Absolutes most certainly exist in the natural world, the world beyond human influence. In “our” world, though, I have learned that shades of gray rule a rather elastic reality; absolutes tend to create rigidity, a state in which bonds shatter explosively when broken.
The market, for example, is an elastic reality. If one trades with an absolute mindset, the results will not be good. “Buy now because this stock will definitely go up” is one example of an absolute. “I will not let this trade go because I know it will comeback” is another. When one views the market this way, it reduces preparedness, the ability to take another path when the fluid market suddenly changes direction.
Another “absolute” I have been hearing a lot recently is that government finances are just like business or family finances, and so they should be run as such. I keep hearing serious people making these comparisons, and it makes me think elastic thinking is not in place …
I read your article ‘The Bumpy Road Ahead’ with interest because the solution to both the U.S. Debt and European Debt is to borrow more. The U.S. raises the debt ceiling and the European Union loans more to failing economies. To me, this is like saying to everyone on the planet if you have large debts then borrow some more, which is in fact why we are in this problem in the first place. Shouldn’t they concentrate on reducing debt and increasing productivity? Some of my clients increased debt and not productivity, and they ended up in bankruptcy.
The reader above is correct. Excessive debt is the root cause of the problems Europe and the U.S. are now facing. His question is also correct. The U.S. and Europe should be concentrating on reducing debt and increasing productivity. Where he and others “miss the boat” is in their thinking that the governments of Europe and the U.S. operate like businesses. They don’t.
If a business overleverages to the point of not paying its debt, it goes bankrupt. That limit is elastic, depending of many factors, but in the end, the limit is absolute. While it is true that governments have this same absolute, the elastic nature of controlling and manipulating the money flow allows for a much, much greater flexibility in controlling that absolute, an advantage businesses and families do not have.
One key operating principle of creating commerce is debt. In today’s world, debt far exceeds any value in global commerce. This happens because economies exist on paper, as currencies are not valued against anything of worth, including gold. This elastic reality means that the two largest economies on the planet, Europe and the U.S., have tremendous flexibility in manipulating the paper money flow. So, when Europe or the U.S. “breaks” is a shade of gray.
Even the most elastic entities in the natural world eventually break under pressure, but the fact that Europe and the U.S control the majority of the paper money in “our” world means they are far from breaking. If you don’t agree, look at the debt to GDP ratio of Japan, the third largest economy on the planet, and then compare that to the U.S. debt to GDP ratio …
Trade in the day – Invest in your life …
