker Weaknesses as a result.

4. Eventually leading a a reinforcing loop in Strengths favor between itself and Weaknesses.

Note

Not easy to arrive at this sweet spot and neither can it last very long given that all reinforcing loops must eventually cease. Those that accelerate come to an end even faster unless they can find new sources of growth.

Easy to make the mistake of drawng a demotion line between Threats and Weaknesses

Pensions nightmare

Vote for change (Box 7) is the most benign scenario. It may not happen and some worse possibilities may be the unpleasant or even horrific reality ahead of us.

The drivers, i.e., can be represented as NaviMaps with reinforcing loops are not captured in this map.

Clearly what is going on is unsustainable. They say demographics is destiny. If put to the vote and the older people are the majority, the young will be bullied because the institutions are against them. There will be revolt. Some of the young will leave for better opportunities elsewhere. The society will decline rapidly, if not catastrophically. Pensioners must accept that the promises of retirement aren't there. They will have to work more years and many will never retire at all. Will they buy this? Fortunately the baby boomers do not all retire at the same time. A problem that presents itself as trickle provides opportunities for solutions that a tipping point situation just does not. The way forward is to cut benefits and retire later. Politicians have their work cut out for them, but will they be up to it?