Friday, September 26, 2008

Economic Expectation

The essential component of the Market is expectation. Heretofore, that expectation has been toward expansion, and a blind belief in growth; that expectation, at a basic level, within the Market has changed. However they might wish to disguise it the means of exchange must in the end be based on something of real value. The era of the petro-dollar is rapidly drawing to a close, and the ability of the American dollar to find, develop and exploit that resource is rapidly diminishing. The basic strength of the American Market, is and always has been in her ability to produce food, but that industry has now allied itself so closely with oil in all her stages of development that here again the dollar is losing ground.

Heavy industry save for a few pockets is gone, the high tech industry is stagnant, and will soon be eclipsed by countries with a greater stake in its present development. Our present infrastructure in based on the distribution and storage of foreign manufactured goods and our own agricultural products. This system also relies on petroleum throughout its operation. The nascent green technology will, without massive government infusion, take many years yet to develop.

Without a solid, universally accepted basis for the manufacture of currency, exchange must be based on a constantly changing assumption of where the true value lies, given the above deficiencies, property became the most attractive proposition which the fewest downsides upon which the market could derive a favorable evaluation of the dollar. It was a hedge against the inevitable fall, no more than a holding action--it main purpose was to allow the expectation and illusion of growth to continue. But there was no real growth, there was only inflation. As the demand grew, prices rose but the real value of the property remained the same. No other outlet arose which would alleviate the pressure because every other avenue was closed by the fuel-dollar equation which made investment an inevitable loss. The bubble thus had to be expanded by any means necessary to preserve expectation. Basically, that's what they were selling, expectation of an ever expanding economy, which no longer exists. When that became evident to the Market, prices began to fall. The new expectation is retrenchment, defensive positions against contraction. Credit becomes cautious, debt must be paid down; interest must be earned as the primary source of profit rather than speculation.

Against such a backdrop, the infusion of a finite amount of cash, no matter how large will be quickly absorbed in bolstering those defensive positions, rather than changing what is by now an unalterable position. The American economy, until basic outlooks are once again changed, and in the present climate that is unlikely, has nothing to offer the world by which she can show a profit, and is contracting. It is, at the present time, lurching towards a new equilibrium.

It is not the bottom of the real estate market that is the problem, but rather the bottom of the market itself, the bottom of expectation, that place where we will reside in the new economic order of nations. As noted above the infusion of money into a system with such an expectation is futile--however, the infusion of cash into reorienting the system and revaluing the dollar upon new infrastructure might allow for a shorter duration to the now prevalent inward looking expectation.

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