Plato’s Cave: Are the wheels coming off the economy as Obama pushes for another stimulus?

The philosopher Plato once offered an allegory about a cave where prisoners are chained down and forced to look upon the front wall of a cave unable to turn their heads.  To the back of the prisoners lies a puppeteer casting shadows upon the wall which the prisoners perceive as reality mainly because they can’t turn their heads to see what’s really going on.  In controlled settings, one can create any “reality” they desire and in many ways our financial system is based upon a created reality.  Look that the dollar in your wallet.  It’s just a piece of paper that contains less in the value of paper content than the nominal denomination of the bill.  The only thing that gives the dollar value is the fact that we believe that it has value and we believe in the system of exchange where’s it’s used to acquire goods and services.   At one time, the dollar was fully convertible into gold, but that ended in the 1970’s as the Bretton Woods monetary system was discarded for a free floating fiat currency system absent the backing of gold.

But what if the prisoners are able to free themselves and see the puppeteer casting the shadows?  They would begin to see the fiction and accept a new reality.  I believe economic systems work similarly as once people stop believing or perceiving that which has previously allowed the system to flourish, it collapses and a new reality emerges.  This is the point where we’re arriving and there are some people who are arriving at this new reality before others.  Unfortunately, the masses of the people won’t arrive at that point until much later.

In an effort to keep casting the shadows on the wall,  the Obama administration has come out to push another stimulus plan as it appears that the supposed nascent economic recovery appears to be stalling.  Certainly, there are people in pain as he suggests, but there’s much more going on as well.  There are a number of states in big financial trouble, with California heading the list.  There are also about $ 500 billion of option arm mortgage (pick a payment mortgages) that are resetting.  The resets have the effect of significantly increasing monthly mortgage payments and are beginning in earnest this year and next.  This will drive another round home foreclosures, only this time it will be worst than the subprime debacle.  On top of  this, there’s the fallout from the Euro debt crisis, high unemployment and etc.

People are beginning to exit the currency system via the purchase of gold and silver.  There is also much speculation that Greece and some of the other PIIGS will exit the Euro currency and effectively tell the banks to screw off rather than shift private obligations to the government and force their taxpayers to pay them via more taxes and cuts in pensions.   All of this is interconnected as the banking players are the same whether here or abroad and their response right now appears to be one of removing capital from the system.  In other words, grab the money and whatever else you can and run for the exits.   This is clear from the standpoint that the US taxpayer gave the banks $ 700 billion which they kept and refused to relend.  I suspect the recent Euro bailout will operate pretty much the same way.

Unfortunately, a second stimulus will not work in the long haul, but will keep us going for a bit to buy time and stave off the inevitable.  An increasing number of economists and financial pundits believe the inevitable is financial collapse driven by massive defaults on debt of all kinds.  That will precipitate  banking and  currency crises at the same time.  The illusion of the value of fiat paper money will be shattered and the games played by the global masters of finance will be seen for what they are.  Again, increasing numbers of respected economists and financial pundits are predicting this as inevitable. 

There will definitely be political fallout behind all of this and it’s been reflected somewhat in the anti-incumbency mood of the electorate.  To some extent, the republican party has tried to co-opt some of this with the cooperation of both of the so-called liberal and conservative press as their desire is to keep people thinking within the old left-right paradigm. (Another version of Plato’s cave).  That’s not working however and there’s an undercurrent of people who are ready to revolt mainly because they’re fully aware that the congress and the government has been purchased lock, stock and barrel.  They’re fully aware that the media is not there to inform but to indoctrinate and create a false reality. The problem is not “left” or “right”, but an abuse of power and the outsized influence of oligarchic interests in the political process.  The people only have themselves to blame however and if this economic crisis hadn’t beset us, most would be going merrily along with the program.  History is replete with examples where crisis fostered much needed change and our hope is that this one does the same.  If it does, the economic upheaval and disruption will have been worth it.




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