http://thearchdruidreport.blogspot.com/2009/06/thermodynamic-economy.html
The Thermodynamic Economy
........Only a few economists at the time, and even fewer since then, realized that these perplexities pointed to weaknesses in the most basic assumptions of economics itself. E.F. Schumacher was one of these. He pointed out that for a modern industrial society, energy resources are not simply one set of commodities among many others. They are the ur-commodities, the fundamental resources that make economic activity possible at all, and the rules that govern the behavior of other commodities cannot be applied to energy resources in a simplistic fashion. Commented Schumacher in Small is Beautiful:
“I have already alluded to the energy problem in some of the other chapters. It is impossible to get away from it. It is impossible to overemphasize its centrality. [...] As long as there is enough primary energy – at tolerable prices – there is no reason to believe that bottlenecks in any other primary materials cannot be either broken or circumvented. On the other hand, a shortage of primary energy would mean that the demand for most other primary products would be so curtailed that a question of shortage with regard to them would be unlikely to arise” (p. 123).
If Schumacher is right – and events certainly seem to be pointing that way – at least one of the basic flaws of contemporary economic thought comes into sight. The attempt to make sense of energy resources as ordinary commodities misses the crucial point that energy follows laws of its own that are distinct from the rules governing economic activities. Trying to predict the economics of energy without paying attention to the laws governing energy on its own terms – the laws of thermodynamics – yields high-grade nonsense.
Look at the way that rules governing the availability of other resources go haywire when applied to energy. When North America’s deposits of high-grade iron ore were exhausted, for example, the iron industry switched over to progressively lower grades of ore; these contain less iron per ton than the high-grade ores but are much more abundant, and improved technology for extracting the iron makes up the difference. In theory, at least, the supply of iron ore can never run out, since industry can simply keep on retooling to use ever more abundant supplies of ever lower-grade ores, right down to iron salts dissolved in the sea.
Try to do the same thing with energy, by contrast, and two awkward facts emerge. First, the only reason the iron industry can use progressively lower grades of ore is by using increasingly large amounts of energy per ton of iron produced, and the same rule applies across the board; the lower the concentration of the resource in its natural form, the more energy has to be used to extract it and turn it into useful forms. Second, when you try to apply this principle to energy, you very quickly reach the point at which the energy needed to extract and process the resource is greater than the energy you get out the other end. Once this point arrives, the resource is no longer useful in energy terms; you might as well try to support yourself by buying $1 bills for $2 each.
This difficulty can be generalized: where energy is concerned, concentration counts for much more than quantity. That’s a function of the second law of thermodynamics: energy in a whole system always moves from high concentrations to low. Within the system, you can get energy moving against the flow of entropy, but only at the cost of reducing a larger amount or higher concentration of energy to waste heat. That’s how fossil fuels came into existence in the first place; the vast majority of hundreds of millions of years of energy from sunlight falling on prehistoric plants were degraded to waste heat and radiated into outer space, and in the process a very small fraction of that sunlight was concentrated in the form of carbon compounds and buried underground.
The same rule of concentration explains a great many things that current economic ideas miss. Consider the claims made every few years that we can power the world off some relatively low-grade energy source. Latent heat stored in the waters of the world’s oceans, for example, could theoretically provide enough power for the world’s economy to keep it running for some preposterously long period of time, and any number of inventions have tried to tap that energy. They’ve all failed, because it takes more energy to concentrate that heat to a useful temperature than you get back from the process. The same is true a fortiriori of “zero point energy,” the energy potential that according to current physics exists in the fabric of spacetime itself. It doesn’t matter in the least that there’s an infinite amount of it, or something close to that; it’s at the lowest possible level of concentration, and thus utterly useless as a power source for human society.
The same limits apply, if less strictly, to many of today’s renewable energy sources. Solar energy, for example, is very abundant, but it’s also very diffuse. As with any other energy resource, you can concentrate some of it, but only by letting a larger quantity of it turn into waste heat. It’s quite common to hear the claim that because solar energy’s so abundant, our society can easily power itself by the sun, but this shows a failure to grasp thermodynamic reality. Today’s industrial societies require very highly concentrated energy sources; our transportation networks, our power grids, and most of the other ways we use energy, all work by degrading very high concentrations of energy all at once into waste heat, and without those highly concentrated resources, those things won’t work at all.
Now of course there are plenty of productive things that can be done with more diffuse energy sources. Once again, solar energy provides a good example. Passive solar heating for buildings is a mature and highly successful technology; so is solar hot water heating; so are a good many other specialized uses, such as using solar ovens for cooking, water purification, and the like. All these can contribute mightily to the satisfaction of human needs and wants, but they presuppose very different social and economic arrangements than the centralized energy economy of power plants, refineries, pipelines and power grids we have today. As concentrated energy from fossil fuels becomes scarce, in other words, and more diffuse energy from the sun and other renewable sources has to take up the slack, many of the ground rules shaping today’s economic decisions will no longer apply.
What this implies, in turn, is that economics does not exist in a vacuum. The ground rules just mentioned took shape, after all, in an age where economic processes were dominated – one might even say “distorted” – by our species’ temporary access to extravagant supplies of cheap and highly concentrated fossil fuel energy. The new ground rules of economics that will take shape in the twilight of the age of cheap energy, in turn, will be shaped by the fact that energy is once again scarce, costly, and diffuse. More generally, it’s necessary once again to pay attention to the myriad ways that human economic systems are rooted in the wider processes of the natural world........
Friday, June 26, 2009
SC93-3
http://www.globalresearch.ca/index.php?context=va&aid=14119
What the Big Banks Have Won
The trouble started 24 months ago, but the origins of the financial crisis are still disputed. The problems did not begin with subprime loans, lax lending standards or shoddy ratings agencies. The meltdown can be traced back to the activities of the big banks and their enablers at the Federal Reserve. The Fed's artificially low interest rates provided a subsidy for risky speculation while deregulation allowed financial institutions to increase leverage to perilous levels, creating trillions of dollars of credit backed by insufficient capital reserves. When two Bear Stearns hedge funds defaulted in July 2007, the process of turbo-charging profits through massive credit expansion flipped into reverse sending the financial system into a downward spiral.
It is inaccurate to call the current slump a "recession", which suggests a mismatch between supply and demand that is part of the normal business cycle. In truth, the economy has stumbled into a multi-trillion dollar capital hole that was created by the reckless actions of the nation's largest financial institutions. The banks blew up the system and now the country has slipped into a depression.
Currently, the banks are lobbying congress to preserve the "financial innovations" which are at the heart of the crisis. These so-called innovations are, in fact, the instruments (derivatives) and processes (securitization) which help the banks achieve their main goal of avoiding reserve requirements. Securitization and derivatives are devices for concealing the build-up of leverage which is essential for increasing profits with as little capital as possible. If Congress fails to see through this ruse and re-regulate the system, the banks will inflate another bubble and destroy what little is left of the economy.
On June 22, 2009, Christopher Whalen, of Institutional Risk Analysis, appeared before the Senate Committee on Banking, Housing and Urban Affairs, and outlined the dangers of Over-The-Counter (OTC) derivatives. He pointed out that derivatives trading is hugely profitable and generates "supra-normal returns" for banking giants JP Morgan, Goldman Sachs and other large derivatives dealers. He also noted that, "the deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants." As Whalen testified:
"Regulators who are supposed to protect the taxpayer from the costs of cleaning up these periodic loss events are so captured by the very industry they are charged by law to regulate as to be entirely ineffective....The views of the existing financial regulatory agencies and particularly the Federal Reserve Board and Treasury, should get no consideration from the Committee since the views of these agencies are largely duplicative of the views of JPM and the large OTC dealers."
Whalen's complaint is heard frequently on the Internet where bloggers have blasted the cozy relationship between the Fed and the big banks. In fact, the Fed and Treasury are not only hostile towards regulation, they operate as the de facto policy arm of the banking establishment. This explains why Bernanke has underwritten the entire financial system with $12.8 trillion, while the broader economy languishes in economic quicksand. The Fed's lavish gift amounts to a taxpayer-funded insurance policy for which no premium is paid.
Whalen continues:
"In my view, CDS (credit default swaps) contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."
No one understands these instruments; they are deliberately opaque and impossible to price. they should be banned, but the Fed and Treasury continue to look the other way because they are in the thrall of the banks. This phenomenon is known as "regulatory capture".
Credit default swaps (CDS) are a particularly insidious invention. They were originally designed to protect against the possibility of bond going into default, but quickly morphed into a means for massive speculation which is virtually indistinguishable from casino-type gambling. CDS can be used to doll-up one's credit rating, short the market or hedge against potential losses. CDS trading poses a clear danger to the financial system (The CDS market has mushroomed to $30 trillion industry) but the Fed and other regulators have largely ignored the activity because it is a cash cow for the banks.
Whalen again:
"It is important for the Committee to understand that the reform proposal from the Obama Administration regarding OTC derivatives is a canard; an attempt by the White House and the Treasury Department to leave in place the de facto monopoly over the OTC markets by the largest dealer banks led by JPM, GS and other institutions....
The only beneficiaries of the current OTC market for derivatives are JPM, GS and the other large OTC dealers.... Without OTC derivatives, Bear Stearns, Lehman Brothers and AIG would never have failed, but without the excessive rents earned by JPM, GS and the remaining legacy OTC dealers, the largest banks cannot survive and must shrink dramatically." (Statement by Christopher Whalen to the Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment, United States Senate, June 22, 2009)
The Geithner-Summers “reform” proposals are a public relations scam designed to conceal the fact that the banks will continue to maintain their stranglehold on OTC derivatives trading while circumventing government oversight. Nothing will change. Bernanke and Geithner's primary objective is to preserve the ability of the banks to use complex instruments to enhance leverage and maximize profits.
The banks created the financial crisis, and now they are its biggest beneficiaries. They don't need to worry about risk, because Bernanke has assured them that they will be bailed out regardless of the cost. Financial institutions that have explicit government guarantees are able to get cheaper funding because lending to the bank is the same as lending to the state.........
Obama supports these new supposed " reforms ", further enabled by even more power given to the FED ( a privately owned cartel of central banks ). The Circus Of Plunder continues as Obama, the FED and the Banksters work together to continue the rampant theiving of public funds.
What the Big Banks Have Won
The trouble started 24 months ago, but the origins of the financial crisis are still disputed. The problems did not begin with subprime loans, lax lending standards or shoddy ratings agencies. The meltdown can be traced back to the activities of the big banks and their enablers at the Federal Reserve. The Fed's artificially low interest rates provided a subsidy for risky speculation while deregulation allowed financial institutions to increase leverage to perilous levels, creating trillions of dollars of credit backed by insufficient capital reserves. When two Bear Stearns hedge funds defaulted in July 2007, the process of turbo-charging profits through massive credit expansion flipped into reverse sending the financial system into a downward spiral.
It is inaccurate to call the current slump a "recession", which suggests a mismatch between supply and demand that is part of the normal business cycle. In truth, the economy has stumbled into a multi-trillion dollar capital hole that was created by the reckless actions of the nation's largest financial institutions. The banks blew up the system and now the country has slipped into a depression.
Currently, the banks are lobbying congress to preserve the "financial innovations" which are at the heart of the crisis. These so-called innovations are, in fact, the instruments (derivatives) and processes (securitization) which help the banks achieve their main goal of avoiding reserve requirements. Securitization and derivatives are devices for concealing the build-up of leverage which is essential for increasing profits with as little capital as possible. If Congress fails to see through this ruse and re-regulate the system, the banks will inflate another bubble and destroy what little is left of the economy.
On June 22, 2009, Christopher Whalen, of Institutional Risk Analysis, appeared before the Senate Committee on Banking, Housing and Urban Affairs, and outlined the dangers of Over-The-Counter (OTC) derivatives. He pointed out that derivatives trading is hugely profitable and generates "supra-normal returns" for banking giants JP Morgan, Goldman Sachs and other large derivatives dealers. He also noted that, "the deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants." As Whalen testified:
"Regulators who are supposed to protect the taxpayer from the costs of cleaning up these periodic loss events are so captured by the very industry they are charged by law to regulate as to be entirely ineffective....The views of the existing financial regulatory agencies and particularly the Federal Reserve Board and Treasury, should get no consideration from the Committee since the views of these agencies are largely duplicative of the views of JPM and the large OTC dealers."
Whalen's complaint is heard frequently on the Internet where bloggers have blasted the cozy relationship between the Fed and the big banks. In fact, the Fed and Treasury are not only hostile towards regulation, they operate as the de facto policy arm of the banking establishment. This explains why Bernanke has underwritten the entire financial system with $12.8 trillion, while the broader economy languishes in economic quicksand. The Fed's lavish gift amounts to a taxpayer-funded insurance policy for which no premium is paid.
Whalen continues:
"In my view, CDS (credit default swaps) contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."
No one understands these instruments; they are deliberately opaque and impossible to price. they should be banned, but the Fed and Treasury continue to look the other way because they are in the thrall of the banks. This phenomenon is known as "regulatory capture".
Credit default swaps (CDS) are a particularly insidious invention. They were originally designed to protect against the possibility of bond going into default, but quickly morphed into a means for massive speculation which is virtually indistinguishable from casino-type gambling. CDS can be used to doll-up one's credit rating, short the market or hedge against potential losses. CDS trading poses a clear danger to the financial system (The CDS market has mushroomed to $30 trillion industry) but the Fed and other regulators have largely ignored the activity because it is a cash cow for the banks.
Whalen again:
"It is important for the Committee to understand that the reform proposal from the Obama Administration regarding OTC derivatives is a canard; an attempt by the White House and the Treasury Department to leave in place the de facto monopoly over the OTC markets by the largest dealer banks led by JPM, GS and other institutions....
The only beneficiaries of the current OTC market for derivatives are JPM, GS and the other large OTC dealers.... Without OTC derivatives, Bear Stearns, Lehman Brothers and AIG would never have failed, but without the excessive rents earned by JPM, GS and the remaining legacy OTC dealers, the largest banks cannot survive and must shrink dramatically." (Statement by Christopher Whalen to the Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance, and Investment, United States Senate, June 22, 2009)
The Geithner-Summers “reform” proposals are a public relations scam designed to conceal the fact that the banks will continue to maintain their stranglehold on OTC derivatives trading while circumventing government oversight. Nothing will change. Bernanke and Geithner's primary objective is to preserve the ability of the banks to use complex instruments to enhance leverage and maximize profits.
The banks created the financial crisis, and now they are its biggest beneficiaries. They don't need to worry about risk, because Bernanke has assured them that they will be bailed out regardless of the cost. Financial institutions that have explicit government guarantees are able to get cheaper funding because lending to the bank is the same as lending to the state.........
Obama supports these new supposed " reforms ", further enabled by even more power given to the FED ( a privately owned cartel of central banks ). The Circus Of Plunder continues as Obama, the FED and the Banksters work together to continue the rampant theiving of public funds.
Tuesday, June 23, 2009
SC93-2
http://kunstler.com/blog/2009/06/a-snake-eating-its-own-tail.html#more
A Snake Eating Its Own Tail
I'd like to know what Barack Obama thinks he's doing with the fiasco we call the US economy. He can't pump it back into the credit-fueled freak show it used to be, of course, but he could steer it in a practical new direction. Even people who have lost a lot, and stand to lose more, can be motivated to behave more self-beneficially. The president doesn't have very long before his economic problems become really awful political problems.
The current mass delusion that will go down in history as the "green shoots fugue" can't possibly bring the credit freak show back because the credit -- i.e. money borrowed from the American future -- was swindled away. Something like $14 trillion worth of nominal dollars is being sucked into a cosmic vortex never to be seen again. It was last seen in the spectral forms of so many collateralized debt obligations, credit default swaps, so-called structured investment vehicles and other now-obvious frauds. That giant sucking sound we hear means the process is still underway, and the "money" disappearing into yawning oblivion will out-pace any effort orchestrated by the Federal Reserve and the US Treasury to replace it with new "money" (or credit). Therefore there is no chance between heaven and hell that the pre-2008 suburban homesteading and shopping fiesta can ever come back. The American polity is tapped out in all sectors, personal, corporate, and public.
Notice the two words largely absent from whatever public discussion exists around these matters -- "swindle" and "fraud." The reason they're missing is because if they happened to enter the conversation, something would have to be done about them, namely investigations and prosecutions. The president is the person in the best position to set the terms of this public discussion, and by avoiding these two words he's blowing the chance to begin the process of correcting the tragic course we're on.
These swindles and frauds range from malfeasance at the highest levels to indecency in the lowliest cubicles -- i.e. the collusion of a revolving cast of cabinet-level officials with Wall Street executives to loot the US Treasury, the probable criminal dereliction at the mid-level of agencies like the Federal Reserve's oversight office and the SEC, to certain and outright street grifting in the traffic of securities known to be worthless at their creation. The current fiction that the public seems to be swallowing (for the moment) is along the lines of the old "mistakes were made" locution, which is an easy way to avoid holding individuals responsible for misdeeds. The competence and hence the legitimacy of the US government is on the line here. The US economic situation is going to get a lot worse. Many more people are going to lose incomes and chattels and will suffer, and the moment will arrive when they will direct their anger outward. They need to be told two things: that the borrowed-against future is now here, requiring very different behavior; and that those who received lavish payment for looting the American future unlawfully will be subject to due process of law. So far, nobody has even been fired, let alone officially investigated.
Meanwhile, the nation is lumbering toward an epochal moment of truth when the non-viability of how we get by day-to-day is exposed for all to see, including those other nations who have been lending us colossal sums of their hard-earned money to keep our operations afloat. This will be the moment when the US renounces its debt -- or just proves unable to continue pretending to service it. This moment is liable to come sometime after the middle of this summer. It will be the moment when all the green shoots babytalk stops and the scope of onrushing hardship becomes self-evident. It will be the moment when all of America finds itself in something like the aftermath of Hurricane Katrina, when the federal government proves comically impotent and the cold reality hits that we're now all on our own.
If it comes to that, I will be sorry to see Barack Obama in the goat-leader role formally occupied by George W. Bush. I voted for Mr. Obama mainly because I thought he had the capacity to tell the public the truth and inspire them to move forward out of childish indulgence into a more rigorous and challenging way of life consistent with the mandates of reality. I'm still not convinced that he'll fail at this, but time is growing awfully short.
The dreadful moment may arrive with the functional bankruptcy of California, which is on-schedule, as it happens, for July. Governor Schwarzenegger, who really seems to have tried introducing fiscal reality out there, and just plain failed, will surely come to the White House begging for a bail-out. It would be hard for President Obama to turn him down, but then forty-nine other governors will line up behind Arnold and everybody in the world will see what a farce our governance has turned into: a snake eating its own tail.
A Snake Eating Its Own Tail
I'd like to know what Barack Obama thinks he's doing with the fiasco we call the US economy. He can't pump it back into the credit-fueled freak show it used to be, of course, but he could steer it in a practical new direction. Even people who have lost a lot, and stand to lose more, can be motivated to behave more self-beneficially. The president doesn't have very long before his economic problems become really awful political problems.
The current mass delusion that will go down in history as the "green shoots fugue" can't possibly bring the credit freak show back because the credit -- i.e. money borrowed from the American future -- was swindled away. Something like $14 trillion worth of nominal dollars is being sucked into a cosmic vortex never to be seen again. It was last seen in the spectral forms of so many collateralized debt obligations, credit default swaps, so-called structured investment vehicles and other now-obvious frauds. That giant sucking sound we hear means the process is still underway, and the "money" disappearing into yawning oblivion will out-pace any effort orchestrated by the Federal Reserve and the US Treasury to replace it with new "money" (or credit). Therefore there is no chance between heaven and hell that the pre-2008 suburban homesteading and shopping fiesta can ever come back. The American polity is tapped out in all sectors, personal, corporate, and public.
Notice the two words largely absent from whatever public discussion exists around these matters -- "swindle" and "fraud." The reason they're missing is because if they happened to enter the conversation, something would have to be done about them, namely investigations and prosecutions. The president is the person in the best position to set the terms of this public discussion, and by avoiding these two words he's blowing the chance to begin the process of correcting the tragic course we're on.
These swindles and frauds range from malfeasance at the highest levels to indecency in the lowliest cubicles -- i.e. the collusion of a revolving cast of cabinet-level officials with Wall Street executives to loot the US Treasury, the probable criminal dereliction at the mid-level of agencies like the Federal Reserve's oversight office and the SEC, to certain and outright street grifting in the traffic of securities known to be worthless at their creation. The current fiction that the public seems to be swallowing (for the moment) is along the lines of the old "mistakes were made" locution, which is an easy way to avoid holding individuals responsible for misdeeds. The competence and hence the legitimacy of the US government is on the line here. The US economic situation is going to get a lot worse. Many more people are going to lose incomes and chattels and will suffer, and the moment will arrive when they will direct their anger outward. They need to be told two things: that the borrowed-against future is now here, requiring very different behavior; and that those who received lavish payment for looting the American future unlawfully will be subject to due process of law. So far, nobody has even been fired, let alone officially investigated.
Meanwhile, the nation is lumbering toward an epochal moment of truth when the non-viability of how we get by day-to-day is exposed for all to see, including those other nations who have been lending us colossal sums of their hard-earned money to keep our operations afloat. This will be the moment when the US renounces its debt -- or just proves unable to continue pretending to service it. This moment is liable to come sometime after the middle of this summer. It will be the moment when all the green shoots babytalk stops and the scope of onrushing hardship becomes self-evident. It will be the moment when all of America finds itself in something like the aftermath of Hurricane Katrina, when the federal government proves comically impotent and the cold reality hits that we're now all on our own.
If it comes to that, I will be sorry to see Barack Obama in the goat-leader role formally occupied by George W. Bush. I voted for Mr. Obama mainly because I thought he had the capacity to tell the public the truth and inspire them to move forward out of childish indulgence into a more rigorous and challenging way of life consistent with the mandates of reality. I'm still not convinced that he'll fail at this, but time is growing awfully short.
The dreadful moment may arrive with the functional bankruptcy of California, which is on-schedule, as it happens, for July. Governor Schwarzenegger, who really seems to have tried introducing fiscal reality out there, and just plain failed, will surely come to the White House begging for a bail-out. It would be hard for President Obama to turn him down, but then forty-nine other governors will line up behind Arnold and everybody in the world will see what a farce our governance has turned into: a snake eating its own tail.
Sunday, June 21, 2009
SC93-1
http://www.globalresearch.ca/index.php?context=viewArticle&code=DEC20090210&articleId=12252
Catastrophic Fall in 2009 Global Food Production
.........Global food Catastrophe
The world is heading for a drop in agricultural production of 20 to 40 percent, depending on the severity and length of the current global droughts. Food producing nations are imposing food export restrictions. Food prices will soar, and, in poor countries with food deficits, millions will starve.
The deflation debate should end now
The droughts plaguing the world's biggest agricultural regions should end the debate about deflation in 2009. The demand for agricultural commodities is relatively immune to developments in the business cycles (at least compared to that of energy or base metals), and, with a 20 to 40 percent decline in world production, already rising food prices are headed significantly higher.
In fact, agricultural commodities NEED to head higher and soon, to prevent even greater food shortages and famine. The price of wheat, corn, soybeans, etc must rise to a level which encourages the planting of every available acre with the best possible fertilizers. Otherwise, if food prices stay at their current levels, production will continue to fall, sentencing millions more to starvation.
Competitive currency appreciation
Some observers are anticipating “competitive currency devaluations” in addition to deflation for 2009 (nations devalue their currencies to help their export sector). The coming global food shortage makes this highly unlikely. Depreciating their currency in the current environment will produce the unwanted consequence of boosting exports—of food. Even with export restrictions like those in China, currency depreciation would cause the outflow of significant quantities of grain via the black market.
Instead of “competitive currency devaluations”, spiking food prices will likely cause competitive currency appreciation in 2009. Foreign exchange reserves exist for just this type of emergency . Central banks around the world will lower domestic food prices by either directly selling off their reserves to appreciate their currencies or by using them to purchase grain on the world market.
Appreciating a currency is the fastest way to control food inflation. A more valuable currency allows a nation to monopolize more global resources (ie: the overvalued dollar allows the US to consume 25% of the world's oil despite having only 4% of the world's population). If China were to selloff its US reserves, its enormous population would start sucking up the world's food supply like the US has been doing with oil.
On the flip side, when a nation appreciates its currency and starts consuming more of the world's resources, it leaves less for everyone else. So when china appreciates the yuan, food shortages worldwide will increase and prices everywhere else will jump upwards. As there is nothing that breeds social unrest like soaring food prices, nations around the world, from Russia, to the EU, to Saudi Arabia, to India, will sell off their foreign reserves to appreciate their currencies and reduce the cost of food imports. In response to this, China will sell even more of its reserves and so on. That is competitive currency appreciation.
When faced with competitive currency appreciation, you do NOT want to be the world's reserve currency. The dollar is likely to do very poorly as central banks liquidate trillions in US holdings to buy food and appreciate their currencies..........
Read the rest of this article to learn of the severe problems with food production in various regions of the world. and here is some commentary at the survivalacres.com website to this article:
........mattbg Says: June 20th, 2009 at 4:51 am National Geographic had a good article on the Australian drought in April:
http://ngm.nationalgeographic.com/2009/04/murray-darling/draper-text.html
logrithmic Says: June 20th, 2009 at 10:45 am Saw this article too. Very disturbing. Price of food will be skyrocketing. Right now we’ve had a deluge of rain (northeast KS). Just checked my blueberry plants (first year planting). One of my Dukes has brown leaves on it. My search on the web suggests it may be suffering from overwater. Nothing I can do about the rain though - we had 3.5 inches this week alone.
lonewolf Says: June 20th, 2009 at 11:22 am “The world is heading for a drop in agricultural production [read: ‘drop’ in population] of 20 to 40 percent [in 2009], depending on the severity and length of the current global droughts.”
Interestingly (to me), this ‘report’ doesn’t mention a 100-yr drought in the northern and western Canadian grainbelt (as asserted by some locals). It’s not especially dry here in Montana - yet (albeit we remain is a “historic drought” and, strangely, Montana Wheat Inc. (major ‘operator’) hasn’t even started planting yet (TMK, and I can see many of their huge fields from my perch on top of my world.)
IMOThe FKN sheeple will not bleat for long, after being interrupted from their mindless grazing on delusionary distraction, before the exquisitely-moronic (hence infinitely dangerous) herd stampedes.
Get ready to rumble (in the belly as it shall be elsewhere)
lonewolf Says: June 20th, 2009 at 11:56 am “A billion to go hungry with food prices back on rise”
www.independent.co.uk/news/business/news/a-billion-to-go-hungry-with-food-prices-back-on-rise-1710890.html
And a few billion more will ‘think’ that they are starving - and they will react accordingly (which is not to say appropriately or effectively)
MSquirrel Says: June 21st, 2009 at 4:16 am Looks like they also didn’t mention that GMO crops are failing world-wide as well.
mattbg Says: June 21st, 2009 at 6:15 am On top of this, for awhile now, some countries (i.e. Saudi Arabia, China) that have exceeded their capacity to grow for themselves are buying farmland in foreign countries (mostly Africa AFAIK), growing their food abroad, and shipping it back home. This may be an issue of water more than anything else… as agricultural exports constitute a massive effective export of water.
Land ownership is not that clear in these areas and I expect there is considerable advantage being taken. It will be interesting to see the local reaction to these types of things if things get serious.
admin Says: June 21st, 2009 at 9:09 am I saw several videos yesterday on monoculture tree plantations. These appear to be having an absolutely devastating effect upon the water supplies. They are “green deserts” where nothing else lives, and have destroyed region after region. You can check these out here: World Rain Forest Videos
mattbg Says: June 21st, 2009 at 9:54 am admin, that is a perfect example of why it’s not OK to cut down existing forests and then replace them with “tree planting campaigns”. “Plant a tree” doesn’t restore the ecosystem of the forest that was cut down, nor does it help rebuild one in a decimated forest. It’s good for guilt-assuaging, though.
admin Says: June 21st, 2009 at 10:49 am I agree. The more I absorb about our activity, the more convinced I am becoming that we will utterly and totally fail to save ourselves. I’m not even sure anymore if collapse will save us, as we will go right back to doing what we’re doing now (if we can).
A 2007 issue of National Geographic I was reading showed the unbelievable pace of development in China. It’s breathtakingly scary.
Nothing “we” do is going to make any difference now. All those people who try, large or small, big or little, it’s not enough, not even close.
The same issue showed the Big Thaw taking place all over the world, as the planet heats up very rapidly, decimating ice packs, glaciers and water supplies all over the world.
Die off will help, but peak energy, peak oil and the collapse of civilization cannot happen soon enough.
What still ‘amazes’ me is that we are so stupid to do all this in the first place. The almighty dollar (or yuan) and the love of money is absolutely destroying the world. It’s so unbelievably stupid and wasteful. The destruction caused by human greed is truly appalling.
Catastrophic Fall in 2009 Global Food Production
.........Global food Catastrophe
The world is heading for a drop in agricultural production of 20 to 40 percent, depending on the severity and length of the current global droughts. Food producing nations are imposing food export restrictions. Food prices will soar, and, in poor countries with food deficits, millions will starve.
The deflation debate should end now
The droughts plaguing the world's biggest agricultural regions should end the debate about deflation in 2009. The demand for agricultural commodities is relatively immune to developments in the business cycles (at least compared to that of energy or base metals), and, with a 20 to 40 percent decline in world production, already rising food prices are headed significantly higher.
In fact, agricultural commodities NEED to head higher and soon, to prevent even greater food shortages and famine. The price of wheat, corn, soybeans, etc must rise to a level which encourages the planting of every available acre with the best possible fertilizers. Otherwise, if food prices stay at their current levels, production will continue to fall, sentencing millions more to starvation.
Competitive currency appreciation
Some observers are anticipating “competitive currency devaluations” in addition to deflation for 2009 (nations devalue their currencies to help their export sector). The coming global food shortage makes this highly unlikely. Depreciating their currency in the current environment will produce the unwanted consequence of boosting exports—of food. Even with export restrictions like those in China, currency depreciation would cause the outflow of significant quantities of grain via the black market.
Instead of “competitive currency devaluations”, spiking food prices will likely cause competitive currency appreciation in 2009. Foreign exchange reserves exist for just this type of emergency . Central banks around the world will lower domestic food prices by either directly selling off their reserves to appreciate their currencies or by using them to purchase grain on the world market.
Appreciating a currency is the fastest way to control food inflation. A more valuable currency allows a nation to monopolize more global resources (ie: the overvalued dollar allows the US to consume 25% of the world's oil despite having only 4% of the world's population). If China were to selloff its US reserves, its enormous population would start sucking up the world's food supply like the US has been doing with oil.
On the flip side, when a nation appreciates its currency and starts consuming more of the world's resources, it leaves less for everyone else. So when china appreciates the yuan, food shortages worldwide will increase and prices everywhere else will jump upwards. As there is nothing that breeds social unrest like soaring food prices, nations around the world, from Russia, to the EU, to Saudi Arabia, to India, will sell off their foreign reserves to appreciate their currencies and reduce the cost of food imports. In response to this, China will sell even more of its reserves and so on. That is competitive currency appreciation.
When faced with competitive currency appreciation, you do NOT want to be the world's reserve currency. The dollar is likely to do very poorly as central banks liquidate trillions in US holdings to buy food and appreciate their currencies..........
Read the rest of this article to learn of the severe problems with food production in various regions of the world. and here is some commentary at the survivalacres.com website to this article:
........mattbg Says: June 20th, 2009 at 4:51 am National Geographic had a good article on the Australian drought in April:
http://ngm.nationalgeographic.com/2009/04/murray-darling/draper-text.html
logrithmic Says: June 20th, 2009 at 10:45 am Saw this article too. Very disturbing. Price of food will be skyrocketing. Right now we’ve had a deluge of rain (northeast KS). Just checked my blueberry plants (first year planting). One of my Dukes has brown leaves on it. My search on the web suggests it may be suffering from overwater. Nothing I can do about the rain though - we had 3.5 inches this week alone.
lonewolf Says: June 20th, 2009 at 11:22 am “The world is heading for a drop in agricultural production [read: ‘drop’ in population] of 20 to 40 percent [in 2009], depending on the severity and length of the current global droughts.”
Interestingly (to me), this ‘report’ doesn’t mention a 100-yr drought in the northern and western Canadian grainbelt (as asserted by some locals). It’s not especially dry here in Montana - yet (albeit we remain is a “historic drought” and, strangely, Montana Wheat Inc. (major ‘operator’) hasn’t even started planting yet (TMK, and I can see many of their huge fields from my perch on top of my world.)
IMOThe FKN sheeple will not bleat for long, after being interrupted from their mindless grazing on delusionary distraction, before the exquisitely-moronic (hence infinitely dangerous) herd stampedes.
Get ready to rumble (in the belly as it shall be elsewhere)
lonewolf Says: June 20th, 2009 at 11:56 am “A billion to go hungry with food prices back on rise”
www.independent.co.uk/news/business/news/a-billion-to-go-hungry-with-food-prices-back-on-rise-1710890.html
And a few billion more will ‘think’ that they are starving - and they will react accordingly (which is not to say appropriately or effectively)
MSquirrel Says: June 21st, 2009 at 4:16 am Looks like they also didn’t mention that GMO crops are failing world-wide as well.
mattbg Says: June 21st, 2009 at 6:15 am On top of this, for awhile now, some countries (i.e. Saudi Arabia, China) that have exceeded their capacity to grow for themselves are buying farmland in foreign countries (mostly Africa AFAIK), growing their food abroad, and shipping it back home. This may be an issue of water more than anything else… as agricultural exports constitute a massive effective export of water.
Land ownership is not that clear in these areas and I expect there is considerable advantage being taken. It will be interesting to see the local reaction to these types of things if things get serious.
admin Says: June 21st, 2009 at 9:09 am I saw several videos yesterday on monoculture tree plantations. These appear to be having an absolutely devastating effect upon the water supplies. They are “green deserts” where nothing else lives, and have destroyed region after region. You can check these out here: World Rain Forest Videos
mattbg Says: June 21st, 2009 at 9:54 am admin, that is a perfect example of why it’s not OK to cut down existing forests and then replace them with “tree planting campaigns”. “Plant a tree” doesn’t restore the ecosystem of the forest that was cut down, nor does it help rebuild one in a decimated forest. It’s good for guilt-assuaging, though.
admin Says: June 21st, 2009 at 10:49 am I agree. The more I absorb about our activity, the more convinced I am becoming that we will utterly and totally fail to save ourselves. I’m not even sure anymore if collapse will save us, as we will go right back to doing what we’re doing now (if we can).
A 2007 issue of National Geographic I was reading showed the unbelievable pace of development in China. It’s breathtakingly scary.
Nothing “we” do is going to make any difference now. All those people who try, large or small, big or little, it’s not enough, not even close.
The same issue showed the Big Thaw taking place all over the world, as the planet heats up very rapidly, decimating ice packs, glaciers and water supplies all over the world.
Die off will help, but peak energy, peak oil and the collapse of civilization cannot happen soon enough.
What still ‘amazes’ me is that we are so stupid to do all this in the first place. The almighty dollar (or yuan) and the love of money is absolutely destroying the world. It’s so unbelievably stupid and wasteful. The destruction caused by human greed is truly appalling.
Tuesday, June 16, 2009
SC92-15
http://www.globalresearch.ca/index.php?context=va&aid=13980
Goodbye to Cheap Oil
Buckle your seatbelt, you may be going nowhere -- and it could be a very bumpy ride. Oil futures have just passed $71 for a barrel of "light, sweet crude oil" (sweet for energy stocks, anyway) on its way to... well, we don't know exactly where, but it won't feel good, not at the pump and not in the economy either. In the Midwest and scattered other locations, gas prices are already at the edge of $3.00 a gallon and the height of summer isn't even upon us.
Much of this sudden rise has been fueled by OPEC production cuts, investor dreams of a global economic recovery (and so a heightened desire for energy), and the enthusiasm of market speculators. Explain it as you will, the price of crude, which hit a low of about $32 a barrel in December, as the planet seemed to meltdown economically, has doubled in recent months.
Oil is like the undead. Just when you think it's gone down for the count, it rises from the grave ravenous. As Clifford Krauss of the New York Times reported recently, gas prices have risen 41 days in a row, and yet the price at the pump is still "lagging behind the increase in the price of oil." According to Tom Kloza, chief oil analyst at the Oil Price Information Service, consumers are now shelling out one billion dollars a day to keep their tanks full. (It was $1.5 billion last summer when the price of a barrel of oil hit an astronomical $147.)
Whether this is the energy version of irrational exuberance and a mini-bubble to be burst as further economic bad times hit or the reality of our near future, sooner or later, far worse is in store on the energy front, as Michael Klare, author of Rising Powers, Shrinking World: The New Geopolitics of Energy, makes clear. But don't listen to him. Instead, check out his latest energy scoop -- the real news he found buried in the most recent report from the U.S. Department of Energy, whose seers have put irrational exuberance in mothballs and brought out the sackcloth and ashes.
--------------------------------------------------------------------------------
It's Official -- The Era of Cheap Oil Is OverEnergy Department Changes Tune on Peak Oil
Every summer, the Energy Information Administration (EIA) of the U.S. Department of Energy issues its International Energy Outlook (IEO) -- a jam-packed compendium of data and analysis on the evolving world energy equation. For those with the background to interpret its key statistical findings, the release of the IEO can provide a unique opportunity to gauge important shifts in global energy trends, much as reports of routine Communist Party functions in the party journal Pravda once provided America's Kremlin watchers with insights into changes in the Soviet Union's top leadership circle.
As it happens, the recent release of the 2009 IEO has provided energy watchers with a feast of significant revelations. By far the most significant disclosure: the IEO predicts a sharp drop in projected future world oil output (compared to previous expectations) and a corresponding increase in reliance on what are called "unconventional fuels" -- oil sands, ultra-deep oil, shale oil, and biofuels.
So here's the headline for you: For the first time, the well-respected Energy Information Administration appears to be joining with those experts who have long argued that the era of cheap and plentiful oil is drawing to a close. Almost as notable, when it comes to news, the 2009 report highlights Asia's insatiable demand for energy and suggests that China is moving ever closer to the point at which it will overtake the United States as the world's number one energy consumer. Clearly, a new era of cutthroat energy competition is upon us........
........New Powers, New Problems
The IEO report hints at other geopolitical changes occurring in the global energy landscape, especially an expected stunning increase in the share of the global energy supply consumed in Asia and a corresponding decline by the United States, Japan, and other "First World" powers. In 1990, the developing nations of Asia and the Middle East accounted for only 17% of world energy consumption; by 2030, that number, the report suggests, should reach 41%, matching that of the major First World powers.
All recent editions of the report have predicted that China would eventually overtake the United States as number one energy consumer. What's notable is how quickly the 2009 edition expects that to happen. The 2006 report had China assuming the leadership position in a 2026-2030 timeframe; in 2007, it was 2021-2024; in 2008, it was 2016-2020. This year, the EIA is projecting that China will overtake the United States between 2010 and 2014.
It's easy enough to overlook these shifting estimates, since the reports don't emphasize how they have changed from year to year. What they suggest, however, is that the United States will face ever fiercer competition from China in the global struggle to secure adequate supplies of energy to meet national needs.
Given what we have learned about the dwindling prospects for adequate future oil supplies, we are sure to face increased geopolitical competition and strife between the two countries in those few areas that are capable of producing additional quantities of oil (and undoubtedly genuine desperation among many other countries with far less resources and power).
And much else follows: As the world's leading energy consumer, Beijing will undoubtedly play a far more critical role in setting international energy policies and prices, undercutting the pivotal role long played by Washington. It is not hard to imagine, then, that major oil producers in the Middle East and Africa will see it as in their interest to deepen political and economic ties with China at the expense of the United States. China can also be expected to maintain close ties with oil providers like Iran and Sudan, no matter how this clashes with American foreign policy objectives.
At first glance, the International Energy Outlook for 2009 hardly looks different from previous editions: a tedious compendium of tables and text on global energy trends. Looked at another way, however, it trumpets the headlines of the future -- and their news is not comforting.
The global energy equation is changing rapidly, and with it is likely to come great power competition, economic peril, rising starvation, growing unrest, environmental disaster, and shrinking energy supplies, no matter what steps are taken. No doubt the 2010 edition of the report and those that follow will reveal far more, but the new trends in energy on the planet are already increasingly evident -- and unsettling.
Goodbye to Cheap Oil
Buckle your seatbelt, you may be going nowhere -- and it could be a very bumpy ride. Oil futures have just passed $71 for a barrel of "light, sweet crude oil" (sweet for energy stocks, anyway) on its way to... well, we don't know exactly where, but it won't feel good, not at the pump and not in the economy either. In the Midwest and scattered other locations, gas prices are already at the edge of $3.00 a gallon and the height of summer isn't even upon us.
Much of this sudden rise has been fueled by OPEC production cuts, investor dreams of a global economic recovery (and so a heightened desire for energy), and the enthusiasm of market speculators. Explain it as you will, the price of crude, which hit a low of about $32 a barrel in December, as the planet seemed to meltdown economically, has doubled in recent months.
Oil is like the undead. Just when you think it's gone down for the count, it rises from the grave ravenous. As Clifford Krauss of the New York Times reported recently, gas prices have risen 41 days in a row, and yet the price at the pump is still "lagging behind the increase in the price of oil." According to Tom Kloza, chief oil analyst at the Oil Price Information Service, consumers are now shelling out one billion dollars a day to keep their tanks full. (It was $1.5 billion last summer when the price of a barrel of oil hit an astronomical $147.)
Whether this is the energy version of irrational exuberance and a mini-bubble to be burst as further economic bad times hit or the reality of our near future, sooner or later, far worse is in store on the energy front, as Michael Klare, author of Rising Powers, Shrinking World: The New Geopolitics of Energy, makes clear. But don't listen to him. Instead, check out his latest energy scoop -- the real news he found buried in the most recent report from the U.S. Department of Energy, whose seers have put irrational exuberance in mothballs and brought out the sackcloth and ashes.
--------------------------------------------------------------------------------
It's Official -- The Era of Cheap Oil Is OverEnergy Department Changes Tune on Peak Oil
Every summer, the Energy Information Administration (EIA) of the U.S. Department of Energy issues its International Energy Outlook (IEO) -- a jam-packed compendium of data and analysis on the evolving world energy equation. For those with the background to interpret its key statistical findings, the release of the IEO can provide a unique opportunity to gauge important shifts in global energy trends, much as reports of routine Communist Party functions in the party journal Pravda once provided America's Kremlin watchers with insights into changes in the Soviet Union's top leadership circle.
As it happens, the recent release of the 2009 IEO has provided energy watchers with a feast of significant revelations. By far the most significant disclosure: the IEO predicts a sharp drop in projected future world oil output (compared to previous expectations) and a corresponding increase in reliance on what are called "unconventional fuels" -- oil sands, ultra-deep oil, shale oil, and biofuels.
So here's the headline for you: For the first time, the well-respected Energy Information Administration appears to be joining with those experts who have long argued that the era of cheap and plentiful oil is drawing to a close. Almost as notable, when it comes to news, the 2009 report highlights Asia's insatiable demand for energy and suggests that China is moving ever closer to the point at which it will overtake the United States as the world's number one energy consumer. Clearly, a new era of cutthroat energy competition is upon us........
........New Powers, New Problems
The IEO report hints at other geopolitical changes occurring in the global energy landscape, especially an expected stunning increase in the share of the global energy supply consumed in Asia and a corresponding decline by the United States, Japan, and other "First World" powers. In 1990, the developing nations of Asia and the Middle East accounted for only 17% of world energy consumption; by 2030, that number, the report suggests, should reach 41%, matching that of the major First World powers.
All recent editions of the report have predicted that China would eventually overtake the United States as number one energy consumer. What's notable is how quickly the 2009 edition expects that to happen. The 2006 report had China assuming the leadership position in a 2026-2030 timeframe; in 2007, it was 2021-2024; in 2008, it was 2016-2020. This year, the EIA is projecting that China will overtake the United States between 2010 and 2014.
It's easy enough to overlook these shifting estimates, since the reports don't emphasize how they have changed from year to year. What they suggest, however, is that the United States will face ever fiercer competition from China in the global struggle to secure adequate supplies of energy to meet national needs.
Given what we have learned about the dwindling prospects for adequate future oil supplies, we are sure to face increased geopolitical competition and strife between the two countries in those few areas that are capable of producing additional quantities of oil (and undoubtedly genuine desperation among many other countries with far less resources and power).
And much else follows: As the world's leading energy consumer, Beijing will undoubtedly play a far more critical role in setting international energy policies and prices, undercutting the pivotal role long played by Washington. It is not hard to imagine, then, that major oil producers in the Middle East and Africa will see it as in their interest to deepen political and economic ties with China at the expense of the United States. China can also be expected to maintain close ties with oil providers like Iran and Sudan, no matter how this clashes with American foreign policy objectives.
At first glance, the International Energy Outlook for 2009 hardly looks different from previous editions: a tedious compendium of tables and text on global energy trends. Looked at another way, however, it trumpets the headlines of the future -- and their news is not comforting.
The global energy equation is changing rapidly, and with it is likely to come great power competition, economic peril, rising starvation, growing unrest, environmental disaster, and shrinking energy supplies, no matter what steps are taken. No doubt the 2010 edition of the report and those that follow will reveal far more, but the new trends in energy on the planet are already increasingly evident -- and unsettling.
SC92-14
http://www.globalresearch.ca/index.php?context=va&aid=13997
The American Empire Is Bankrupt
This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful.
Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.
There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”
It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.
I called Hudson, who has an article in Monday’s Financial Times called “The Yekaterinburg Turning Point: De-Dollarization and the Ending of America’s Financial-Military Hegemony.” “Yekaterinburg,” Hudson writes, “may become known not only as the death place of the czars but of the American empire as well.” His article is worth reading, along with John Lanchester’s disturbing exposé of the world’s banking system, titled “It’s Finished,” which appeared in the May 28 issue of the London Review of Books.
“This means the end of the dollar,” Hudson told me. “It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America’s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don’t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America’s military aggression against them. They want to get rid of this.”
China, as Hudson points out, has already struck bilateral trade deals with Brazil and Malaysia to denominate their trade in China’s yuan rather than the dollar, pound or euro. Russia promises to begin trading in the ruble and local currencies. The governor of China’s central bank has openly called for the abandonment of the dollar as reserve currency, suggesting in its place the use of the International Monetary Fund’s Special Drawing Rights. What the new system will be remains unclear, but the flight from the dollar has clearly begun. The goal, in the words of the Russian president, is to build a “multipolar world order” which will break the economic and, by extension, military domination by the United States. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. This is why Aluminum Corp. of China made so many major concessions in the failed attempt to salvage its $19.5 billion alliance with the Rio Tinto mining concern in Australia. It desperately needs to shed its dollars.
“China is trying to get rid of all the dollars they can in a trash-for-resource deal,” Hudson said. “They will give the dollars to countries willing to sell off their resources since America refuses to sell any of its high-tech industries, even Unocal, to the yellow peril. It realizes these dollars are going to be worthless pretty quickly.”
The architects of this new global exchange realize that if they break the dollar they also break America’s military domination. Our military spending cannot be sustained without this cycle of heavy borrowing. The official U.S. defense budget for fiscal year 2008 is $623 billion, before we add on things like nuclear research. The next closest national military budget is China’s, at $65 billion, according to the Central Intelligence Agency.
There are three categories of the balance-of-payment deficits. America imports more than it exports. This is trade. Wall Street and American corporations buy up foreign companies. This is capital movement. The third and most important balance-of-payment deficit for the past 50 years has been Pentagon spending abroad. It is primarily military spending that has been responsible for the balance-of-payments deficit for the last five decades. Look at table five in the Balance of Payments Report, published in the Survey of Current Business quarterly, and check under military spending. There you can see the deficit.
To fund our permanent war economy, we have been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States then the exchange rate against the dollar will go up. This will penalize exporters. This has allowed America to print money without restraint to buy imports and foreign companies, fund our military expansion and ensure that foreign nations like China continue to buy our treasury bonds. This cycle appears now to be over. Once the dollar cannot flood central banks and no one buys our treasury bonds, our empire collapses. The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable.
“We will have to finance our own military spending,” Hudson warned, “and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive.”
The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory.
“We have in effect had to declare war to get us out of the hole created by our economic system,” Lanchester wrote in the London Review of Books. “There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn’t supposed to work like this, and there is no road-map for what’s happened.”
The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.
The American Empire Is Bankrupt
This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful.
Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.
There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”
It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.
I called Hudson, who has an article in Monday’s Financial Times called “The Yekaterinburg Turning Point: De-Dollarization and the Ending of America’s Financial-Military Hegemony.” “Yekaterinburg,” Hudson writes, “may become known not only as the death place of the czars but of the American empire as well.” His article is worth reading, along with John Lanchester’s disturbing exposé of the world’s banking system, titled “It’s Finished,” which appeared in the May 28 issue of the London Review of Books.
“This means the end of the dollar,” Hudson told me. “It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America’s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don’t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America’s military aggression against them. They want to get rid of this.”
China, as Hudson points out, has already struck bilateral trade deals with Brazil and Malaysia to denominate their trade in China’s yuan rather than the dollar, pound or euro. Russia promises to begin trading in the ruble and local currencies. The governor of China’s central bank has openly called for the abandonment of the dollar as reserve currency, suggesting in its place the use of the International Monetary Fund’s Special Drawing Rights. What the new system will be remains unclear, but the flight from the dollar has clearly begun. The goal, in the words of the Russian president, is to build a “multipolar world order” which will break the economic and, by extension, military domination by the United States. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. This is why Aluminum Corp. of China made so many major concessions in the failed attempt to salvage its $19.5 billion alliance with the Rio Tinto mining concern in Australia. It desperately needs to shed its dollars.
“China is trying to get rid of all the dollars they can in a trash-for-resource deal,” Hudson said. “They will give the dollars to countries willing to sell off their resources since America refuses to sell any of its high-tech industries, even Unocal, to the yellow peril. It realizes these dollars are going to be worthless pretty quickly.”
The architects of this new global exchange realize that if they break the dollar they also break America’s military domination. Our military spending cannot be sustained without this cycle of heavy borrowing. The official U.S. defense budget for fiscal year 2008 is $623 billion, before we add on things like nuclear research. The next closest national military budget is China’s, at $65 billion, according to the Central Intelligence Agency.
There are three categories of the balance-of-payment deficits. America imports more than it exports. This is trade. Wall Street and American corporations buy up foreign companies. This is capital movement. The third and most important balance-of-payment deficit for the past 50 years has been Pentagon spending abroad. It is primarily military spending that has been responsible for the balance-of-payments deficit for the last five decades. Look at table five in the Balance of Payments Report, published in the Survey of Current Business quarterly, and check under military spending. There you can see the deficit.
To fund our permanent war economy, we have been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States then the exchange rate against the dollar will go up. This will penalize exporters. This has allowed America to print money without restraint to buy imports and foreign companies, fund our military expansion and ensure that foreign nations like China continue to buy our treasury bonds. This cycle appears now to be over. Once the dollar cannot flood central banks and no one buys our treasury bonds, our empire collapses. The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable.
“We will have to finance our own military spending,” Hudson warned, “and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive.”
The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory.
“We have in effect had to declare war to get us out of the hole created by our economic system,” Lanchester wrote in the London Review of Books. “There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn’t supposed to work like this, and there is no road-map for what’s happened.”
The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.
Saturday, June 13, 2009
SC92-13
Near our home a very large residential development ( 3.100+ residences, the Hacienda Project ) is in the early planning stages, and the Strata Equity Group are the investment entity that owns the land this project would be built on. They of course are seeking a profit in the endeavor for their investors. I have been communicating with the Vice President of Strata, Eric Flodine on some issues I think are relevant to the viability of this project. I gave him the book " The Long Emergency " by James Howard Kunstler which he has since finished reading. I sent him this e-mail information along with some of my own observations recently:
........I don't know if you have checked out the lifeaftertheoilcrash.net site, page 1 and page 2 that I told you about. If not I still highly recommend it as there is alot of great info there on this subject of energy and it wouldn't take you that long to go through. Here is a relevant and timely article from a site that discusses solid info concerning our growing energy crisis:
http://www.ricefarmer.blogspot.com/
Wednesday, June 10, 2009
Energy, Not Money, Makes the World Go Around
Governments are further putting themselves in debt and debasing their currencies for the purpose of economic stimuli that will supposedly pull the world out of the recession and set us back on the track to “sustained economic growth.” Any economic stimulus achieved in this manner is what the president of the World Bank referred to as a “sugar high” (although he was wrong in saying that getting credit markets going again will solve the problem), which will last only as long as all that borrowed money is churning through the economy. The thinking behind the stimulus plans, and behind the belief that unfreezing credit markets will fix the economy, is that money is the prime mover. As long as lots of money is sloshing around, the economy will hum, people will find jobs, and economic growth is assured. And up until now it certainly looked that way.But as a growing shadow is cast across the world’s energy supply, and as we observe with horror and fascination the end of the cheap energy that has fueled 20th-century economic growth and globalization, it’s more apparent day by day that energy, not money, makes the world go around.Let’s consider a hypothetical situation in which I have a large expanse of forest, and I want you to cut all the trees and haul them to a lumber mill. I hand you a huge wad of money as payment. So, what are you going to do with that money? Are you going to buy a hand saw, walk into the forest, and set to work? Of course not. You would be at it for years and get nowhere. What you would do with the money is hire men with chainsaws and diesel-powered logging machinery, and then bring in trucks to haul off the logs. So it’s obvious that the money itself doesn’t do the work, it just buys you access to the energy that actually does the work. If the energy isn’t there in the first place, all the money in the world won’t be enough to log that forest.So the reason that all this stimulus spending will ultimately not solve any problems is because our energy supply is now on the decline. We developed our economies, built vast infrastructure, created whole industries possible only with plentiful energy (such as the airlines), globalized the world economy, and energized the development of high technology with a bonanza of cheap, high-quality energy. Now that both quality and quantity are beginning to decline, the same amount of money is able to mobilize progressively less energy. That is why infrastructure is crumbling worldwide, why governments and financial experts are admitting that we have to redefine “full employment,” why globalization is starting to reverse, why pensions are disappearing, why economic growth is stagnating, why the automotive industry and airlines are on the ropes, and why a whole host of other disruptive changes are setting in.History has always been about who has the resources, which of course translate into energy. It’s surprising that anyone would think differently............
As hydrocarbon energy supplies begin declining, as the evidence now strongly suggest is occuring with oil and soon with natural gas, the masses of people and vast economies that were built by once abundant and cheap energy will begin to decline too. No alternative energy sources by themselves, or in combination will forestall to any significant degree this coming reality. The qualities of life the affluent nations experienced in recent decades was only possible because we reached the zenith of our ability to extract for a realatively brief period easy to get and high quality hydrocarbon liquid fuel. The landscape regarding all of this is changing quickly now and those prosperous times of extreme consumption won't be possible anymore. It will not matter how many zillions of dollars the Fed Guru's will print out of digits in a data base, without the massive amounts of energy which kept everything running, negative growth the likes we have not seen in our lifetimes will ensue. Between this energy crisis and the crumbling state of the western economies the outlook is nothing less than dire for our futures. Kunstler actually does offer up a range of solutions quite regularly in his blog essays but societies headlong rush to keep the " business as usual " infinite growth paradigm intact means that the really drastic wholesale societal changes that would be prudent to take to have any reasonable ability to mitigate to some degree the fallout from these changes will not be pursued. At least not until realistically its far too late. How can the general public even have a chance to make the comprehensive changes needed when we are constantly being lied to about just how really bad thing have gotten, and how there going to get much worse. Trying to asign timeframes to how all of these myraid problems will unfold is something I think people should be very cautious with, since the complexity of all the various interactions consistently make specific projections of timelines eroneous. If all of these observations I'm suggesting to you have merit, the signs of their reality will be more and more difficult to ignore. There will however be much scapegoating and the pointing of fingers in the wrong directions which will continue to confuse the masses about whats really going on.
So basically I'd say what we will be seeing is decreasing energy availability and its increasing price, which will continue to wreak growing havoc on the industrialized economies around the world. All of this disaray will precipitate ever growing social disruptions and growing resource wars. The alternative energy forms ( currently on the radar ) will show themselves to be fraught with numerous problems that will prevent their ability to be scaled to anything remotely close to what hydrocarbon liquid energy forms were giving us at the bust " of our last " great bubble in the 2007-2008 period. Governments throughout the world will become more totalitarian as they try to hold together the societal cohesiveness of their countries. As things devolve there will be a long list of other dire issues that will exacerbate these trends. A few examples like water shortages, climate change, excessive populations, collapsing ecosystems, mass species extinctions, peaks for many vital resources, and many more issues that could be named. Changing the dire direction that humanity has been on since its discovery and beginning use of hydrocarbon energy ( specifically oil ) some 150 years ago has shown itself to be a gargantuan task, like trying to change the direction of the Titanic before it hit the iceberg. There is some small percentage of the population trying to sound the alarms, but the passengers are not hearing it, or in many cases are willfully ignoring it because what it tells them is scary, and very inconvenient. So we will be hitting the ice hard, and I think now its just a matter of how long it will take for our behemouths of ultra energy dependent complex economies to sink back to levels ( and population numbers ) that are consistent with the new energy realities. This huge change has the real potential to be catastropic ( and quickly occuring ) in nature. The masses in general just don't grasp to any extent just how close we are to going over the edge of the cliff on these matters. Regarding solutions to such things, there will be many things attempted and tried along the way. We will all do what we can to cope as these things unfold. Good luck to you and your family Eric :-) PS, And if all of this is true, then the Hacienda Project makes no sense whatsoever. A mega housing development in a remote desert location that will be attempted ( if ever started ) in a time ( into the foreseable future ) of vastly increasing energy cost with declining availability of the same, and vastly decreasing water supplies in the southwest in general. Something to think about.
and I sent him this today:
Pertaining to one of the observations in your e-mail, I think if you were to go to kunstler.com and e-mail Jim about the specifics of this Hacienda Project, pointing out its location in the desert southwest, I have little doubt you would find that Mr Kunstler would consider this community location and format is completely contrary to what he would propose as living arrangements that would make any sense in relation to the many converging crisis trends of our time. You may recall from reading the Long Emergency that Jim feels that the desert southwest will reap the most severe repercussions from the energy crisis which we are now in the beginning stages of ( regarding the continental US ). There is a new residential development that was begun on Standing Rock in our area getting to the point of a long block wall around it and preliminary grading. It now sits silent with nothing being done, a causualty of the difficult economic times we are in. I could cite lots of other examples of stopped construction on projects of all sizes here in Apple Valley. No doubt the builders are waiting, counting on normal cyclical economic history ( which is not what we are currently experiencing ) to bring back the " good times again " when they can go on to finish and profit from these projects. I feel from all the information I've studied, that with the dire and declining trends in the US economic stability, energy depletion ( expense ) issues and water shortage realities by themselves as factors will preciptate declining economic and quality of life conditions for the foreseable future. These three huge issues will be affecting not only global industrial societes on the larger scale, but all the way down towns and small communities themselves ( like Apple Valley ) in very dramatic ways. The $150 dollar oil prices of last summer and the far reaching negative ramifications of its ripple effects in the US economy is but a taste of what is coming.
Look at Las Vegas. It was for a lot of years the biggest residental and tract development boomtown in the US. Now it has devolved into the biggest basket case foreclosure capital of the US. Its change of fortune was first jolted by what high energy prices did last summer, which helped knock over the " house of cards " and the " hollowed out shadow of its former self " that is the US economy of today. And gigantic water issues are now poised to further restrict any new rampant development of this desert mirage. Lake Mead is almost 100 feet below full pool and projections are that at current trends this huge water catchment could be basically empty by 2021, with lake Powel experiencing a similiar fate.
I believe that because of the above mentioned conditions the Hacienda Project will either never be started because economic and resource decline realities will never make reasonably viable for anyone to entertain, or, it will be started to some degree but will succumb to the unsustainability presented by US energy and economic decline. In the latter case it could well eventually become mostly or fully abandoned if conditions evolve to the dire end of very possible future outcomes.
Regarding this project my interest in telling you these things is to give you a heads up that this is what you could very well be facing. I do not think that any local public effort to stop the project will have any affect unless there was some mass movement by great numbers of locals to compell the overseeing agencies not to allow it. I don't see any possibilities of that happening. The issues discussed above may very well stop it ( energy, economic, water ). But even if the county says its a go, and Strata makes a deal with an another entity to take it on, this does not mean that it will make sense in consideration of the larger issues I've discussed with you. Strata seeks to capitalize on its investment in land, the builder of the development will seek the profit gains from their work, the county seeks the taxes to bolster their coffers, but who will be there to be held to account, if it all goes awry because all of these entities fail to see the bigger changing realities of where we've been compared to where were going.
Also Eric these ideas will affect you and your family. My SC post at my Hotspringswizard Blog are my efforts to build a collection of information that outlines the many dots which when connected hopefully can provide the reader a view to what the larger picture is. In SC I include information on many dire issues besides energy because many ills for humanity are coming together in this time, and their combined impact will spin up even more dramatic events. What will the future bring us? Time will tell. Just keep your mind open, your eyes wide to the fact that things are not always what they might seem to be. The good times that will never end as expected by many may show itself to be one gigantic oily mirage that humanity lived in for a time.
........I don't know if you have checked out the lifeaftertheoilcrash.net site, page 1 and page 2 that I told you about. If not I still highly recommend it as there is alot of great info there on this subject of energy and it wouldn't take you that long to go through. Here is a relevant and timely article from a site that discusses solid info concerning our growing energy crisis:
http://www.ricefarmer.blogspot.com/
Wednesday, June 10, 2009
Energy, Not Money, Makes the World Go Around
Governments are further putting themselves in debt and debasing their currencies for the purpose of economic stimuli that will supposedly pull the world out of the recession and set us back on the track to “sustained economic growth.” Any economic stimulus achieved in this manner is what the president of the World Bank referred to as a “sugar high” (although he was wrong in saying that getting credit markets going again will solve the problem), which will last only as long as all that borrowed money is churning through the economy. The thinking behind the stimulus plans, and behind the belief that unfreezing credit markets will fix the economy, is that money is the prime mover. As long as lots of money is sloshing around, the economy will hum, people will find jobs, and economic growth is assured. And up until now it certainly looked that way.But as a growing shadow is cast across the world’s energy supply, and as we observe with horror and fascination the end of the cheap energy that has fueled 20th-century economic growth and globalization, it’s more apparent day by day that energy, not money, makes the world go around.Let’s consider a hypothetical situation in which I have a large expanse of forest, and I want you to cut all the trees and haul them to a lumber mill. I hand you a huge wad of money as payment. So, what are you going to do with that money? Are you going to buy a hand saw, walk into the forest, and set to work? Of course not. You would be at it for years and get nowhere. What you would do with the money is hire men with chainsaws and diesel-powered logging machinery, and then bring in trucks to haul off the logs. So it’s obvious that the money itself doesn’t do the work, it just buys you access to the energy that actually does the work. If the energy isn’t there in the first place, all the money in the world won’t be enough to log that forest.So the reason that all this stimulus spending will ultimately not solve any problems is because our energy supply is now on the decline. We developed our economies, built vast infrastructure, created whole industries possible only with plentiful energy (such as the airlines), globalized the world economy, and energized the development of high technology with a bonanza of cheap, high-quality energy. Now that both quality and quantity are beginning to decline, the same amount of money is able to mobilize progressively less energy. That is why infrastructure is crumbling worldwide, why governments and financial experts are admitting that we have to redefine “full employment,” why globalization is starting to reverse, why pensions are disappearing, why economic growth is stagnating, why the automotive industry and airlines are on the ropes, and why a whole host of other disruptive changes are setting in.History has always been about who has the resources, which of course translate into energy. It’s surprising that anyone would think differently............
As hydrocarbon energy supplies begin declining, as the evidence now strongly suggest is occuring with oil and soon with natural gas, the masses of people and vast economies that were built by once abundant and cheap energy will begin to decline too. No alternative energy sources by themselves, or in combination will forestall to any significant degree this coming reality. The qualities of life the affluent nations experienced in recent decades was only possible because we reached the zenith of our ability to extract for a realatively brief period easy to get and high quality hydrocarbon liquid fuel. The landscape regarding all of this is changing quickly now and those prosperous times of extreme consumption won't be possible anymore. It will not matter how many zillions of dollars the Fed Guru's will print out of digits in a data base, without the massive amounts of energy which kept everything running, negative growth the likes we have not seen in our lifetimes will ensue. Between this energy crisis and the crumbling state of the western economies the outlook is nothing less than dire for our futures. Kunstler actually does offer up a range of solutions quite regularly in his blog essays but societies headlong rush to keep the " business as usual " infinite growth paradigm intact means that the really drastic wholesale societal changes that would be prudent to take to have any reasonable ability to mitigate to some degree the fallout from these changes will not be pursued. At least not until realistically its far too late. How can the general public even have a chance to make the comprehensive changes needed when we are constantly being lied to about just how really bad thing have gotten, and how there going to get much worse. Trying to asign timeframes to how all of these myraid problems will unfold is something I think people should be very cautious with, since the complexity of all the various interactions consistently make specific projections of timelines eroneous. If all of these observations I'm suggesting to you have merit, the signs of their reality will be more and more difficult to ignore. There will however be much scapegoating and the pointing of fingers in the wrong directions which will continue to confuse the masses about whats really going on.
So basically I'd say what we will be seeing is decreasing energy availability and its increasing price, which will continue to wreak growing havoc on the industrialized economies around the world. All of this disaray will precipitate ever growing social disruptions and growing resource wars. The alternative energy forms ( currently on the radar ) will show themselves to be fraught with numerous problems that will prevent their ability to be scaled to anything remotely close to what hydrocarbon liquid energy forms were giving us at the bust " of our last " great bubble in the 2007-2008 period. Governments throughout the world will become more totalitarian as they try to hold together the societal cohesiveness of their countries. As things devolve there will be a long list of other dire issues that will exacerbate these trends. A few examples like water shortages, climate change, excessive populations, collapsing ecosystems, mass species extinctions, peaks for many vital resources, and many more issues that could be named. Changing the dire direction that humanity has been on since its discovery and beginning use of hydrocarbon energy ( specifically oil ) some 150 years ago has shown itself to be a gargantuan task, like trying to change the direction of the Titanic before it hit the iceberg. There is some small percentage of the population trying to sound the alarms, but the passengers are not hearing it, or in many cases are willfully ignoring it because what it tells them is scary, and very inconvenient. So we will be hitting the ice hard, and I think now its just a matter of how long it will take for our behemouths of ultra energy dependent complex economies to sink back to levels ( and population numbers ) that are consistent with the new energy realities. This huge change has the real potential to be catastropic ( and quickly occuring ) in nature. The masses in general just don't grasp to any extent just how close we are to going over the edge of the cliff on these matters. Regarding solutions to such things, there will be many things attempted and tried along the way. We will all do what we can to cope as these things unfold. Good luck to you and your family Eric :-) PS, And if all of this is true, then the Hacienda Project makes no sense whatsoever. A mega housing development in a remote desert location that will be attempted ( if ever started ) in a time ( into the foreseable future ) of vastly increasing energy cost with declining availability of the same, and vastly decreasing water supplies in the southwest in general. Something to think about.
and I sent him this today:
Pertaining to one of the observations in your e-mail, I think if you were to go to kunstler.com and e-mail Jim about the specifics of this Hacienda Project, pointing out its location in the desert southwest, I have little doubt you would find that Mr Kunstler would consider this community location and format is completely contrary to what he would propose as living arrangements that would make any sense in relation to the many converging crisis trends of our time. You may recall from reading the Long Emergency that Jim feels that the desert southwest will reap the most severe repercussions from the energy crisis which we are now in the beginning stages of ( regarding the continental US ). There is a new residential development that was begun on Standing Rock in our area getting to the point of a long block wall around it and preliminary grading. It now sits silent with nothing being done, a causualty of the difficult economic times we are in. I could cite lots of other examples of stopped construction on projects of all sizes here in Apple Valley. No doubt the builders are waiting, counting on normal cyclical economic history ( which is not what we are currently experiencing ) to bring back the " good times again " when they can go on to finish and profit from these projects. I feel from all the information I've studied, that with the dire and declining trends in the US economic stability, energy depletion ( expense ) issues and water shortage realities by themselves as factors will preciptate declining economic and quality of life conditions for the foreseable future. These three huge issues will be affecting not only global industrial societes on the larger scale, but all the way down towns and small communities themselves ( like Apple Valley ) in very dramatic ways. The $150 dollar oil prices of last summer and the far reaching negative ramifications of its ripple effects in the US economy is but a taste of what is coming.
Look at Las Vegas. It was for a lot of years the biggest residental and tract development boomtown in the US. Now it has devolved into the biggest basket case foreclosure capital of the US. Its change of fortune was first jolted by what high energy prices did last summer, which helped knock over the " house of cards " and the " hollowed out shadow of its former self " that is the US economy of today. And gigantic water issues are now poised to further restrict any new rampant development of this desert mirage. Lake Mead is almost 100 feet below full pool and projections are that at current trends this huge water catchment could be basically empty by 2021, with lake Powel experiencing a similiar fate.
I believe that because of the above mentioned conditions the Hacienda Project will either never be started because economic and resource decline realities will never make reasonably viable for anyone to entertain, or, it will be started to some degree but will succumb to the unsustainability presented by US energy and economic decline. In the latter case it could well eventually become mostly or fully abandoned if conditions evolve to the dire end of very possible future outcomes.
Regarding this project my interest in telling you these things is to give you a heads up that this is what you could very well be facing. I do not think that any local public effort to stop the project will have any affect unless there was some mass movement by great numbers of locals to compell the overseeing agencies not to allow it. I don't see any possibilities of that happening. The issues discussed above may very well stop it ( energy, economic, water ). But even if the county says its a go, and Strata makes a deal with an another entity to take it on, this does not mean that it will make sense in consideration of the larger issues I've discussed with you. Strata seeks to capitalize on its investment in land, the builder of the development will seek the profit gains from their work, the county seeks the taxes to bolster their coffers, but who will be there to be held to account, if it all goes awry because all of these entities fail to see the bigger changing realities of where we've been compared to where were going.
Also Eric these ideas will affect you and your family. My SC post at my Hotspringswizard Blog are my efforts to build a collection of information that outlines the many dots which when connected hopefully can provide the reader a view to what the larger picture is. In SC I include information on many dire issues besides energy because many ills for humanity are coming together in this time, and their combined impact will spin up even more dramatic events. What will the future bring us? Time will tell. Just keep your mind open, your eyes wide to the fact that things are not always what they might seem to be. The good times that will never end as expected by many may show itself to be one gigantic oily mirage that humanity lived in for a time.
Friday, June 12, 2009
SC92-12
http://informationclearinghouse.info/article22817.htm
Bernanke's Next Parlor Trick
Ben Bernanke is getting ready to pull another rabbit out of his hat and he's hoping no one figures out what he's up to. Here's the scoop; the Fed chief needs to "borrow up to $3.25 trillion in the fiscal year ending Sept. 30" (Bloomberg) without triggering a run on the dollar. But, how? If the stock market keeps surging, investors will turn their backs on low-yielding US Treasuries and move into riskier securities hoping for better returns. The only way to attract more buyers to US debt is by raising interest rates which will kill the "green shoots" of recovery and make it harder for people to buy homes and cars. It's a conundrum.
In the next year, China will buy roughly $200 billion T-Bills while the oil producing states and the rest of the world will add about $300 billion to their cache. That leaves more than $2 trillion for the domestic market where cash-strapped investors are likely to avoid government debt like the plague. So, who's going buy that mountain of low-yield government paper?
The banks.
The Fed has been helping the banks raise reserves for the last year. In fact, excess bank reserves have skyrocketed from $96.5 billion in August 2008 to $949.6 billion by April 2009. Nearly a trillion bucks in less than a year. But, why? Are the banks expecting to expand lending at the fastest rate in history in the middle of a depression?
Of course not; Master illusionist Bernanke is just arranging the props for his next big trick. The fact is, Bernanke anticipated the current wave of deflation and set up a straw man (the banks) to deal with it so it wouldn't look like he was simply printing more paper to finance the deficits. As soon as rates on 10 year notes hit 4%, the banks (that are borrowing money at 0%) will probably start to purchase Treasuries and keep the housing and retail markets from crashing even faster. It's called "the old switcheroo" and no one does it better than the Fed.
Bernanke pulled a similar stunt after Lehman Bros flopped and he and Paulson decided that it was time to dump 700 billion worth of garbage assets on the public. The Fed chief and Treasury figured out the only way they could hoodwink congress was to foment a crisis in the credit markets and then moan that if they didn't get $700 billion to buy up toxic assets in the next 48 hours "there wouldn't be an economy by Monday".
Congress swallowed it hook, line and sinker, and weeks later funds were allocated for the Troubled Asset Relief Program (TARP) Of course, no one in the financial media noticed that the storm in the credit markets was NOT caused by "troubled assets" at all (for which TARP funds have NEVER been used) but by skyrocketing LIBOR and TED spreads and other indicators of market stress. Market Ticker's Karl Denninger was the only blogger on the Internet who figured out that Bernanke had deliberately caused the crisis by draining over $100 billion from the banking system just 10 days after Lehman defaulted. Here are Denninger's comments on September 24, 2008 along with the damning chart which proves the Fed was scuttling the ship to extort money from congress: ( http://market-ticker.denninger.net/uploads/drain.png chart )
Market Ticker: "Note that this is an intentional drain of "slosh", or liquidity, from the banking system. $125 billion in the last four days drained? ("Congress must Excise the Bernanke Cancer", Market Ticker) "It appears to me that he (Bernanke) both orchestrated the crash of the market in the fall of 2008 as a leverage tool to force the passage of the EESA/TARP and may have been responsible for Washington Mutual's collapse and forced dismemberment. Let us remember that on September 20th, four days prior to Bernanke's action, Henry Paulson pitched TARP (along with Bernanke) to Congress." (Market Ticker)
As soon as Paulson and Bernanke had pulled off their multi-billion dollar heist, the Fed chief created lending facilities (completely unrelated to the TARP) which provided government guarantees on money markets and commercial paper. This lowered LIBOR and TED spreads immediately and relieved the stress in the credit markets. The crisis had nothing to do with toxic assets; it was a cheap parlor trick by a professional charlatan. To this day, none of the junk securities have been purchased from the banks under the TARP program. $700 billion has vanished in a puff of smoke. Poof!
Bernanke's Next Parlor Trick
Ben Bernanke is getting ready to pull another rabbit out of his hat and he's hoping no one figures out what he's up to. Here's the scoop; the Fed chief needs to "borrow up to $3.25 trillion in the fiscal year ending Sept. 30" (Bloomberg) without triggering a run on the dollar. But, how? If the stock market keeps surging, investors will turn their backs on low-yielding US Treasuries and move into riskier securities hoping for better returns. The only way to attract more buyers to US debt is by raising interest rates which will kill the "green shoots" of recovery and make it harder for people to buy homes and cars. It's a conundrum.
In the next year, China will buy roughly $200 billion T-Bills while the oil producing states and the rest of the world will add about $300 billion to their cache. That leaves more than $2 trillion for the domestic market where cash-strapped investors are likely to avoid government debt like the plague. So, who's going buy that mountain of low-yield government paper?
The banks.
The Fed has been helping the banks raise reserves for the last year. In fact, excess bank reserves have skyrocketed from $96.5 billion in August 2008 to $949.6 billion by April 2009. Nearly a trillion bucks in less than a year. But, why? Are the banks expecting to expand lending at the fastest rate in history in the middle of a depression?
Of course not; Master illusionist Bernanke is just arranging the props for his next big trick. The fact is, Bernanke anticipated the current wave of deflation and set up a straw man (the banks) to deal with it so it wouldn't look like he was simply printing more paper to finance the deficits. As soon as rates on 10 year notes hit 4%, the banks (that are borrowing money at 0%) will probably start to purchase Treasuries and keep the housing and retail markets from crashing even faster. It's called "the old switcheroo" and no one does it better than the Fed.
Bernanke pulled a similar stunt after Lehman Bros flopped and he and Paulson decided that it was time to dump 700 billion worth of garbage assets on the public. The Fed chief and Treasury figured out the only way they could hoodwink congress was to foment a crisis in the credit markets and then moan that if they didn't get $700 billion to buy up toxic assets in the next 48 hours "there wouldn't be an economy by Monday".
Congress swallowed it hook, line and sinker, and weeks later funds were allocated for the Troubled Asset Relief Program (TARP) Of course, no one in the financial media noticed that the storm in the credit markets was NOT caused by "troubled assets" at all (for which TARP funds have NEVER been used) but by skyrocketing LIBOR and TED spreads and other indicators of market stress. Market Ticker's Karl Denninger was the only blogger on the Internet who figured out that Bernanke had deliberately caused the crisis by draining over $100 billion from the banking system just 10 days after Lehman defaulted. Here are Denninger's comments on September 24, 2008 along with the damning chart which proves the Fed was scuttling the ship to extort money from congress: ( http://market-ticker.denninger.net/uploads/drain.png chart )
Market Ticker: "Note that this is an intentional drain of "slosh", or liquidity, from the banking system. $125 billion in the last four days drained? ("Congress must Excise the Bernanke Cancer", Market Ticker) "It appears to me that he (Bernanke) both orchestrated the crash of the market in the fall of 2008 as a leverage tool to force the passage of the EESA/TARP and may have been responsible for Washington Mutual's collapse and forced dismemberment. Let us remember that on September 20th, four days prior to Bernanke's action, Henry Paulson pitched TARP (along with Bernanke) to Congress." (Market Ticker)
As soon as Paulson and Bernanke had pulled off their multi-billion dollar heist, the Fed chief created lending facilities (completely unrelated to the TARP) which provided government guarantees on money markets and commercial paper. This lowered LIBOR and TED spreads immediately and relieved the stress in the credit markets. The crisis had nothing to do with toxic assets; it was a cheap parlor trick by a professional charlatan. To this day, none of the junk securities have been purchased from the banks under the TARP program. $700 billion has vanished in a puff of smoke. Poof!
Wednesday, June 10, 2009
SC92-11
http://www.globalresearch.ca/index.php?context=va&aid=13933
The Financial Meltdown: "We will never know the true inside story of what really went on"
.........The privately owned Federal Reserve has subjected us to a 22-month period of massive excess liquidity. The present increase in liquidity, formerly known as M3, which is no longer published because it’s not cost efficient, or there isn’t sufficient interest in the figures, says the Fed, is growing at about 18%. The major purpose for the US Treasury and the Fed to commit to an increase in spending of $14.8 trillion is to bail out banking, Wall Street and the insurance industry, all of which turned prudent investment into a casino.
The method chosen to deal with a financial crisis caused by unsustainable debt created by excess liquidity is to create more money and credit and channel it to the financial sector to reflate their balance sheets, which are debt infested with toxic CDO and ABS debt. The rich on Wall Street, banking and insurance are deleveraging with the taxpayer taking all the risk, as the public gets very little in return. We are surrounded by financial zombies, which we keep alive after they almost destroyed our financial system.
Major inflation is the result as wages barely rise and the loss of purchasing power is borne mostly by the poor and the lower middle class. Ever since free trade, globalization, offshoring and outsourcing began about 1980 wages have not kept up with inflation. Production gravitated to the low wage third world exacerbated by massive condoned illegal immigration. This was accompanied by cronic overcapacity that made conspicuous consumption relatively inexpensive. That was joined by much easier credit. Twenty-three months ago we saw an implosion as a result of these policies, which is still with us. Without this continuation of debt the system cannot continue to function and the downward spiral feeds on itself. Everyone is looking for a bottom soon. That isn’t going to happen, stimulus or no stimulus. Handing money to citizens isn’t the answer. In this case 90% has gone to reduce debt.
The first step to recovery is to drastically cut government spending and to lower corporate and individual taxes. Get rid of the Federal Reserve, which is directly responsible for this mess and erect tariffs on goods and services. If we can accomplish that the recovery will begin, but it won’t be easy. It will take years to accomplish.
As a result of flawed fiscal and economic policies nations are facing record deficits. Some like England have been put on negative credit watch, which could lead to a downward re-rating. The US, Japan and others are following close behind. In fact down grades could come before the end of the year. Interest rates are already moving higher and have been since the beginning of the year. Downgrades would bring even higher rates.
The Chairman of the Fed, Ben Bernanke, would have us believe along with other, so-called experts, that monetary easing will come in time to head off hyperinflation. Unfortunately that cannot happen. The minute money and credit is withdrawn from the system it will collapse. The underlying deflationary drag is too great and that drag will take years to diminish. How can our Fed Chairman and our Treasury Secretary think for a moment that they’ll just be able to turn the tap off when their current orgy of spending ends? Politicians unfortunately see this, as only they would, as an opportunity to purchase votes by making sure the spending continues. It will be interesting to watch over the next several years, as many nations scramble in the bond markets to raise money to keep their economies going. There is no telling at this point how high interest rates are going to go.
Our President tells us of trillion dollar plus deficits are far as the eye can see. Those deficits assume 3% growth rates in GDP, which is not going to happen and the end of the Bush tax cuts. Deficits will be much larger than the Congressional Budget Office estimates, if due to nothing more than exploding entitlement expenditures. This plan involves the perpetual rolling of $5 trillion in Treasury paper much of which is held by foreigners plus the new debt incurred, plus the interest on the existing debt. Do you really believe foreigners are going to fund such deficits indefinitely? We don’t think so with a falling dollar. The dollar is falling again and interest rates are rising and they both are going to continue to do so, as gold and silver go higher. The minute the Fed began creating money out of thin air to fund Treasury sales, plus buy Treasuries out of the market, plus buy Agency securities and toxic junk to the tune of $2.2 trillion for openers, you had to know the game was over. It’s all-downhill from here. This week 30-year fixed rate mortgages could hit 5-3/4%.
Last week we heard the VAT, Value Added Tax, may be on the way. It’s the most vicious of all taxes and you do not want to experience it. It would help solve the problem, but your standard of living will drop 20% if it is enacted. Such taxes cannot come until 2011 because 2010 is an election year. Such taxes will exacerbate the depression. In the end cutting spending is the only answer.
Mr. Obama speaks of the importance of living within our means and not spending money we do not have on things we do not need. Obviously the president hasn’t been told we are in a depression. The less the public spends the deeper the depression gets.
That said Mr. Obama engages in profligate federal spending to deaden the pain and essentially to prolong the financial and economic agony.
Then comes the creative destruction with government deciding who should survive and who should fail by edict. Some call it crony capitalism and favoritism, we call it taking care of fellow Illuminists.
The way Wall Street tells us we need hands on help from Wall Street and banks, which led to this disaster. The president wants economic advisers who are theoreticians. All paper has to be marked to a real market price to clean out the bad assets. Government should not be giving free loans to hedge-funds and private-equity firms, so they will buy assets they would not normally buy. Due to electronic trading, which has led to major trading off established exchanges, and into the dark pools we do not know who is doing what. A net flow of information so that the investors and transparency is nearly gone. Bank holding companies, which own the Fed, can see in advance what their clients are interested in buying and front run those orders in their own accounts. If they make major mistakes they just get bailout out by the Fed.
There is no transparency. We only find out what went on when somebody slips or in some way something gets exposed. Transparency, oversight and accountability do not exist. Most everything important is done in secret. A good example was six months ago when Bloomberg News attempted to force the Fed to reveal the details on more than $2 trillion in loans that went to banks, including Citigroup and Goldman Sachs. The Fed told the court to take a hike and said it was a state secret. We have no word as well who made the short-dated, out-of-the money bets in March of 2008 that Bear Stearns would fail. Those bids paid off in the millions, or why Lehman was allowed to fail and AIG was saved, etc.
Not one banking or Wall Street executive owned up to what really happened to cause the crisis. They are totally lacking in honesty, integrity and decency. As it now stands we’ll never know the true inside story of what really went on. We have seen no civil or criminal charges against any of these crooks. Not even investigations. Whatever happened to RICO?
Over the past 25 years our financial industry has descended into darkness and corruption and the people who caused it are getting away scott free.
Our Treasury Secretary Geithner’s ill-fated trip to China and our president’s recent journey to Germany was humiliating. Crowds as well as the German government were demanding the return of their gold. The US has been giving platitudes to the Germans when the Germans know their gold has been sold or leased. Leasing is tantamount to selling. This story has not been broken in the mainstream media, but in time it will be and when it is propaganda will not deflect the ultimate outcome.
The president and Larry Summers think they can restore confidence and trust in the economy with lies and propaganda, but they are deluding themselves. The stock, bond and capital markets are dependent on confidence, but they are more dependent upon the deplorable state of the foundation on which our economy rests. In 22 months the Fed and the Treasury have accomplished very little except bailing out their fellow elitists in the financial industry with taxpayer debt. The mantra that the worst is over is simply more lies similar to those we’ve heard over and over again. Thus far the smoke and mirrors and the “Working Group on Financial Markets have managed to create a 35% to 50% bear market correction in the averages. Our president, a professional con man and street hustler promises he will always tell you the truth about the challenges we face. Trust him and you will find yourself somewhere out in left field.
Thus far all we have seen is a papering over of the financial system. Our Treasury and Fed offer the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the phony stress test and TARP. The commitment to domestic and foreign financial entities is already at $14.8 trillion. There is no discussion of building a new better system that rewards prudent risks, allocates capital where it is really needed, not in the hands of banking and Wall street. It would as well be a great idea if the SEC and the CFTC started protecting the investors and stop collaborating with Wall Street and Washington to manipulate markets.
When will the rescues of the financial sector end – when it has bankrupted us all?.........
The Financial Meltdown: "We will never know the true inside story of what really went on"
.........The privately owned Federal Reserve has subjected us to a 22-month period of massive excess liquidity. The present increase in liquidity, formerly known as M3, which is no longer published because it’s not cost efficient, or there isn’t sufficient interest in the figures, says the Fed, is growing at about 18%. The major purpose for the US Treasury and the Fed to commit to an increase in spending of $14.8 trillion is to bail out banking, Wall Street and the insurance industry, all of which turned prudent investment into a casino.
The method chosen to deal with a financial crisis caused by unsustainable debt created by excess liquidity is to create more money and credit and channel it to the financial sector to reflate their balance sheets, which are debt infested with toxic CDO and ABS debt. The rich on Wall Street, banking and insurance are deleveraging with the taxpayer taking all the risk, as the public gets very little in return. We are surrounded by financial zombies, which we keep alive after they almost destroyed our financial system.
Major inflation is the result as wages barely rise and the loss of purchasing power is borne mostly by the poor and the lower middle class. Ever since free trade, globalization, offshoring and outsourcing began about 1980 wages have not kept up with inflation. Production gravitated to the low wage third world exacerbated by massive condoned illegal immigration. This was accompanied by cronic overcapacity that made conspicuous consumption relatively inexpensive. That was joined by much easier credit. Twenty-three months ago we saw an implosion as a result of these policies, which is still with us. Without this continuation of debt the system cannot continue to function and the downward spiral feeds on itself. Everyone is looking for a bottom soon. That isn’t going to happen, stimulus or no stimulus. Handing money to citizens isn’t the answer. In this case 90% has gone to reduce debt.
The first step to recovery is to drastically cut government spending and to lower corporate and individual taxes. Get rid of the Federal Reserve, which is directly responsible for this mess and erect tariffs on goods and services. If we can accomplish that the recovery will begin, but it won’t be easy. It will take years to accomplish.
As a result of flawed fiscal and economic policies nations are facing record deficits. Some like England have been put on negative credit watch, which could lead to a downward re-rating. The US, Japan and others are following close behind. In fact down grades could come before the end of the year. Interest rates are already moving higher and have been since the beginning of the year. Downgrades would bring even higher rates.
The Chairman of the Fed, Ben Bernanke, would have us believe along with other, so-called experts, that monetary easing will come in time to head off hyperinflation. Unfortunately that cannot happen. The minute money and credit is withdrawn from the system it will collapse. The underlying deflationary drag is too great and that drag will take years to diminish. How can our Fed Chairman and our Treasury Secretary think for a moment that they’ll just be able to turn the tap off when their current orgy of spending ends? Politicians unfortunately see this, as only they would, as an opportunity to purchase votes by making sure the spending continues. It will be interesting to watch over the next several years, as many nations scramble in the bond markets to raise money to keep their economies going. There is no telling at this point how high interest rates are going to go.
Our President tells us of trillion dollar plus deficits are far as the eye can see. Those deficits assume 3% growth rates in GDP, which is not going to happen and the end of the Bush tax cuts. Deficits will be much larger than the Congressional Budget Office estimates, if due to nothing more than exploding entitlement expenditures. This plan involves the perpetual rolling of $5 trillion in Treasury paper much of which is held by foreigners plus the new debt incurred, plus the interest on the existing debt. Do you really believe foreigners are going to fund such deficits indefinitely? We don’t think so with a falling dollar. The dollar is falling again and interest rates are rising and they both are going to continue to do so, as gold and silver go higher. The minute the Fed began creating money out of thin air to fund Treasury sales, plus buy Treasuries out of the market, plus buy Agency securities and toxic junk to the tune of $2.2 trillion for openers, you had to know the game was over. It’s all-downhill from here. This week 30-year fixed rate mortgages could hit 5-3/4%.
Last week we heard the VAT, Value Added Tax, may be on the way. It’s the most vicious of all taxes and you do not want to experience it. It would help solve the problem, but your standard of living will drop 20% if it is enacted. Such taxes cannot come until 2011 because 2010 is an election year. Such taxes will exacerbate the depression. In the end cutting spending is the only answer.
Mr. Obama speaks of the importance of living within our means and not spending money we do not have on things we do not need. Obviously the president hasn’t been told we are in a depression. The less the public spends the deeper the depression gets.
That said Mr. Obama engages in profligate federal spending to deaden the pain and essentially to prolong the financial and economic agony.
Then comes the creative destruction with government deciding who should survive and who should fail by edict. Some call it crony capitalism and favoritism, we call it taking care of fellow Illuminists.
The way Wall Street tells us we need hands on help from Wall Street and banks, which led to this disaster. The president wants economic advisers who are theoreticians. All paper has to be marked to a real market price to clean out the bad assets. Government should not be giving free loans to hedge-funds and private-equity firms, so they will buy assets they would not normally buy. Due to electronic trading, which has led to major trading off established exchanges, and into the dark pools we do not know who is doing what. A net flow of information so that the investors and transparency is nearly gone. Bank holding companies, which own the Fed, can see in advance what their clients are interested in buying and front run those orders in their own accounts. If they make major mistakes they just get bailout out by the Fed.
There is no transparency. We only find out what went on when somebody slips or in some way something gets exposed. Transparency, oversight and accountability do not exist. Most everything important is done in secret. A good example was six months ago when Bloomberg News attempted to force the Fed to reveal the details on more than $2 trillion in loans that went to banks, including Citigroup and Goldman Sachs. The Fed told the court to take a hike and said it was a state secret. We have no word as well who made the short-dated, out-of-the money bets in March of 2008 that Bear Stearns would fail. Those bids paid off in the millions, or why Lehman was allowed to fail and AIG was saved, etc.
Not one banking or Wall Street executive owned up to what really happened to cause the crisis. They are totally lacking in honesty, integrity and decency. As it now stands we’ll never know the true inside story of what really went on. We have seen no civil or criminal charges against any of these crooks. Not even investigations. Whatever happened to RICO?
Over the past 25 years our financial industry has descended into darkness and corruption and the people who caused it are getting away scott free.
Our Treasury Secretary Geithner’s ill-fated trip to China and our president’s recent journey to Germany was humiliating. Crowds as well as the German government were demanding the return of their gold. The US has been giving platitudes to the Germans when the Germans know their gold has been sold or leased. Leasing is tantamount to selling. This story has not been broken in the mainstream media, but in time it will be and when it is propaganda will not deflect the ultimate outcome.
The president and Larry Summers think they can restore confidence and trust in the economy with lies and propaganda, but they are deluding themselves. The stock, bond and capital markets are dependent on confidence, but they are more dependent upon the deplorable state of the foundation on which our economy rests. In 22 months the Fed and the Treasury have accomplished very little except bailing out their fellow elitists in the financial industry with taxpayer debt. The mantra that the worst is over is simply more lies similar to those we’ve heard over and over again. Thus far the smoke and mirrors and the “Working Group on Financial Markets have managed to create a 35% to 50% bear market correction in the averages. Our president, a professional con man and street hustler promises he will always tell you the truth about the challenges we face. Trust him and you will find yourself somewhere out in left field.
Thus far all we have seen is a papering over of the financial system. Our Treasury and Fed offer the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the phony stress test and TARP. The commitment to domestic and foreign financial entities is already at $14.8 trillion. There is no discussion of building a new better system that rewards prudent risks, allocates capital where it is really needed, not in the hands of banking and Wall street. It would as well be a great idea if the SEC and the CFTC started protecting the investors and stop collaborating with Wall Street and Washington to manipulate markets.
When will the rescues of the financial sector end – when it has bankrupted us all?.........
SC92-10
http://www.globalresearch.ca/index.php?context=va&aid=13926
A Tale of Two Diverging Economic Worlds
Increasingly a deep divide within the world of globalization is emerging which will have the most profound significance for the future of G7 nations’ economic and political stability. The divide is between those nations which are still embedded within the dollar system, including countries in the Eurozone, versus those emerging economies—especially the BRIC—Brazil, Russia, India, China—where new economic markets and regions are rapidly replacing their over-dependence on the United States as prime export market and prime source for investment finance. The long-term consequences will be an aggravation of the trend of the United States as a political and economic superpower in terminal decline, while dynamic new economic zones, initially mainly of regional importance, will arise.
The one great asset which nations like China, Indonesia, India and Brazil bring to the emerging divide is the one greatest long-term economic deficit or liability of the older industrialized world, USA, UK, Germany and the EU generally. That is their demographic advantage.
With the exception of Russia, all the growth economies possess young, dynamic and growing populations. Interesting to recall is that the hidden story of the pre-1914 German ‘economic miracle’ was based on a similar ‘secret’—rapid and dynamic young and growing population, while that of Great Britain and France was stagnant or in decline after the British Great Depression of 1873 which led to huge emigration of population to the USA.
It’s no accident that the leading political elites of the G7 argue that the greatest threat globally is the rapid birth rate in developing countries. Translated from their euphemism, they really mean the greatest threat to their continued dominance of world affairs is population expansion in emerging economies, as new contenders inevitably rise.
New growth regions emerging
Almost naturally in the past eighteen months, once the initial shock of the worst financial and economic shock since the 1930’s began to subside, China and its immediate trading partners along with the other high-growth emerging economies, began looking for new alternatives to the dying dollar system.
The present crisis is no short-term epiphenomenon as Ben Bernanke, Treasury Secretary Tim Geithner or Barack Obama would wish us to believe. It is the reflection of more than 65 years of defective US economic policy, a defect which reached epidemic proportions after the decision to abandon the gold exchange standard in 1971. Let’s be clear , that gold standard as well as its predecessors was no magic economic panacea. But the break by Nixon in August 1971 allowed Washington to embark on a de facto financial imperialist policy which ruined much of the world economy in its ravages of the past thirty eight years.
Today the contrast between declining G7 economies and emerging dynamic high-population growth economies could not be clearer. The G7 nations from USA to Germany to Italy are choking in public debt, ranging from 80% of GDP in the United States to well over 100% in Italy and a staggering 199% in Japan. Only Zimbabwe with 218% debt to GDP tops that. Germany has a ratio of 77%.
By contrast, of the emerging dynamic high-growth countries, only India has significant public debt, a legacy of the British colonial era, of 58% GDP. Brazil, despite a severe debt crisis in the 1980’s, today has a public debt to GDP level of a very manageable 45%, while Indonesia, one of the fast-growing newly emerging economies, has 34%. South Korea with a high domestic savings culture has a mere 28% debt ratio and China a mere 18% debt to GDP level. Russia, which used the recent boom in oil and gas revenues to pay down its foreign and IMF debts, while the country has severe demographic problems, has a public debt to GDP as of 2008 data of 6%. It has also slowly rebuilt foreign exchange reserves after the crisis last year to a level of $404 billion this month, making its reserves the third largest in the world.
So, with the economies of the USA and EU caught in the jaws of a twin scissors-like crises between growing public debt and declining population growth rates to service that debt long-term, the emerging economies of Asia and Eurasia as well as Brazil in South America are booming, precisely because they enjoy the twin assets of low public debt to GDP ratios combined with dynamic growing populations.
In China, India, Indonesia, Brazil economic growth continues to advance significantly. Governments are not buried under a mountain of debt and citizens remain optimistic about their future. This divergence, between the once rich and the once poor, will mark a geopolitical shift in the pivot of world history when viewed retrospectively by future economic historians.
Caught in the blades of a twin crisis
The most notable aspect of the crisis is the thorough discrediting of western academic economists, including every single winner of the Economics Nobel Prize. Their grandiose theories justifying their laissez faire ‘free market’ economic model of globalization has been proven fatally wrong, in effect a transparent promotion gimmick to justify the process of one-sided globalization, little more. They have been exposed, to use the terms of one of my favourite children’s stories by the Danish writer H.C. Andersen, like the Emperor with no clothes.
The dollar system their world had been based on since Bretton Woods in 1944, is undergoing a death agony. Every measure advocated to date by two US Administrations—Bush and now Obama—as well as the other G7 governments has amounted to giving heavy and even heavier doses of financial chemotherapy to a dying patient. The ever higher doses of taxpayer bailout to maintain a failed financial and banking model on artificial life support is merely worsening the underlying health of the US economy.
The record US financial bailouts since September 2008, a span of a mere ten months, have brought the US Federal debt from some 60% to a whopping 80% of GDP. Private US household debt is now above a record 100% of GDP, significantly worse than in the bad recession year 1974 when it was a mere 40%.
More alarming, for any prospect of growing out of the US economic downturn, the long-awaited phenomenon of demographics has slowly begun to impact. In the coming 1-3 years the impact of Baby Boom generation retirees in record numbers will hit. They will be forced to draw down their public Social Security retirement from the Government as well as selling their private 401k and similar stock and bond investments in order to live in retirement. In economic terms they will become a net drain on the US pubic finances whereas rising unemployment among younger workers whose taxed earnings are needed to pay into the Social Security fund, will aggravate the US public debt level rapidly to Italy or even Japan or Zimbabwe levels in coming years. Unemployed workers do not pay taxes. They draw on state benefits instead.
In April, India's car sales were 4.2 percent higher than they were a year prior. Retail sales rose 15 percent in China in the first quarter of 2009. China is likely to grow at 7 or 8 percent this year, India at 6 percent and Indonesia at 4 percent.
By contrast, even using badly flawed official data, the US economy contracted at an annual rate of 6.1 percent last quarter, Europe by 9.6 percent and Japan by a frightening 15 percent, something that rivals the 1930s.
In the West, plus G7 member Japan, banks are overleveraged and thus dysfunctional, governments paralyzed with debt, and consumers are rebuilding their huge debt burdens. America is having trouble selling its public debt at attractive prices. The last three Treasury auctions have gone badly. Its largest state, California, is veering toward total fiscal collapse. The current fiscal year US budget deficit is going to surpass 13 percent of GDP, a level last seen during World War II.
By contrast emerging-market banks are largely healthy and profitable. Every Indian bank, government and private, posted profits in the last quarter of 2008. The governments are in good fiscal shape. China has the world’s largest foreign currency reserves, $2 trillion in reserves, and a budget deficit less than 3 percent of GDP. Brazil is now posting a current account surplus. Indonesia has reduced its debt from 100 percent of GDP nine years ago to 34 percent today.
Unlike in the West - where governments have run out of money or creative new ideas and are now praying that their medicine will work - these countries still have options. Only a year ago, their chief concern was an overheated economy and inflation. Brazil has cut its interest rate substantially, but only to 10.25 percent, which means it can drop it further if things deteriorate even more.
The mood in many of these countries remains surprisingly upbeat. Their currencies are appreciating against the dollar because the markets see them as having better fiscal discipline as well as better long-term growth prospects than the United States. Their bonds are rising. This combination of indicators, all pointing in the same direction, is unprecedented.
The United States remains the richest and most powerful country in the world. Its military spans the globe. Even if its leaders prefer not to call it such it represents the most powerful informal empire in history to date. But just as previous global hegemons went into irreversible decline--the Spanish Empire of the 16th century to the British Empire in the 20th century--great global powers sink into terminal decline once they become overburdened with debt and stuck in slow growth.
A Tale of Two Diverging Economic Worlds
Increasingly a deep divide within the world of globalization is emerging which will have the most profound significance for the future of G7 nations’ economic and political stability. The divide is between those nations which are still embedded within the dollar system, including countries in the Eurozone, versus those emerging economies—especially the BRIC—Brazil, Russia, India, China—where new economic markets and regions are rapidly replacing their over-dependence on the United States as prime export market and prime source for investment finance. The long-term consequences will be an aggravation of the trend of the United States as a political and economic superpower in terminal decline, while dynamic new economic zones, initially mainly of regional importance, will arise.
The one great asset which nations like China, Indonesia, India and Brazil bring to the emerging divide is the one greatest long-term economic deficit or liability of the older industrialized world, USA, UK, Germany and the EU generally. That is their demographic advantage.
With the exception of Russia, all the growth economies possess young, dynamic and growing populations. Interesting to recall is that the hidden story of the pre-1914 German ‘economic miracle’ was based on a similar ‘secret’—rapid and dynamic young and growing population, while that of Great Britain and France was stagnant or in decline after the British Great Depression of 1873 which led to huge emigration of population to the USA.
It’s no accident that the leading political elites of the G7 argue that the greatest threat globally is the rapid birth rate in developing countries. Translated from their euphemism, they really mean the greatest threat to their continued dominance of world affairs is population expansion in emerging economies, as new contenders inevitably rise.
New growth regions emerging
Almost naturally in the past eighteen months, once the initial shock of the worst financial and economic shock since the 1930’s began to subside, China and its immediate trading partners along with the other high-growth emerging economies, began looking for new alternatives to the dying dollar system.
The present crisis is no short-term epiphenomenon as Ben Bernanke, Treasury Secretary Tim Geithner or Barack Obama would wish us to believe. It is the reflection of more than 65 years of defective US economic policy, a defect which reached epidemic proportions after the decision to abandon the gold exchange standard in 1971. Let’s be clear , that gold standard as well as its predecessors was no magic economic panacea. But the break by Nixon in August 1971 allowed Washington to embark on a de facto financial imperialist policy which ruined much of the world economy in its ravages of the past thirty eight years.
Today the contrast between declining G7 economies and emerging dynamic high-population growth economies could not be clearer. The G7 nations from USA to Germany to Italy are choking in public debt, ranging from 80% of GDP in the United States to well over 100% in Italy and a staggering 199% in Japan. Only Zimbabwe with 218% debt to GDP tops that. Germany has a ratio of 77%.
By contrast, of the emerging dynamic high-growth countries, only India has significant public debt, a legacy of the British colonial era, of 58% GDP. Brazil, despite a severe debt crisis in the 1980’s, today has a public debt to GDP level of a very manageable 45%, while Indonesia, one of the fast-growing newly emerging economies, has 34%. South Korea with a high domestic savings culture has a mere 28% debt ratio and China a mere 18% debt to GDP level. Russia, which used the recent boom in oil and gas revenues to pay down its foreign and IMF debts, while the country has severe demographic problems, has a public debt to GDP as of 2008 data of 6%. It has also slowly rebuilt foreign exchange reserves after the crisis last year to a level of $404 billion this month, making its reserves the third largest in the world.
So, with the economies of the USA and EU caught in the jaws of a twin scissors-like crises between growing public debt and declining population growth rates to service that debt long-term, the emerging economies of Asia and Eurasia as well as Brazil in South America are booming, precisely because they enjoy the twin assets of low public debt to GDP ratios combined with dynamic growing populations.
In China, India, Indonesia, Brazil economic growth continues to advance significantly. Governments are not buried under a mountain of debt and citizens remain optimistic about their future. This divergence, between the once rich and the once poor, will mark a geopolitical shift in the pivot of world history when viewed retrospectively by future economic historians.
Caught in the blades of a twin crisis
The most notable aspect of the crisis is the thorough discrediting of western academic economists, including every single winner of the Economics Nobel Prize. Their grandiose theories justifying their laissez faire ‘free market’ economic model of globalization has been proven fatally wrong, in effect a transparent promotion gimmick to justify the process of one-sided globalization, little more. They have been exposed, to use the terms of one of my favourite children’s stories by the Danish writer H.C. Andersen, like the Emperor with no clothes.
The dollar system their world had been based on since Bretton Woods in 1944, is undergoing a death agony. Every measure advocated to date by two US Administrations—Bush and now Obama—as well as the other G7 governments has amounted to giving heavy and even heavier doses of financial chemotherapy to a dying patient. The ever higher doses of taxpayer bailout to maintain a failed financial and banking model on artificial life support is merely worsening the underlying health of the US economy.
The record US financial bailouts since September 2008, a span of a mere ten months, have brought the US Federal debt from some 60% to a whopping 80% of GDP. Private US household debt is now above a record 100% of GDP, significantly worse than in the bad recession year 1974 when it was a mere 40%.
More alarming, for any prospect of growing out of the US economic downturn, the long-awaited phenomenon of demographics has slowly begun to impact. In the coming 1-3 years the impact of Baby Boom generation retirees in record numbers will hit. They will be forced to draw down their public Social Security retirement from the Government as well as selling their private 401k and similar stock and bond investments in order to live in retirement. In economic terms they will become a net drain on the US pubic finances whereas rising unemployment among younger workers whose taxed earnings are needed to pay into the Social Security fund, will aggravate the US public debt level rapidly to Italy or even Japan or Zimbabwe levels in coming years. Unemployed workers do not pay taxes. They draw on state benefits instead.
In April, India's car sales were 4.2 percent higher than they were a year prior. Retail sales rose 15 percent in China in the first quarter of 2009. China is likely to grow at 7 or 8 percent this year, India at 6 percent and Indonesia at 4 percent.
By contrast, even using badly flawed official data, the US economy contracted at an annual rate of 6.1 percent last quarter, Europe by 9.6 percent and Japan by a frightening 15 percent, something that rivals the 1930s.
In the West, plus G7 member Japan, banks are overleveraged and thus dysfunctional, governments paralyzed with debt, and consumers are rebuilding their huge debt burdens. America is having trouble selling its public debt at attractive prices. The last three Treasury auctions have gone badly. Its largest state, California, is veering toward total fiscal collapse. The current fiscal year US budget deficit is going to surpass 13 percent of GDP, a level last seen during World War II.
By contrast emerging-market banks are largely healthy and profitable. Every Indian bank, government and private, posted profits in the last quarter of 2008. The governments are in good fiscal shape. China has the world’s largest foreign currency reserves, $2 trillion in reserves, and a budget deficit less than 3 percent of GDP. Brazil is now posting a current account surplus. Indonesia has reduced its debt from 100 percent of GDP nine years ago to 34 percent today.
Unlike in the West - where governments have run out of money or creative new ideas and are now praying that their medicine will work - these countries still have options. Only a year ago, their chief concern was an overheated economy and inflation. Brazil has cut its interest rate substantially, but only to 10.25 percent, which means it can drop it further if things deteriorate even more.
The mood in many of these countries remains surprisingly upbeat. Their currencies are appreciating against the dollar because the markets see them as having better fiscal discipline as well as better long-term growth prospects than the United States. Their bonds are rising. This combination of indicators, all pointing in the same direction, is unprecedented.
The United States remains the richest and most powerful country in the world. Its military spans the globe. Even if its leaders prefer not to call it such it represents the most powerful informal empire in history to date. But just as previous global hegemons went into irreversible decline--the Spanish Empire of the 16th century to the British Empire in the 20th century--great global powers sink into terminal decline once they become overburdened with debt and stuck in slow growth.
Monday, June 8, 2009
SC92-9
http://kunstler.com/blog/2009/06/lagging-recognition.html#more
Lagging Recognition
Through the tangle of green shoots and sprouting mustard seeds, a certain nervous view persists that the arc of events is taking us to places unimaginable. The collapse of General Motors and Chrysler signifies more than the collapse of US car manufacturing. It spells the end of the motoring era in America per se and the puerile fantasy of personal liberation that allowed it to become such a curse to us.
Of course, many Nobel prize-winning economists would argue that it has only been a blessing for us, but that only shows how the newspapers are committing suicide-by-irrelevance. And if other societies, such as China's late-entry industrial start-up, want to adopt a similar fantasy, they will only find themselves all the sooner in history's garage with a tailpipe in their mouths. Here in the USA, we will mount the most strenuous campaign to keep the motoring system going -- in fact, we're already doing it -- but it will fail just as surely as two (so far) of the "big three" automakers have failed. It will fail because car-making is only one facet of a larger network of systems that is coming undone, namely a revolving debt cheap energy economy.
Americans will never again buy as many new cars as they were able to do before 2008 on the terms that were normal until then: installment loans. Our credit system is completely broken. It choked to death on securitized debt engineered by computer magic and business school hubris. That complex of frauds and swindles coincided with the background force of peak oil, which meant, among other things, that economic growth based on ever-increasing energy resources was over, and along with it ever-increasing credit. What it boils down to now is that we can't service our debt at any level, personal, corporate, or government -- and that translates into comprehensive societal bankruptcy.
The efforts of our federal government to work around this now, to cover up the "non-performing" debt and to generate the new lending necessary to keep the old system going, is a tragic exercise in futility. I'm not saying this to be a "pessimistic" grandstanding doomer pain-in-the-ass, but because I would like to see my country make more intelligent choices that would permit us to continue being civilized, to move into the next phase of our history without a horrible self-destructive convulsion.
Another consequence of the debt problem is that we won't be able to maintain the network of gold-plated highways and lesser roads that was as necessary as the cars themselves to make the motoring system work. The trouble is you have to keep gold-plating it, year after year. Traffic engineers refer to this as "level-of-service." They've learned that if the level-of-service is less than immaculate, the highways quickly enter a spiral of disintegration. In fact, the American Society of Civil Engineers reported several years ago that the condition of many highway bridges and tunnels was at the "D-minus" level, so we had already fallen far behind on a highway system that had simply grown too large to fix even when we thought we were wealthy enough to keep up. Right now, we're pretending that the "stimulus" program will carry us over long enough to resume the old method of state-and-federal spending based largely on bonding (that is, debt). The political dimension of the collapse of motoring is the least discussed part of problem: as fewer and fewer citizens find themselves able to buy and run cars, they will feel increasingly aggrieved at the system set up to make motoring virtually mandatory for all the chores of everyday life, and their resentments will rise against the elite that can still manage to enjoy it. Because our car-dependency is so extreme, the reaction of the dis-entitled classes is liable to be extreme and probably delusional to an extreme, too.
You can already see it being baked in the cake. Happy Motoring is so entangled in our national identity that the loss of it is bound to cause a national identity crisis. In places like the American south, the old Dixie states, motoring lifted more than half the population out of the dust, and became the basis of the New South economy. The sons and grandsons of starving sharecroppers became Chevy dealers and developers of suburban housing tracts, malls, and strip malls. They don't have any nostalgia for the historical reality of hookworm and 14-hour-days of serf labor in hundred-degree heat. Theirs is a nostalgia for the present, for air-conditioned comfort and convenience and the groaning all-you-can-eat Shoney's breakfast buffet off the freeway ramp. When it is withdrawn from them by the mandate of events, they will be furious.
Given the history of the region and the predilections of its dominant ethnic group, one might imagine that they will want to take out their gall and grievance on the half-African politician who presides over the situation. Among the ever-expanding classes dis-entitled from the so-called American Dream, the crisis is only marginally different in other regions of the nation. Mr. Obama faces a range of awful dilemmas, and it is painful to see them go unrecognized and unacknowledged by his White House. It's hard to imagine that the president and his elite advisors are blind to these equations, but as the weeks tick by they seem stuck in a box of limited perception.
We're in a strange hiatus for now. "Hope" levitates the legitimacy of the dollar, the stock markets, and the authority of leadership. In the background, implosion continues, debt goes unpaid, banks ignore bad loans to keep them off their books, jobs and incomes vanish, cars and other things go unsold, and a tragic wishfulness strains to sustain the unsustainable. Our expectations are inconsistent with what is happening to us.
It will be very painful for us to walk away from the car-centered life. Half the population faces the ugly obstacle of being hopelessly over-invested in a suburban house and all the life-ways associated with it. There will be no easy way out for them, whatever they chose to do politically, whatever noise they make, whomever they scapegoat, whatever fantasies they cultivate about what the world owes them, or who they think they are.
Mr. Obama should not waste another week pretending that we can keep this old system going. The public needs to know that we will be making our livings differently, inhabiting the landscape differently, and spending our days and nights differently -- even while we suffer our losses. The public needs to hear this from more figures than Mr. Obama, too, from leaders in the state capitals, and the agencies, and business and education and what remains of the clergy. But somebody has to set in motion the chain of recognition, or events will soon do it for us.
Lagging Recognition
Through the tangle of green shoots and sprouting mustard seeds, a certain nervous view persists that the arc of events is taking us to places unimaginable. The collapse of General Motors and Chrysler signifies more than the collapse of US car manufacturing. It spells the end of the motoring era in America per se and the puerile fantasy of personal liberation that allowed it to become such a curse to us.
Of course, many Nobel prize-winning economists would argue that it has only been a blessing for us, but that only shows how the newspapers are committing suicide-by-irrelevance. And if other societies, such as China's late-entry industrial start-up, want to adopt a similar fantasy, they will only find themselves all the sooner in history's garage with a tailpipe in their mouths. Here in the USA, we will mount the most strenuous campaign to keep the motoring system going -- in fact, we're already doing it -- but it will fail just as surely as two (so far) of the "big three" automakers have failed. It will fail because car-making is only one facet of a larger network of systems that is coming undone, namely a revolving debt cheap energy economy.
Americans will never again buy as many new cars as they were able to do before 2008 on the terms that were normal until then: installment loans. Our credit system is completely broken. It choked to death on securitized debt engineered by computer magic and business school hubris. That complex of frauds and swindles coincided with the background force of peak oil, which meant, among other things, that economic growth based on ever-increasing energy resources was over, and along with it ever-increasing credit. What it boils down to now is that we can't service our debt at any level, personal, corporate, or government -- and that translates into comprehensive societal bankruptcy.
The efforts of our federal government to work around this now, to cover up the "non-performing" debt and to generate the new lending necessary to keep the old system going, is a tragic exercise in futility. I'm not saying this to be a "pessimistic" grandstanding doomer pain-in-the-ass, but because I would like to see my country make more intelligent choices that would permit us to continue being civilized, to move into the next phase of our history without a horrible self-destructive convulsion.
Another consequence of the debt problem is that we won't be able to maintain the network of gold-plated highways and lesser roads that was as necessary as the cars themselves to make the motoring system work. The trouble is you have to keep gold-plating it, year after year. Traffic engineers refer to this as "level-of-service." They've learned that if the level-of-service is less than immaculate, the highways quickly enter a spiral of disintegration. In fact, the American Society of Civil Engineers reported several years ago that the condition of many highway bridges and tunnels was at the "D-minus" level, so we had already fallen far behind on a highway system that had simply grown too large to fix even when we thought we were wealthy enough to keep up. Right now, we're pretending that the "stimulus" program will carry us over long enough to resume the old method of state-and-federal spending based largely on bonding (that is, debt). The political dimension of the collapse of motoring is the least discussed part of problem: as fewer and fewer citizens find themselves able to buy and run cars, they will feel increasingly aggrieved at the system set up to make motoring virtually mandatory for all the chores of everyday life, and their resentments will rise against the elite that can still manage to enjoy it. Because our car-dependency is so extreme, the reaction of the dis-entitled classes is liable to be extreme and probably delusional to an extreme, too.
You can already see it being baked in the cake. Happy Motoring is so entangled in our national identity that the loss of it is bound to cause a national identity crisis. In places like the American south, the old Dixie states, motoring lifted more than half the population out of the dust, and became the basis of the New South economy. The sons and grandsons of starving sharecroppers became Chevy dealers and developers of suburban housing tracts, malls, and strip malls. They don't have any nostalgia for the historical reality of hookworm and 14-hour-days of serf labor in hundred-degree heat. Theirs is a nostalgia for the present, for air-conditioned comfort and convenience and the groaning all-you-can-eat Shoney's breakfast buffet off the freeway ramp. When it is withdrawn from them by the mandate of events, they will be furious.
Given the history of the region and the predilections of its dominant ethnic group, one might imagine that they will want to take out their gall and grievance on the half-African politician who presides over the situation. Among the ever-expanding classes dis-entitled from the so-called American Dream, the crisis is only marginally different in other regions of the nation. Mr. Obama faces a range of awful dilemmas, and it is painful to see them go unrecognized and unacknowledged by his White House. It's hard to imagine that the president and his elite advisors are blind to these equations, but as the weeks tick by they seem stuck in a box of limited perception.
We're in a strange hiatus for now. "Hope" levitates the legitimacy of the dollar, the stock markets, and the authority of leadership. In the background, implosion continues, debt goes unpaid, banks ignore bad loans to keep them off their books, jobs and incomes vanish, cars and other things go unsold, and a tragic wishfulness strains to sustain the unsustainable. Our expectations are inconsistent with what is happening to us.
It will be very painful for us to walk away from the car-centered life. Half the population faces the ugly obstacle of being hopelessly over-invested in a suburban house and all the life-ways associated with it. There will be no easy way out for them, whatever they chose to do politically, whatever noise they make, whomever they scapegoat, whatever fantasies they cultivate about what the world owes them, or who they think they are.
Mr. Obama should not waste another week pretending that we can keep this old system going. The public needs to know that we will be making our livings differently, inhabiting the landscape differently, and spending our days and nights differently -- even while we suffer our losses. The public needs to hear this from more figures than Mr. Obama, too, from leaders in the state capitals, and the agencies, and business and education and what remains of the clergy. But somebody has to set in motion the chain of recognition, or events will soon do it for us.
Friday, June 5, 2009
SC92-8
http://www.globalresearch.ca/index.php?context=va&aid=13863
Securitization: The Biggest Rip-off Ever
Financial Deregulation has Opened Up A Pandora's box
Is it possible to make hundreds of billions of dollars in profits on securities that are backed by nothing more than cyber-entries into a loan book?
It's not only possible; it's been done. And now the scoundrels who cashed in on the swindle have lined up outside the Federal Reserve building to trade their garbage paper for billions of dollars of taxpayer-funded loans. Where's the justice? Meanwhile, the credit bust has left the financial system in a shambles and driven the economy into the ground like a tent stake. The unemployment lines are growing longer and consumers are cutting back on everything from nights-on-the-town to trips to the grocery store. And it's all due to a Ponzi-finance scam that was concocted on Wall Street and spread through the global system like an aggressive strain of Bird Flu. The isn't a normal recession; the financial system was blown up by greedy bankers who used "financial innovation" to game the system and inflate the biggest speculative bubble of all time. And they did it all legally, using a little-known process called securitization.
Securitization--which is the conversion of pools of loans into securities that are sold in the secondary market--provides a means for massive debt-leveraging. The banks use off-balance sheet operations to create securities so they can avoid normal reserve requirements and bothersome regulatory oversight. Oddly enough, the quality of the loan makes no difference at all, since the banks make their money on loan originations and other related fees. What matters is quantity, quantity, quantity; an industrial-scale assembly line of fetid loans dumped on unsuspecting investors to fatten the bottom line. And, boy, can Wall Street grind out the rotten paper when there's no cop on the beat and the Fed is cheering from the bleachers. In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. How much of that debt will turn out to be worthless as foreclosures skyrocket and the banks balance sheets come under greater and greater pressure?
Deregulation opened Pandora's box, unleashing a weird mix of shady off-book operations (SPVs, SIVs) and dodgy, odd-sounding derivatives that were used to amplify leverage and stack debt on tinier and tinier scraps of capital. It's easy to make money, when one has no skin in the game. That's how hedge fund managers and private equity sharpies get rich. Securitization gave the banks the opportunity to take substandard loans from applicants who had no way of paying them back, and magically transform them into Triple A securities. "Abra-kadabra". The Wall Street public relations throng boasted that securitization "democratized" credit because more people could borrow at better rates since funding came from investors rather than banks. But it was all a hoax. The real objective was to turbo-charge profits by skimming hefty salaries and bonuses on the front end, before people found out they'd been hosed. The former head of the FDIC, William Seidman, figured it all out back in 1993 when he was cleaning up after the S&L fiasco. Here's what he said in his memoirs:
“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.” (Bloomberg)
That's it in a nutshell. The banks never expected the loans would be paid back, which is why they issued them to ninjas; applicants with no income, no collateral, no job, and a bad credit history. It made no sense at all, especially to anyone who's ever sat through a nerve-wracking credit check with a sneering banker. Trust me, bankers know how to get their money back, if that's their real intention. In this case, it didn't matter. They just wanted to keep their counterfeiting racket zooming ahead at full-throttle for as long as possible. Meanwhile, Maestro Greenspan waved pom-poms from the sidelines, extolling the virtues of the "new economy" and the permanent high plateau of prosperity that had been achieved through laissez faire capitalism.
Now that the securitization bubble has burst, 40% of the credit which had been coursing into the economy has been cut off triggering a 1930's-type meltdown. Fed chief Bernanke has stepped into the breach and provided a $13 trillion dollar backstop to keep the financial system from collapsing, but the broader economy has continued its historic nosedive. Bernanke is trying to fill the chasm that opened up when securitization ground to a halt and gas started exiting the credit bubble in one mighty whooosh. The deleveraging is ongoing, despite the Fed's many programs to rev up securitization and restore speculative bubblenomics. Bernanke's latest brainstorm, the Term Asset-backed securities Lending Facility (TALF), provides 94 percent public funding for investors willing to buy loans backed by credit card debt, student loans, auto loans or commercial real estate loans. It's a "no lose" situation for big investors who think that securitized debt will stage a comeback. But that's the problem; no one does. Attractive, non recourse (nearly) risk free loans have failed to entice the big brokerage houses and hedge fund managers. Bernanke has peddled less than $30 billion in a program that's designed to lend up to $1 trillion. It's been a complete bust.
To understand securitization, one must think like a banker. Bankers believe that profits are constrained by reserve requirements. So, what they really want is to expand credit with no reserves; the equivalent of spinning flax into gold. Securitization and derivatives contracts achieve that objective. They create a confusing netherworld of odd-sounding instruments and bizarre processes which obscure the simple fact that they are creating money out of thin air. That's what securitization really is; undercapitalized junk masquerading as precious jewels. Here's how economist Henry CK Liu sums it up in his article "Mark-to-Market vs. Mark-to-Model":
"The shadow banking system has deviously evaded the reserve requirements of the traditional regulated banking regime and institutions and has promoted a chain-letter-like inverted pyramid scheme of escalating leverage, based in many cases on nonexistent reserve cushion. This was revealed by the AIG collapse in 2008 caused by its insurance on financial derivatives known as credit default swaps (CDS).....
The Office of the Comptroller of the Currency and the Federal Reserve jointly allowed banks with credit default swaps (CDS) insurance to keep super-senior risk assets on their books without adding capital because the risk was insured. Normally, if the banks held the super-senior risk on their books, they would need to post capital at 8% of the liability. But capital could be reduced to one-fifth the normal amount (20% of 8%, meaning $160 for every $10,000 of risk on the books) if banks could prove to the regulators that the risk of default on the super-senior portion of the deals was truly negligible, and if the securities being issued via a collateral debt obligation (CDO) structure carried a Triple-A credit rating from a “nationally recognized credit rating agency”, such as Standard and Poor’s rating on AIG.
With CDS insurance, banks then could cut the normal $800 million capital for every $10 billion of corporate loans on their books to just $160 million, meaning banks with CDS insurance can loan up to five times more on the same capital. The CDS-insured CDO deals could then bypass international banking rules on capital. (Henry CK Liu, "Mark-to-Market vs. Mark-to-Model" http://www.henryckliu.com/page191.html )
The same rule applies to derivatives (CDS) as securitized instruments; neither is sufficiently capitalized because setting aside reserves impairs one's ability to maximize profits. It's all about the bottom line. The reason credit default swaps are so cheap, compared to conventional insurance, is that there's no way of knowing whether the dealer has the ability to pay claims. It's fraud, on a gigantic scale, which is why the financial system went into full-blown paralysis when Lehman Bros defaulted. No one knew whether trillions of dollars in counterparty contracts would be paid out or not. There are simply more claims on wealth than there is money in the system. Bogus mortgages and phony counterparty promises mean nothing. "Show me the money". The system is underwater, and it cannot be fixed by more of the Fed's presto liquidity. Here's what Gary Gorton says later in the same article:
"A banking panic means that the banking system is insolvent. The banking system cannot honor contractual demands; there are no private agents who can buy the amount of assets necessary to recapitalize the banking system, even if they knew the value of the assets, because of the sheer size of the banking system. When the banking system is insolvent, many markets stop functioning and this leads to very significant effects on the real economy...."
Indeed. The shadow banking system has collapsed, not because the market is "frozen" or because investors are in a state of panic after Lehman, but because derivatives and securitization have been exposed as a fraud propped up on insufficient capital. It's snake oil sold by charlatans.........
Securitization: The Biggest Rip-off Ever
Financial Deregulation has Opened Up A Pandora's box
Is it possible to make hundreds of billions of dollars in profits on securities that are backed by nothing more than cyber-entries into a loan book?
It's not only possible; it's been done. And now the scoundrels who cashed in on the swindle have lined up outside the Federal Reserve building to trade their garbage paper for billions of dollars of taxpayer-funded loans. Where's the justice? Meanwhile, the credit bust has left the financial system in a shambles and driven the economy into the ground like a tent stake. The unemployment lines are growing longer and consumers are cutting back on everything from nights-on-the-town to trips to the grocery store. And it's all due to a Ponzi-finance scam that was concocted on Wall Street and spread through the global system like an aggressive strain of Bird Flu. The isn't a normal recession; the financial system was blown up by greedy bankers who used "financial innovation" to game the system and inflate the biggest speculative bubble of all time. And they did it all legally, using a little-known process called securitization.
Securitization--which is the conversion of pools of loans into securities that are sold in the secondary market--provides a means for massive debt-leveraging. The banks use off-balance sheet operations to create securities so they can avoid normal reserve requirements and bothersome regulatory oversight. Oddly enough, the quality of the loan makes no difference at all, since the banks make their money on loan originations and other related fees. What matters is quantity, quantity, quantity; an industrial-scale assembly line of fetid loans dumped on unsuspecting investors to fatten the bottom line. And, boy, can Wall Street grind out the rotten paper when there's no cop on the beat and the Fed is cheering from the bleachers. In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. How much of that debt will turn out to be worthless as foreclosures skyrocket and the banks balance sheets come under greater and greater pressure?
Deregulation opened Pandora's box, unleashing a weird mix of shady off-book operations (SPVs, SIVs) and dodgy, odd-sounding derivatives that were used to amplify leverage and stack debt on tinier and tinier scraps of capital. It's easy to make money, when one has no skin in the game. That's how hedge fund managers and private equity sharpies get rich. Securitization gave the banks the opportunity to take substandard loans from applicants who had no way of paying them back, and magically transform them into Triple A securities. "Abra-kadabra". The Wall Street public relations throng boasted that securitization "democratized" credit because more people could borrow at better rates since funding came from investors rather than banks. But it was all a hoax. The real objective was to turbo-charge profits by skimming hefty salaries and bonuses on the front end, before people found out they'd been hosed. The former head of the FDIC, William Seidman, figured it all out back in 1993 when he was cleaning up after the S&L fiasco. Here's what he said in his memoirs:
“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.” (Bloomberg)
That's it in a nutshell. The banks never expected the loans would be paid back, which is why they issued them to ninjas; applicants with no income, no collateral, no job, and a bad credit history. It made no sense at all, especially to anyone who's ever sat through a nerve-wracking credit check with a sneering banker. Trust me, bankers know how to get their money back, if that's their real intention. In this case, it didn't matter. They just wanted to keep their counterfeiting racket zooming ahead at full-throttle for as long as possible. Meanwhile, Maestro Greenspan waved pom-poms from the sidelines, extolling the virtues of the "new economy" and the permanent high plateau of prosperity that had been achieved through laissez faire capitalism.
Now that the securitization bubble has burst, 40% of the credit which had been coursing into the economy has been cut off triggering a 1930's-type meltdown. Fed chief Bernanke has stepped into the breach and provided a $13 trillion dollar backstop to keep the financial system from collapsing, but the broader economy has continued its historic nosedive. Bernanke is trying to fill the chasm that opened up when securitization ground to a halt and gas started exiting the credit bubble in one mighty whooosh. The deleveraging is ongoing, despite the Fed's many programs to rev up securitization and restore speculative bubblenomics. Bernanke's latest brainstorm, the Term Asset-backed securities Lending Facility (TALF), provides 94 percent public funding for investors willing to buy loans backed by credit card debt, student loans, auto loans or commercial real estate loans. It's a "no lose" situation for big investors who think that securitized debt will stage a comeback. But that's the problem; no one does. Attractive, non recourse (nearly) risk free loans have failed to entice the big brokerage houses and hedge fund managers. Bernanke has peddled less than $30 billion in a program that's designed to lend up to $1 trillion. It's been a complete bust.
To understand securitization, one must think like a banker. Bankers believe that profits are constrained by reserve requirements. So, what they really want is to expand credit with no reserves; the equivalent of spinning flax into gold. Securitization and derivatives contracts achieve that objective. They create a confusing netherworld of odd-sounding instruments and bizarre processes which obscure the simple fact that they are creating money out of thin air. That's what securitization really is; undercapitalized junk masquerading as precious jewels. Here's how economist Henry CK Liu sums it up in his article "Mark-to-Market vs. Mark-to-Model":
"The shadow banking system has deviously evaded the reserve requirements of the traditional regulated banking regime and institutions and has promoted a chain-letter-like inverted pyramid scheme of escalating leverage, based in many cases on nonexistent reserve cushion. This was revealed by the AIG collapse in 2008 caused by its insurance on financial derivatives known as credit default swaps (CDS).....
The Office of the Comptroller of the Currency and the Federal Reserve jointly allowed banks with credit default swaps (CDS) insurance to keep super-senior risk assets on their books without adding capital because the risk was insured. Normally, if the banks held the super-senior risk on their books, they would need to post capital at 8% of the liability. But capital could be reduced to one-fifth the normal amount (20% of 8%, meaning $160 for every $10,000 of risk on the books) if banks could prove to the regulators that the risk of default on the super-senior portion of the deals was truly negligible, and if the securities being issued via a collateral debt obligation (CDO) structure carried a Triple-A credit rating from a “nationally recognized credit rating agency”, such as Standard and Poor’s rating on AIG.
With CDS insurance, banks then could cut the normal $800 million capital for every $10 billion of corporate loans on their books to just $160 million, meaning banks with CDS insurance can loan up to five times more on the same capital. The CDS-insured CDO deals could then bypass international banking rules on capital. (Henry CK Liu, "Mark-to-Market vs. Mark-to-Model" http://www.henryckliu.com/page191.html )
The same rule applies to derivatives (CDS) as securitized instruments; neither is sufficiently capitalized because setting aside reserves impairs one's ability to maximize profits. It's all about the bottom line. The reason credit default swaps are so cheap, compared to conventional insurance, is that there's no way of knowing whether the dealer has the ability to pay claims. It's fraud, on a gigantic scale, which is why the financial system went into full-blown paralysis when Lehman Bros defaulted. No one knew whether trillions of dollars in counterparty contracts would be paid out or not. There are simply more claims on wealth than there is money in the system. Bogus mortgages and phony counterparty promises mean nothing. "Show me the money". The system is underwater, and it cannot be fixed by more of the Fed's presto liquidity. Here's what Gary Gorton says later in the same article:
"A banking panic means that the banking system is insolvent. The banking system cannot honor contractual demands; there are no private agents who can buy the amount of assets necessary to recapitalize the banking system, even if they knew the value of the assets, because of the sheer size of the banking system. When the banking system is insolvent, many markets stop functioning and this leads to very significant effects on the real economy...."
Indeed. The shadow banking system has collapsed, not because the market is "frozen" or because investors are in a state of panic after Lehman, but because derivatives and securitization have been exposed as a fraud propped up on insufficient capital. It's snake oil sold by charlatans.........
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