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.
Wednesday, June 10, 2009
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.........
SC92-7
http://energybulletin.net/node/49127
The decline of the American Empire
[T]he decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest; and, as soon as time or accident had removed the artificial supports, the stupendous fabric yielded to the pressure of its own weight. The story of its ruin is simple and obvious; and, instead of inquiring why the Roman empire was destroyed, we should rather be surprised that it had subsisted so long.—Edward Gibbon, from the Decline and Fall
Perhaps you have noticed a common theme in my recent columns. Each policy proposed to solve our economic, oil or climate problems I have examined has a fatal flaw, and often more than one. New initiatives always seem dead on arrival.
Cap & Trade is not likely to be enacted but if it is, the law would raise energy costs while making only token CO2 emission reductions as in Europe. President Obama put forward a proposal to think about, not build, an expanded passenger or freight rail system in the United States. A “harmonized double standard” for increased CAFE fuel efficiency mandates that cars average 39 miles-per-gallon by 2016, which probably translates to 29 miles-per-gallon in EPA bureaucratese.
On the economic front things are the same. Change we can believe in quickly morphed into a doomed attempt to return our flawed banking system to business as usual. As the Fed and the Treasury continue to bail out the banks, Arianna Huffington tells Tech Ticker’s Aaron Task that—
… the [Obama] administration is avoiding the big problems [in finance]…Tim Geithner and Larry Summers were creatures of Wall Street… [and they] are like people who still believe the world is flat. They see everything revolving around the Earth and in their case that’s Wall Street. That’s not good if you’re producing maps to navigate.
Even if we require a functioning financial system to speed any “recovery” we might get, few are thinking about what those banks will invest in after our economy bottoms out. More McMansions in the exurbs? More shopping malls? Who will buy these houses miles from nowhere? And then fill up the GMC Yukon to shop at Saks and eat at the Cheesecake Factory? Some over-leveraged consumers will gas up & go, but most will not, at least not as frequently as they used to. People need to pay down their debt as they try to hang on to their low-paying jobs. Our FIRE economy (Finance, Insurance, Real Estate) will try to blow another bubble, but we’re quickly running out of quality assets whose value we can inflate.......
.......Bingeing on debt is reckless, and financialization has a long record of being a dangerous late stage in the trajectory of previous leading world economic powers. Moving money around instead of making things is always dicey, and the U.S. transformation has been the most grandiose to date…
Money is “bad,” in the historical sense, when a leading world economic power passing its zenith — before the United States, think Hapsburg Spain, the maritime Dutch Republic (when New York was New Amsterdam), and imperial Britain just before World War I — lets itself luxuriate in finance at the expense of harvesting, manufacturing, or transporting things. Doing so has marked each nation’s global decline. To institutionalize the dominance of minimally regulated finance at this stage of U.S. history is a bad idea........
......Phillips is talking about the Decline of the American Financial Empire. When our society “luxuriates in finance at the expense of harvesting, manufacturing or transporting things,” we cling to the status quo instead of acting to solve the problems confronting it. We dig our heels in, our inertia grows stronger. The problems (too much debt, too little oil) do not go away. Unattended to, they get worse, as do the eventual consequences of inaction.........
........Eric Janszen at Tulip took a close look at consumer confidence (aka. sentiment) after the Conference Board’s latest survey. You would think confidence would correlate with job prospects, right? It does not. Consumer confidence follows the stock market! Specifically, sentiment corresponds to the Dow Jones Industrial Average (DJIA).......
.......Janszen believes “the DJIA index is used by the FIRE Economy financial media [e.g. CNBC] to sell the current state of the economy [to consumers or investors]… The DJIA has virtually no economic significance compared to the broad stock indexes such as the S&P index and the NASDAQ that have many times the capitalization of the DOW.” In a related development, bankrupt General Motors and insolvent Citigroup were dropped from the Dow index on June 1st. They were replaced by Cisco Systems and Travelers, respectively. That should improve consumer expectations considerably!
Bullish speculation in stocks bolsters consumer confidence based on … nothing at all. Confident consumers are seen as prone to spend more money, which begets bullish speculation. Many Americans think the worst is behind us. They expect a wave a new jobs to appear any day now. This is wishful thinking.
The fundamentals of our vaporous economy are terrible. This speculative frenzy doesn’t change the sorry state of Main Street. It’s just a lot of hot air on Wall Street, which is trying to re-inflate stock prices. This new equities bubble (Figure 3) is like some bizarre Wheel of Fortune—round and round it goes, where it stops nobody knows.
All this behavior is utterly futile if our goal is a sound economy & recovery.
I could tell stories like this all day long, touching on political infighting, corruption or undue influence up and down the Wall Street-Washington corridor, or the docility of our passive citizenry brought about by 30 years of consumer training. I would run out of time long before I ran out of material.
Everything—I mean every single thing—is broken, including health care costs & coverage, the energy markets, the economy as a whole, public education, physical infrastructure, insurmountable deficits at the local, state and Federal levels, etc.
Can We Put Humpty Together Again?
Humpty Dumpty sat on a wall,Humpty Dumpty had a great fall.All the king’s horses,
And all the king’s men,Couldn’t put Humpty together again—A Nursery rhyme
Is there any hope? I’m talking about real hope, not the daily barrage of pernicious nonsense that passes for serious discourse in the United States. No radical transformation of our society will occur unless we can overcome our social inertia. We would need to get serious, escape futility, do real things again.
The first step would be to acknowledge what a sorry state we’re in. Speaking with Bill Moyers back in September, Kevin Phillips didn’t think soon-to-be President Barack Obama would level with the American people about how bad things are. If the President indeed understands the depths to which we’ve sunk, he has not come clean with us—you don’t rock that boat.
History suggests that we will not be able to put Humpty Dumpty together again. Imperial greatness reaches an apogee and then follows a downhill trajectory. We had it good once, but now we cling to old dreams—like Rome, we prop them up with Edward Gibbon’s artificial supports—instead of confronting unpleasant realities. The old vitality is gone. In the United States we carry out studies explaining why the cost of nuclear power is prohibitive. The Chinese build nuclear power plants.
America is like an Obsessive-Compulsive who has lost his keys and keeps looking for them in the same drawer over and over again. We never tire of making the same mistakes, believing that “More Is Better” without acknowledging that it was this kind of flawed thinking that got us into this predicament in the first place.
Here’s what Paul Krugman said about California, which is a complete mess.
California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America…
What’s really alarming about California, however, is the political system’s inability to rise to the occasion…
… and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.
Don’t worry about it, Paul. The future looks like California just as it always has. As Gibbon said of the Romans, prosperity ripened the principle of decay, the causes of destruction multiplied and eventually the stupendous fabric yielded to the pressure of its own weight.
In the near future I’ll get back to writing about our futile efforts to put 1 million plug-in hybrids on the road by 2015 and similar fantasies. And if I’m alive in 20 years, I’ll write another article called The Decline & Fall of the American Empire.
The decline of the American Empire
[T]he decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest; and, as soon as time or accident had removed the artificial supports, the stupendous fabric yielded to the pressure of its own weight. The story of its ruin is simple and obvious; and, instead of inquiring why the Roman empire was destroyed, we should rather be surprised that it had subsisted so long.—Edward Gibbon, from the Decline and Fall
Perhaps you have noticed a common theme in my recent columns. Each policy proposed to solve our economic, oil or climate problems I have examined has a fatal flaw, and often more than one. New initiatives always seem dead on arrival.
Cap & Trade is not likely to be enacted but if it is, the law would raise energy costs while making only token CO2 emission reductions as in Europe. President Obama put forward a proposal to think about, not build, an expanded passenger or freight rail system in the United States. A “harmonized double standard” for increased CAFE fuel efficiency mandates that cars average 39 miles-per-gallon by 2016, which probably translates to 29 miles-per-gallon in EPA bureaucratese.
On the economic front things are the same. Change we can believe in quickly morphed into a doomed attempt to return our flawed banking system to business as usual. As the Fed and the Treasury continue to bail out the banks, Arianna Huffington tells Tech Ticker’s Aaron Task that—
… the [Obama] administration is avoiding the big problems [in finance]…Tim Geithner and Larry Summers were creatures of Wall Street… [and they] are like people who still believe the world is flat. They see everything revolving around the Earth and in their case that’s Wall Street. That’s not good if you’re producing maps to navigate.
Even if we require a functioning financial system to speed any “recovery” we might get, few are thinking about what those banks will invest in after our economy bottoms out. More McMansions in the exurbs? More shopping malls? Who will buy these houses miles from nowhere? And then fill up the GMC Yukon to shop at Saks and eat at the Cheesecake Factory? Some over-leveraged consumers will gas up & go, but most will not, at least not as frequently as they used to. People need to pay down their debt as they try to hang on to their low-paying jobs. Our FIRE economy (Finance, Insurance, Real Estate) will try to blow another bubble, but we’re quickly running out of quality assets whose value we can inflate.......
.......Bingeing on debt is reckless, and financialization has a long record of being a dangerous late stage in the trajectory of previous leading world economic powers. Moving money around instead of making things is always dicey, and the U.S. transformation has been the most grandiose to date…
Money is “bad,” in the historical sense, when a leading world economic power passing its zenith — before the United States, think Hapsburg Spain, the maritime Dutch Republic (when New York was New Amsterdam), and imperial Britain just before World War I — lets itself luxuriate in finance at the expense of harvesting, manufacturing, or transporting things. Doing so has marked each nation’s global decline. To institutionalize the dominance of minimally regulated finance at this stage of U.S. history is a bad idea........
......Phillips is talking about the Decline of the American Financial Empire. When our society “luxuriates in finance at the expense of harvesting, manufacturing or transporting things,” we cling to the status quo instead of acting to solve the problems confronting it. We dig our heels in, our inertia grows stronger. The problems (too much debt, too little oil) do not go away. Unattended to, they get worse, as do the eventual consequences of inaction.........
........Eric Janszen at Tulip took a close look at consumer confidence (aka. sentiment) after the Conference Board’s latest survey. You would think confidence would correlate with job prospects, right? It does not. Consumer confidence follows the stock market! Specifically, sentiment corresponds to the Dow Jones Industrial Average (DJIA).......
.......Janszen believes “the DJIA index is used by the FIRE Economy financial media [e.g. CNBC] to sell the current state of the economy [to consumers or investors]… The DJIA has virtually no economic significance compared to the broad stock indexes such as the S&P index and the NASDAQ that have many times the capitalization of the DOW.” In a related development, bankrupt General Motors and insolvent Citigroup were dropped from the Dow index on June 1st. They were replaced by Cisco Systems and Travelers, respectively. That should improve consumer expectations considerably!
Bullish speculation in stocks bolsters consumer confidence based on … nothing at all. Confident consumers are seen as prone to spend more money, which begets bullish speculation. Many Americans think the worst is behind us. They expect a wave a new jobs to appear any day now. This is wishful thinking.
The fundamentals of our vaporous economy are terrible. This speculative frenzy doesn’t change the sorry state of Main Street. It’s just a lot of hot air on Wall Street, which is trying to re-inflate stock prices. This new equities bubble (Figure 3) is like some bizarre Wheel of Fortune—round and round it goes, where it stops nobody knows.
All this behavior is utterly futile if our goal is a sound economy & recovery.
I could tell stories like this all day long, touching on political infighting, corruption or undue influence up and down the Wall Street-Washington corridor, or the docility of our passive citizenry brought about by 30 years of consumer training. I would run out of time long before I ran out of material.
Everything—I mean every single thing—is broken, including health care costs & coverage, the energy markets, the economy as a whole, public education, physical infrastructure, insurmountable deficits at the local, state and Federal levels, etc.
Can We Put Humpty Together Again?
Humpty Dumpty sat on a wall,Humpty Dumpty had a great fall.All the king’s horses,
And all the king’s men,Couldn’t put Humpty together again—A Nursery rhyme
Is there any hope? I’m talking about real hope, not the daily barrage of pernicious nonsense that passes for serious discourse in the United States. No radical transformation of our society will occur unless we can overcome our social inertia. We would need to get serious, escape futility, do real things again.
The first step would be to acknowledge what a sorry state we’re in. Speaking with Bill Moyers back in September, Kevin Phillips didn’t think soon-to-be President Barack Obama would level with the American people about how bad things are. If the President indeed understands the depths to which we’ve sunk, he has not come clean with us—you don’t rock that boat.
History suggests that we will not be able to put Humpty Dumpty together again. Imperial greatness reaches an apogee and then follows a downhill trajectory. We had it good once, but now we cling to old dreams—like Rome, we prop them up with Edward Gibbon’s artificial supports—instead of confronting unpleasant realities. The old vitality is gone. In the United States we carry out studies explaining why the cost of nuclear power is prohibitive. The Chinese build nuclear power plants.
America is like an Obsessive-Compulsive who has lost his keys and keeps looking for them in the same drawer over and over again. We never tire of making the same mistakes, believing that “More Is Better” without acknowledging that it was this kind of flawed thinking that got us into this predicament in the first place.
Here’s what Paul Krugman said about California, which is a complete mess.
California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America…
What’s really alarming about California, however, is the political system’s inability to rise to the occasion…
… and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.
Don’t worry about it, Paul. The future looks like California just as it always has. As Gibbon said of the Romans, prosperity ripened the principle of decay, the causes of destruction multiplied and eventually the stupendous fabric yielded to the pressure of its own weight.
In the near future I’ll get back to writing about our futile efforts to put 1 million plug-in hybrids on the road by 2015 and similar fantasies. And if I’m alive in 20 years, I’ll write another article called The Decline & Fall of the American Empire.
SC92-6
http://www.fcnp.com/commentary/national/4579-the-peak-oil-crisis-watching-a-mega-crisis.html
The Peak Oil Crisis: Watching a Mega-Crisis
........We, in America, are deep in the midst of a four-sided crisis. The first side is an economic slump; second, surprisingly, is our government's panicky efforts to stabilize the situation; third, the imminent peaking of fossil fuels and numerous other resources that seems to be in abeyance for the moment; and fourth, global warming which in the long run could overshadow the other three by a wide margin and is attracting considerable amounts of government and Congressional attention.
The important point is that the four aspects of what could easily turn out to be the mega-crisis of the century are all interrelated. Developments in any of the four will cause perturbations for better or worse in the others.
Most believe our current economic problem was caused by the extension of too much credit, too freely, and to the wrong people, over the last 30-40 years. Some, however, are suspicious that the many-fold run-up in oil prices from their historic $10 or $20 a barrel that sopped up so much consumer purchasing power may have had more than a little to do with our current economic problems.
While the consequences of the economic downturn are well understood, we are just starting to appreciate that the massive governmental effort to keep a recession from turning into a depression is threatening unprecedented repercussions of its own. In the last 10 months, the U.S. government and its central bank have spent or issued guarantees approaching $12 trillion in efforts to boost the economy. During the current fiscal year, the US will sell $3.25 trillion in new securities vs. $892 billion worth last fiscal year. Some are already calling this phenomenon the "bailout bubble" and are worried that deficit financing on this scale could destroy the dollar and take much of the U.S. economy with it.
People who claim to understand such things continue to assure us that additional trillions in deficit financing will not be a problem and that anything is better than allowing our economy to slip into another great depression. Despite the government's best efforts, however, interest rates have begun to rise and last week took a rather substantial jump. This in turn could hamper a recovery in the housing market. The recent fall of the U.S. dollar is a companion signal that all is not well. Whether the falling dollar and the increase in interest rates will continue much longer is anybody's guess, but it won't take much more of a move before prospects for an early economic recovery are seriously harmed.
While many different natural resources - fossil fuels, minerals, fresh water - are in danger of running short within next few decades, oil production which probably has already passed its all-time peak looks like the best bet to interfere with, and eventually stymie, an economic recovery. Crude oil prices have doubled since the end of January and may go higher on expectations that an economic recovery is underway. While crude prices are still less than half the $147 a barrel they reached last July, it is getting close to the level where economic damage could be inflicted. While the demand for commercial fuels for trucks and jet planes is down, gasoline demand has not fallen much as prices have edged up.
While the interaction among the four major factors that will have much to do with our economic future - the recession, the bailout, peak oil, and global warming - is easy to understand, the timing and nature of all the possible interactions are difficult to comprehend. Oil supply and demand are relatively easy to track, but no one as yet seems to have a firm insight into whether, when, and how fast massive deficit spending is going to lead to serious trouble.
Any increase in demand from a revitalized economy is almost certain to drive oil prices higher. In the last eight months, OPEC has reduced its oil production by about three million b/d which has kept production closer to demand for the time being. Although a few members of OPEC currently have surplus production capacity that could be turned into increased production, every year we are extracting some 30 billion barrels of mostly easy and cheap-to-produce oil. The simple message is that in three to four years excess production capacity is likely to be eaten up by depletion. After that increased oil production will become very expensive and take considerable effort. Much higher prices and considerable economic damage are virtually certain.
To summarize our situation: If and when the U.S. and world economy rebounds significantly, the increased demand for oil will quickly lead to higher prices which in turn is likely to choke off the rebound; if the U.S. and world economy continues to contract, demand for oil and oil prices will fall for a while, but the economy will be approaching depression levels; if the massive deficit-financed bailouts lead to lack of interest in U.S. government securities and a weaker dollar, interest rates will soar and choke off economic growth; if the U.S. and other governments seriously clamp down on carbon emissions to control global warming, higher energy prices are likely. Our economy and future stand at a crossroad.
No one can claim to have much insight into the likelihood and timing of the many possible developments that could spring from our multi-sided crisis. The one thing we can be sure of, however, is that the four sides of our mega-crisis are inextricably connected. Any change, either for good or ill, sooner or later will cause changes in one or more of the others.
None of this bodes well for a return to life as we knew it only a few years ago.
The Peak Oil Crisis: Watching a Mega-Crisis
........We, in America, are deep in the midst of a four-sided crisis. The first side is an economic slump; second, surprisingly, is our government's panicky efforts to stabilize the situation; third, the imminent peaking of fossil fuels and numerous other resources that seems to be in abeyance for the moment; and fourth, global warming which in the long run could overshadow the other three by a wide margin and is attracting considerable amounts of government and Congressional attention.
The important point is that the four aspects of what could easily turn out to be the mega-crisis of the century are all interrelated. Developments in any of the four will cause perturbations for better or worse in the others.
Most believe our current economic problem was caused by the extension of too much credit, too freely, and to the wrong people, over the last 30-40 years. Some, however, are suspicious that the many-fold run-up in oil prices from their historic $10 or $20 a barrel that sopped up so much consumer purchasing power may have had more than a little to do with our current economic problems.
While the consequences of the economic downturn are well understood, we are just starting to appreciate that the massive governmental effort to keep a recession from turning into a depression is threatening unprecedented repercussions of its own. In the last 10 months, the U.S. government and its central bank have spent or issued guarantees approaching $12 trillion in efforts to boost the economy. During the current fiscal year, the US will sell $3.25 trillion in new securities vs. $892 billion worth last fiscal year. Some are already calling this phenomenon the "bailout bubble" and are worried that deficit financing on this scale could destroy the dollar and take much of the U.S. economy with it.
People who claim to understand such things continue to assure us that additional trillions in deficit financing will not be a problem and that anything is better than allowing our economy to slip into another great depression. Despite the government's best efforts, however, interest rates have begun to rise and last week took a rather substantial jump. This in turn could hamper a recovery in the housing market. The recent fall of the U.S. dollar is a companion signal that all is not well. Whether the falling dollar and the increase in interest rates will continue much longer is anybody's guess, but it won't take much more of a move before prospects for an early economic recovery are seriously harmed.
While many different natural resources - fossil fuels, minerals, fresh water - are in danger of running short within next few decades, oil production which probably has already passed its all-time peak looks like the best bet to interfere with, and eventually stymie, an economic recovery. Crude oil prices have doubled since the end of January and may go higher on expectations that an economic recovery is underway. While crude prices are still less than half the $147 a barrel they reached last July, it is getting close to the level where economic damage could be inflicted. While the demand for commercial fuels for trucks and jet planes is down, gasoline demand has not fallen much as prices have edged up.
While the interaction among the four major factors that will have much to do with our economic future - the recession, the bailout, peak oil, and global warming - is easy to understand, the timing and nature of all the possible interactions are difficult to comprehend. Oil supply and demand are relatively easy to track, but no one as yet seems to have a firm insight into whether, when, and how fast massive deficit spending is going to lead to serious trouble.
Any increase in demand from a revitalized economy is almost certain to drive oil prices higher. In the last eight months, OPEC has reduced its oil production by about three million b/d which has kept production closer to demand for the time being. Although a few members of OPEC currently have surplus production capacity that could be turned into increased production, every year we are extracting some 30 billion barrels of mostly easy and cheap-to-produce oil. The simple message is that in three to four years excess production capacity is likely to be eaten up by depletion. After that increased oil production will become very expensive and take considerable effort. Much higher prices and considerable economic damage are virtually certain.
To summarize our situation: If and when the U.S. and world economy rebounds significantly, the increased demand for oil will quickly lead to higher prices which in turn is likely to choke off the rebound; if the U.S. and world economy continues to contract, demand for oil and oil prices will fall for a while, but the economy will be approaching depression levels; if the massive deficit-financed bailouts lead to lack of interest in U.S. government securities and a weaker dollar, interest rates will soar and choke off economic growth; if the U.S. and other governments seriously clamp down on carbon emissions to control global warming, higher energy prices are likely. Our economy and future stand at a crossroad.
No one can claim to have much insight into the likelihood and timing of the many possible developments that could spring from our multi-sided crisis. The one thing we can be sure of, however, is that the four sides of our mega-crisis are inextricably connected. Any change, either for good or ill, sooner or later will cause changes in one or more of the others.
None of this bodes well for a return to life as we knew it only a few years ago.
SC92-5
http://www.examiner.com/x-3515-Denver-Political-Issues-Examiner~y2009m6d4-On-American-sustainability-anatomy-of-societal-collapse
On American sustainability: anatomy of societal collapse
........The United States accelerates along a path that cannot continue no matter what your race, creed or color. Thousands of top scientists know it and write about it, but the general public stands clueless. Others shy away from it for fear of being called names.
By Chris Clugston--you may click the following high level summary of a detailed analysis of America’s “predicament” and its inevitable consequences. The complete analysis and associated models, evidence, and references can be found at http://www.wakeupamerika.com/PDFs/On-American-Sustainability.pdf
On American Sustainability—Anatomy of a Societal Collapse (Summary)
"The Real “Inconvenient Truth”
Clugston writes, “On American Sustainability—Significant Findings and Conclusions.” This man writes from deep research and profound understanding of what we face. No name calling can degrade pure scientific facts.
Clugston writes:
“Our American way of life—300+ million people enjoying historically unprecedented material living standards—is not sustainable.”
Let me repeat Clugston’s words, “…not sustainable.” California cannot sustain its own addition of 1,700 people and 400 vehicles added to that state—daily! It cannot sustain its projected added 20 million people. It does not possess enough water today! The USA cannot continue adding 3.1 million annually, net gain, on its way to adding 100 million in 26 years.
“America is irreparably overextended—we are living hopelessly beyond our means, both ecologically and economically. The available supplies of many critical ecological resources and economic resources upon which we depend will soon be insufficient to enable our American way of life,” Clugston said.
He’s not pretending or making this up! We exploded our civilization to over 300 million people that need to be watered, fed, housed and educated. We’re failing across the nation in May 2009 so what will it be like with an added 100 million? Darned frightening!
“The extent to which we are overextended is appalling. Under the best case scenario, the US can support sustainably less than 20% of our existing population living at less than 20% of our current average living standard,” Clugston said.
Look at California for an example. That state accelerates into a basket-case. It won’t get better but it will get worse. Projections show 100 million people added to this country in 26 years. Get a grip! It won’t happen without horrific consequences.
“Our culture of persistent resource overexploitation, which has enabled our “success”—our extraordinary American way of life, is also responsible for our “predicament”—our unsustainable American way of life,” Clugston said.
We face a water crisis that proves irreversible and unsolvable. It’s crazy, but thousands think that ‘technology’ will solve it. I am here to tell you that no amount of ‘technology’ will solve any problem that exceeds carrying capacity. Get that in your head or watch your civilization perish and your children with it.
“Sustainability is inevitable. We can transition to a sustainable lifestyle paradigm voluntarily, thereby mitigating the consequent reductions in our population level and living standards; or, we can allow Nature to orchestrate our transition through societal collapse, thereby experiencing catastrophic reductions in our population level and living standards,” Clugston said.
He’s correct! Either we bring about balance or Mother Nature will kick all our butts and especially our children’s butts in 30 years. Nature already kills 18 million humans annually through starvation. At least 2.0 billion humans cannot procure a clean glass of drinking water daily!
“There is only one rational solution to our predicament. We must, as a society, transition quickly and beginning immediately to a sustainable lifestyle paradigm, one in which we live completely within our means—on renewable natural resources exclusively—forever,” Clugston said.
You might check out www.transitionus.ning.com because they are preparing our cities for a much diminished standard of living and quality of life. We face an energy crisis that will change the way first world countries will live. It’s going to get more agrarian faster than anyone realizes. We will need to feed millions without the use of tractors because the end of the Age of Oil steams toward us incredibly quickly. Even before that, lack of water limits us more than we understand.
“Unfortunately, we are “culturally incapable” of resolving our predicament voluntarily—the inescapable consequence is imminent societal collapse,” Clugston said.
History provides plenty of examples. Read Jared Diamond’s: Collapse: how societies succeed or fail. Richard Heinberg Peak Everything: facing a century of declines. James Howard Kunstler The Long Emergency. If we don’t pull away from growth and hyper-population growth, we will become victims of a ‘Human Katrina’ that will devastate our civilization. No ifs, ands or buts!
8. “In the absence of an almost inconceivable series of 11th hour miracles, our Societal Collapse could possibly occur within the next 5 years, will probably occur within the next 15 years, and will almost certainly occur within the next 25 years,” Clugston said.
Clugston knows it; I know it. I’ve seen it. Other top experts know it: Dr. Albert Bartlett; Buck Lindsey; Paul Erhlich; Jared Diamond; Governor Richard D. Lamm; Lindsey Grant; Dr. John Tanton; John Rohe; and hundreds of Nobel prize winners, etc.
Again, the world human population grows by 77 million annually. It cannot sustain that number! The USA adds 3.1 million annually by mass immigration. China adds eight million a year even with one child family policy. India adds 12 million annually with no birth control in sight. Shows you how stupid religions remain as they encourage unending birth rates! Dumb, stupid, dumber! Talk about humanity’s chosen suicide of itself and its planet home!
We stand nostril-deep in trouble as do the rest of the petroleum-driven world societies. Humanity must move toward sustainability, balance and stable populations. Religions must advocate birth control and two child families.
In the end, it’s up to you, the individual citizens of this planet......
On American sustainability: anatomy of societal collapse
........The United States accelerates along a path that cannot continue no matter what your race, creed or color. Thousands of top scientists know it and write about it, but the general public stands clueless. Others shy away from it for fear of being called names.
By Chris Clugston--you may click the following high level summary of a detailed analysis of America’s “predicament” and its inevitable consequences. The complete analysis and associated models, evidence, and references can be found at http://www.wakeupamerika.com/PDFs/On-American-Sustainability.pdf
On American Sustainability—Anatomy of a Societal Collapse (Summary)
"The Real “Inconvenient Truth”
Clugston writes, “On American Sustainability—Significant Findings and Conclusions.” This man writes from deep research and profound understanding of what we face. No name calling can degrade pure scientific facts.
Clugston writes:
“Our American way of life—300+ million people enjoying historically unprecedented material living standards—is not sustainable.”
Let me repeat Clugston’s words, “…not sustainable.” California cannot sustain its own addition of 1,700 people and 400 vehicles added to that state—daily! It cannot sustain its projected added 20 million people. It does not possess enough water today! The USA cannot continue adding 3.1 million annually, net gain, on its way to adding 100 million in 26 years.
“America is irreparably overextended—we are living hopelessly beyond our means, both ecologically and economically. The available supplies of many critical ecological resources and economic resources upon which we depend will soon be insufficient to enable our American way of life,” Clugston said.
He’s not pretending or making this up! We exploded our civilization to over 300 million people that need to be watered, fed, housed and educated. We’re failing across the nation in May 2009 so what will it be like with an added 100 million? Darned frightening!
“The extent to which we are overextended is appalling. Under the best case scenario, the US can support sustainably less than 20% of our existing population living at less than 20% of our current average living standard,” Clugston said.
Look at California for an example. That state accelerates into a basket-case. It won’t get better but it will get worse. Projections show 100 million people added to this country in 26 years. Get a grip! It won’t happen without horrific consequences.
“Our culture of persistent resource overexploitation, which has enabled our “success”—our extraordinary American way of life, is also responsible for our “predicament”—our unsustainable American way of life,” Clugston said.
We face a water crisis that proves irreversible and unsolvable. It’s crazy, but thousands think that ‘technology’ will solve it. I am here to tell you that no amount of ‘technology’ will solve any problem that exceeds carrying capacity. Get that in your head or watch your civilization perish and your children with it.
“Sustainability is inevitable. We can transition to a sustainable lifestyle paradigm voluntarily, thereby mitigating the consequent reductions in our population level and living standards; or, we can allow Nature to orchestrate our transition through societal collapse, thereby experiencing catastrophic reductions in our population level and living standards,” Clugston said.
He’s correct! Either we bring about balance or Mother Nature will kick all our butts and especially our children’s butts in 30 years. Nature already kills 18 million humans annually through starvation. At least 2.0 billion humans cannot procure a clean glass of drinking water daily!
“There is only one rational solution to our predicament. We must, as a society, transition quickly and beginning immediately to a sustainable lifestyle paradigm, one in which we live completely within our means—on renewable natural resources exclusively—forever,” Clugston said.
You might check out www.transitionus.ning.com because they are preparing our cities for a much diminished standard of living and quality of life. We face an energy crisis that will change the way first world countries will live. It’s going to get more agrarian faster than anyone realizes. We will need to feed millions without the use of tractors because the end of the Age of Oil steams toward us incredibly quickly. Even before that, lack of water limits us more than we understand.
“Unfortunately, we are “culturally incapable” of resolving our predicament voluntarily—the inescapable consequence is imminent societal collapse,” Clugston said.
History provides plenty of examples. Read Jared Diamond’s: Collapse: how societies succeed or fail. Richard Heinberg Peak Everything: facing a century of declines. James Howard Kunstler The Long Emergency. If we don’t pull away from growth and hyper-population growth, we will become victims of a ‘Human Katrina’ that will devastate our civilization. No ifs, ands or buts!
8. “In the absence of an almost inconceivable series of 11th hour miracles, our Societal Collapse could possibly occur within the next 5 years, will probably occur within the next 15 years, and will almost certainly occur within the next 25 years,” Clugston said.
Clugston knows it; I know it. I’ve seen it. Other top experts know it: Dr. Albert Bartlett; Buck Lindsey; Paul Erhlich; Jared Diamond; Governor Richard D. Lamm; Lindsey Grant; Dr. John Tanton; John Rohe; and hundreds of Nobel prize winners, etc.
Again, the world human population grows by 77 million annually. It cannot sustain that number! The USA adds 3.1 million annually by mass immigration. China adds eight million a year even with one child family policy. India adds 12 million annually with no birth control in sight. Shows you how stupid religions remain as they encourage unending birth rates! Dumb, stupid, dumber! Talk about humanity’s chosen suicide of itself and its planet home!
We stand nostril-deep in trouble as do the rest of the petroleum-driven world societies. Humanity must move toward sustainability, balance and stable populations. Religions must advocate birth control and two child families.
In the end, it’s up to you, the individual citizens of this planet......
Wednesday, June 3, 2009
SC92-4
http://www.globalresearch.ca/index.php?context=va&aid=13841
Watching Obama Morph Into Dick Cheney
America has lost her soul, and so has her president.
A despairing country elected a president who promised change. Americans arrived from every state to witness in bitter cold Obama’s swearing in ceremony. The mall was packed in a way that it has never been for any other president.
The people’s good will toward Obama and the expectations they had for him were sufficient for Obama to end the gratuitous wars and enact major reforms. But Obama has deserted the people for the interests. He is relying on his non-threatening demeanor and rhetoric to convince the people that change is underway.
The change that we are witnessing is in Obama, not in policies. Obama is morphing into Dick Cheney.
Obama has not been in office four months and already a book could be written about his broken promises.
Obama said he would close the torture prison, Guantanamo, and abolish the kangaroo courts known as military tribunals. But now he says he is going to reform the tribunals and continue the process, but without confessions obtained with torture. Getting behind Obama’s validation of the Bush/Cheney policy, House Democrats pulled the budget funding that was to be used for closing Guantanamo.
The policy of kidnapping people (usually on the basis of disinformation supplied by their enemies) and whisking them off to third world prisons to be interrogated is to be continued. Again, Obama has substituted a "reform" for his promise to abolish an illegal policy. Rendition, Obama says, has also been reformed and will no longer involve torture. How would anyone know? Is Obama going to assign a US government agent to watch over the treatment given to disappeared people by third world thugs? Given the proclivity of American police to brutalize US citizens, nothing can save the victims of rendition from torture.
Obama has defended the Bush/Cheney warrantless wiretapping program run by the National Security Agency and broadened the government’s legal argument that "sovereign immunity" protects government officials from prosecution and civil suits when they violate US law and constitutional protections of citizens. Obama’s Justice Department has taken up the defense of Donald Rumsfeld against a case brought by detainees whose rights Rumsfeld violated.
In a signing statement this month, Obama abandoned his promise to protect whistle-blowers who give information of executive branch illegality to Congress.
Obama is making even more expansive claims of executive power than Bush. As Bruce Fine puts it: "In principle, President Obama is maintaining that victims of constitutional wrongdoing by the U.S. government should be denied a remedy in order to prevent the American people and the world at large from learning of the lawlessness perpetrated in the name of national security and exacting political and legal accountability."
Obama, in other words, is committed to covering up the Bush regime’s crimes and to ensuring that his own regime can continue to operate in the same illegal and unconstitutional ways.
Obama is fighting the release of the latest batch of horrific torture photos that have come to light. Obama claims that release of the photos would anger insurgents and cause them to kill our troops. That, of course, is nonsense. Those resisting occupation of their land by US troops and NATO mercenaries are already dedicated to killing our troops, and they know that Americans torture whomever they capture. Obama is fighting the release of the photos, because he knows the barbaric image that the photos present of the US military will undermine the public’s support for the wars that enrich the military/security complex, appease the Israel Lobby, and repay the campaign contributions that elect the US government.
As for bringing the troops home from Iraq, this promise, too, has been reformed. To the consternation of his supporters, Obama is leaving 50,000 US soldiers in Iraq. The others are being sent to Afghanistan and to Pakistan, where on Obama’s watch war has broken out big time with already one million refugees from the indiscriminate bombing of civilians.
Meanwhile, war with Iran remains a possibility, and at Washington’s insistence, NATO is conducting war games on former Soviet territory, thus laying the groundwork for future enrichment of the US military/security complex. The steeply rising US unemployment rate will provide the needed troops for Obama’s expanding wars.
Obama can give a great speech without mangling the language. He can smile and make people believe his rhetoric. The world, or much of it, seems to be content with the soft words, which now drape Dick Cheney’s policies in pursuit of executive supremacy and US hegemony.
Watching Obama Morph Into Dick Cheney
America has lost her soul, and so has her president.
A despairing country elected a president who promised change. Americans arrived from every state to witness in bitter cold Obama’s swearing in ceremony. The mall was packed in a way that it has never been for any other president.
The people’s good will toward Obama and the expectations they had for him were sufficient for Obama to end the gratuitous wars and enact major reforms. But Obama has deserted the people for the interests. He is relying on his non-threatening demeanor and rhetoric to convince the people that change is underway.
The change that we are witnessing is in Obama, not in policies. Obama is morphing into Dick Cheney.
Obama has not been in office four months and already a book could be written about his broken promises.
Obama said he would close the torture prison, Guantanamo, and abolish the kangaroo courts known as military tribunals. But now he says he is going to reform the tribunals and continue the process, but without confessions obtained with torture. Getting behind Obama’s validation of the Bush/Cheney policy, House Democrats pulled the budget funding that was to be used for closing Guantanamo.
The policy of kidnapping people (usually on the basis of disinformation supplied by their enemies) and whisking them off to third world prisons to be interrogated is to be continued. Again, Obama has substituted a "reform" for his promise to abolish an illegal policy. Rendition, Obama says, has also been reformed and will no longer involve torture. How would anyone know? Is Obama going to assign a US government agent to watch over the treatment given to disappeared people by third world thugs? Given the proclivity of American police to brutalize US citizens, nothing can save the victims of rendition from torture.
Obama has defended the Bush/Cheney warrantless wiretapping program run by the National Security Agency and broadened the government’s legal argument that "sovereign immunity" protects government officials from prosecution and civil suits when they violate US law and constitutional protections of citizens. Obama’s Justice Department has taken up the defense of Donald Rumsfeld against a case brought by detainees whose rights Rumsfeld violated.
In a signing statement this month, Obama abandoned his promise to protect whistle-blowers who give information of executive branch illegality to Congress.
Obama is making even more expansive claims of executive power than Bush. As Bruce Fine puts it: "In principle, President Obama is maintaining that victims of constitutional wrongdoing by the U.S. government should be denied a remedy in order to prevent the American people and the world at large from learning of the lawlessness perpetrated in the name of national security and exacting political and legal accountability."
Obama, in other words, is committed to covering up the Bush regime’s crimes and to ensuring that his own regime can continue to operate in the same illegal and unconstitutional ways.
Obama is fighting the release of the latest batch of horrific torture photos that have come to light. Obama claims that release of the photos would anger insurgents and cause them to kill our troops. That, of course, is nonsense. Those resisting occupation of their land by US troops and NATO mercenaries are already dedicated to killing our troops, and they know that Americans torture whomever they capture. Obama is fighting the release of the photos, because he knows the barbaric image that the photos present of the US military will undermine the public’s support for the wars that enrich the military/security complex, appease the Israel Lobby, and repay the campaign contributions that elect the US government.
As for bringing the troops home from Iraq, this promise, too, has been reformed. To the consternation of his supporters, Obama is leaving 50,000 US soldiers in Iraq. The others are being sent to Afghanistan and to Pakistan, where on Obama’s watch war has broken out big time with already one million refugees from the indiscriminate bombing of civilians.
Meanwhile, war with Iran remains a possibility, and at Washington’s insistence, NATO is conducting war games on former Soviet territory, thus laying the groundwork for future enrichment of the US military/security complex. The steeply rising US unemployment rate will provide the needed troops for Obama’s expanding wars.
Obama can give a great speech without mangling the language. He can smile and make people believe his rhetoric. The world, or much of it, seems to be content with the soft words, which now drape Dick Cheney’s policies in pursuit of executive supremacy and US hegemony.
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