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Alstrynomics Develops a NEW THEORY

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August 12, 2010 – Comments (2)

The Institute of Alstrynomics developed the theory of Concentric Contraction... which basically determined that the entire housing industry was a function of people borrowing massive amounts of money they couldn't afford, and once you cut back on the credit, the housing industry would implode to levels never seen before......AND NEW HOME CONSTRUCTION DROPPED OVER 85% FROM PEAK AND IS STILL DECLINING......

The Institute has now developed an adjunct theory called Collective Interdependence........essentially, society is jointly and severally liable for the liabilities of the society when enough members of the society fail.

For example, when you live in a condo association, you take the expenses of the association and divide it up by the number of units.  As long as everyone pays their proportional share of the fees, the liability is limited to the proportionate share.  The problem comes in as more and more default, the remaining members become liable for a greater and greater percentage of the fees....especially as the association's reserves are tapped out.  Up until recently, it was never really an issue, as for the most part in most associations around the nation, the default rate was pretty low and when there was a default, it was able to be cured fairly quickly and painlessly for the remaining residents.

However, as condo values imploded, unemployment skyrocketed, and expenses increased, more and more condo owners are unable to uphold their proportionate share of the expneses...consequently the burden of expenses of a particular association are falling on fewer and fewer residents.........to the point, where even those that were faithfully paying their proportionate share can no longer keep up....and the ASSOCIATIONS are now facing bankruptcy and ALL THE RESIDENTS could potentially lose everything they have in that particular association.  After all, what good is it owning a condo on the 30th floor if there is no elevator service.....

In essence, what the association members eventually learned in the above example that they were all collectively dependent on the behavior of their fellow residents....and once enough failed....they all failed.

America is not too different....for about 250 years......we have all been very independent and relied on the successful independence of others to sustain the collective system.  Our founding fathers tried to limit the collective system as much as possible to avoid the consequence similar to the above condo example......however, over time, our politicians broke down the safeguards and barriers our forefathers set in place and turned America into one big condo association interdependent on each of successfully executing our respective share....

Over time, the banking system made our success dependent on credit, and once one was cut off of credit, they failed......and since about 2007, more and more have been failing on a net basis.....and the only entity keeping system on life support is government collectively borrowing about $2 TRILLION dollars per year.....

However, since it has never been an issue before so most don't really think about it too hard, borrowing by government is not too different than borrowing by a condo association, in the end, everyone in the association, or in this case the nation, is effectively a cosignor on the loan and responsible, not only for their proportionate share, but for the entire amount........

And since more and more Americans are going broke everyday......fewer and fewer will be left standing to maintain this debt load....and once the debt can no longer be sustained....just like the association above, our entire nation will go bankrupt and everyone within it.

It is only at that point where we will learn that we are collectively dependent on each other.

2 Comments – Post Your Own

#1) On August 12, 2010 at 3:14 PM, brickcityman (< 20) wrote:

Collective dependence is, in my view, unavoidable in any developed society/nation...  In my daily life nearly every good or service I use requires the skills and/or resources of others.  Without a massive (and innefficient) individual devotion of time and resources there can be no independence.

 

The fact that some people may not be aware of this...  That for instance your neighbors losing their jobs could negatively impact your net household wealth...  Is just a failure to understand the nature of the world in which we live.

 

Of course this means we trade gains in efficiency (and increase in standard of living) for exposure to systemic risk.  But that trade seems natural for an organism that is inherently social in nature.

 

So is this a problem?  

 

Certainly it can be, but just as interdependencies can be a source of risk so to will they be a catalyst for recovery.  Systemic failures are just catalysts for refining the mechanisms we use to bind ourselves to one-another.  The biggest question is are we capable of adapting ourselves?

 

Here to me is the crux of the issue...Do we have the ability, via the insitutions we have formed and representatives we have nominated, to adapt? 

 

Personally I think it will require a different breed of public servant to bring us out of this successfully.  No one currently in office, running for office (that I know of), or anywhere in the public spotlight possesses the traits that I think are needed.

 

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#2) On August 12, 2010 at 3:35 PM, stockdatamaster (73.37) wrote:

In theory you are correct, but I think the government will find a clever way to keep this giant pyramid scheme of an economy we have going for a good while longer... perhaps even for another 50+ years.

The problem of unsustainable government borrowing and deficit spending has been going on for decades now.  As worrysome as that may be, it's not REALLY going to blow up in our face until the lenders of the world start demading repayment of the debt all at once... which so far hasn't happened yet.

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