The present hedge-fund driven hyperinflation |
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The present hedge-fund driven hyperinflation is comparable to a sonic boom moving across the landscape. At the tip of the cone, where the shock front forms, is the speculative bubble in hedge funds and related derivatives, orders of magnitude larger in monetary value than the physical economy. The commodity price inflation, led by petroleum and certain minerals, is dragged along in the opening conical tail. Prices of other commodities and consumer goods lag behind in time and are diffused as they spread out in the conical opening.
As in the Gauss-Riemann representation of the complex domain, visible or empirically determinable measures (in this case prices) are actually being determined in the non-visible, complex domain. A Riemann-type shock front forms at the cone-shaped boundary layer where the rate of increase of out-of-control speculation confronts the declining rate of real physical economic growth.
QUESTION: I was wondering, if you could describe what exactly is the substance of this natural barrier that you're talking about in the shock-front principle. And how do you know when the barrier has been hit? Do you only know it, by the reflection in the price of petroleum? Or what? I was hoping, maybe you could elaborate on that.
LAROUCHE: Well, it's not the price of petroleum as such. It's the rate of increase of the price of petroleum, and relative to what. You have, in an economy, you have a certain rate of transactions, a current rate of transactions. You know, there's a cycle in an economy, which starts from the point as the first step of extraction, to the delivery of the final product to a consumer, or in the form of some infrastructure, or that sort of thing. And that's a natural cycle, which occurs over the population. It's sort of a rate of development.
In a healthy economy, there is a certain increment in this cycle, that say, for example, many products have a five-year cycle, that is, to get production, it's a five-year cycle, or a three-year cycle, or longer. Infrastructure is often 25 to 30 years, or longer. Like a water-management system may be half-century or a century old. Look at the major dams, for example, which are parts of water systems, like the TVA. And you see some idea of the life-cycle of infrastructure. Then you look at machine tools. Machine tools sometimes become obsolescent after a certain number of years, technologically, or they simply wear out.
So, you have a life-cycle of all kinds of things. You have the basic life-cycle in a population is about 25 years today, that's the point from birth to adult maturity, as an accomplished adult ready to go out and take on a profession, or something of that sort. So, these are cycles.
Now, then, you suddenly have, relative to the rate of growth, or even relative to the rate of shrinking of the economy, and we've been dealing with a shrinking economy over recent periods; we've not been dealing with any real growth. But suddenly, you have a rate of the increase of prices, at rates such that the feedback of these increases of prices, particularly when it goes through the financial area into the raw materials area, suddenly causes an explosion! The way in which you see the price of petroleum's rise effecting an explosion: all the things on which petroleum affects. And we have foolishly made a monopoly of petroleum in terms of power supplies. Against nuclear power. France, of course, is in a better situation—because of de Gaulle, they had nuclear power! And France is in a superior position to that degree.
But, in any case, because of these characteristics, when you get to a point, that in order to maintain a rate of profit, on speculation, that you increase geometrically the rate of profit you require. So now, you suddenly get an asymptotic spiral, as I did with the Triple Curve: You get to an upward thing which is almost straight up. When you get to this straight-up ratio, of the cycle of production relative to the increase in prices, particularly of primary products, when you get to that level, you are ready for the sonic boom.
Now, the way people can understand it scientifically, is simply to pick up the 1860 paper, published in 1860, by Riemann on shockwaves, and look at the ratios he discusses there: what temperature, speed of sound, and so forth, all these sort of things. How the change in ratios, produces a shock front, which is not an absolute barrier, but produces, as he points out, a change in the physical characteristics of the space in which this occurs. It's called "isentropic compression."
Now, to understand it technically, you have to understand it that way: scientifically. That requires a scientific grounding, in what the implications are. Then applying the scientific grounding on this, apply it and take it over, as I did, into the question of economic cycles. And how certain ratios of cycles to economic cycles, produces a barrier condition, which is inherent in the system. It's the same kind of argument Riemann makes in this paper.
So, that you have to understand. But the other way to look at it is, what do you do about it? Now, I'm saying that we're dealing with a population which is not scientifically competent. As a matter of fact, scientific competence went out of the population, even Baby-Boomers with a scientific exposure, they've lost it! They've lost it, over the course of the past decades, particularly the last 25 years. People no longer think rationally, about physical things. They think about this kind of economy, the services economy. So, they don't think about these things.
Now, you go back, as I said earlier, take it backwards. What do you do about it, when it's happened? And it's happened. I mean, these rises in price, these rates of rise in price, no one needs any statistical studies, to prove that this is a shockwave. It is a shockwave—it's happening! The shock has hit. Thunder has sounded. Lightning has struck. You don't have to prove that thunder exists. You don't have to prove that lightning strikes. It's happened! This has now happened. You recognise it, or you're insane. Insane people will say, "no, prove it's a shockwave." It only proves that they're insane!
What you have to do, is start with the population on the other end: What do you do about it? How do you prevent this from becoming a catastrophe. Well then, say: "Government has the power to put a cap on prices." Enforce that cap! Do it! This, then, becomes a problem for the banking industry—good! Government moves in, puts the banking industry through financial reorganisation—and maintains the economy. Good.
What do we do next? Now, we go to national banking: Which means we generate credit under controlled circumstances on the long term, for large-scale infrastructure and technological building. We now eliminate the services economy! And go backto what worked!
That's what you tell the people, who won't understand isentropic compression, in general. But they do understand that. Okay, what're you going to do? Going to put a price lid on this. "Okay—." They understand that, don't they. Say, "But that's going to collapse the banks."
"Oh, yeah! Right. What do we do about that?" Oh, we put the banks into government receivership, and prevent them from closing their doors. And we freeze things that have to be frozen, until we can work our way out of this thing. No immediate collapse.
"Oh. Okay, I understand that. Now, how do we actually build out of this collapse of the banking system?" Well, we have to create credit, which government has to do. "Oh. Okay." Because, obviously, there's no other credit available from any other source of any significance. Government will have to do it. "Oh-h." Twenty-five-year agreements, 50-year agreements. "Okay. What do we do?" Now, we invest: We take the people who are unemployed, or misemployed. We put them to work at useful forms which are going to help this process physically. "Oh?" Now, what we're going to do, is, we start to build with the infrastructure. "Understood."
Now, we concentrate on improving technology. We get more and more high-technology into production. "Ah!"
We now have a system of protected prices, as opposed to free prices. We eliminate the free-trade system, and go to a fair-trade system. "Ah!" So, we protect the prices of what we're producing, so people don't go bankrupt who are doing what's needed. "Ah!"
Now, we have to build our way back into an economy. "Oh." That, they can understand! |
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