Collapse Something or Other …

TriangleofDoomgc2reddit-logoOff the keyboard of Steve Ludlum

Follow us on Twitter @doomstead666
Friend us on Facebook

Published on the Economic Undertow on December 25, 2018

 

Discuss this article at the Economics Table inside the Diner

 

The Christmas present nobody wants sits under the tree: a worldwide finance crisis along with an establishment that appears to be coming apart at the seams.

The status quo is unraveling from all sides, at the top especially, where managers cannot conceal their panic:

 

 

 

Oops!

“Every banker knows that if he must prove he is worthy of credit, however good might be his arguments, in fact his credit is gone.”

— Walter Bagehot

 

The government marshals its forces of borrowing in order to prop up the lenders as per usual. Yet, the lenders have been propped up for years. The bosses demand lower lending rates even as these same rates are at- or below historical lows. What more can be done and to what end? The rates and props deployed during and after prior crises have contributed to the immediate peril as well as everything that has led up to it. There is no cure to be had in additional doses of the same poison that currently looks to kill us.

By questioning whether lenders are worthy of credit the Secretary sinks his own battleship: “Every banker knows …” well, perhaps not. He inadvertently reveals truths: that lenders are vital but are also vulnerable. Vital in that our economy does not pay its own way, it cannot. The industrial economy is reductive rather than productive: its primary ‘good’ is entropy. Business relies on the continuing increase of bank money to draw future resource capital toward the present. Without the lenders and the credit they provide the modern, industrial economy stalls then comes undone. If our economy could meet its own expenses out of cash flow it would do so. What the Secretary admits without doing so directly is our economy cannot afford itself.

That we cannot afford our economy is its immediate vulnerability. Asymmetries within the lending regime such as maturity mismatches make it fragile. The regime depends on a marginal agent or class of agents that sets conditions for all the others. Keynes notwithstanding, a certain level of borrowing restraint, something short of universal borrowing has little affect on the system as a whole. But, some percentage of economic agents must borrow with a fraction of that borrowing deployed to service and retire existing debts. Small leaks- or water over the top of a dike will not damage it but one small leak too many will wash the dike away. In the same way, a small percentage of non-performing loans or defaults is tolerable to the system, a portion of lender reserves and equity is set aside to resolve these as they appear. Then, there is one default too many for whatever reason … this is disaster! The ‘capital’ structure of the lender is upset; this calls into scrutiny the capitalization of all other lenders that are similarly situated. Uncertainty is rapid and corrosive, given time it widens into a self-amplifying spiral of insolvency. This is what occurred in 1929 and 2008 and what looks to be underway right this minute.

Compounding the problem, the marginal borrower is impossible to identify or for immediate institutional convenience is disregarded. The tiny leak with the potential to destroy the dike can be one of any (very large) number. Globalization has rendered the marginal agent opaque; official denial and central bank happy talk permits known problems to fester. The marginal borrower can be an individual or a firm, or a class like Chinese peer-to-peer lenders, Italian footwear manufacturers or Spanish residential real estate speculators and the banks that supply these with funds. Eventually, all of them together become marginal. Structured finance operates outside the reach of policy makers at the same time are tightly bound to all the others by way of swaps, corresponding- and exchange lenders, counterparty agreements, derivatives-based hedges and money markets. Like a flood, marginality propagates outward, with the ‘new’ marginal borrowers becoming major banks, dark money pools, bond- and derivatives market makers, national governments and foreign exchange. In any event, agents cannot be compelled to borrow and in a crisis refuse to do so. Insolvent, zombie-like walking dead firms which continue to borrow/lend in the aggregate are lethal to the regime: they can only offer the (fraudulent) appearance of a cure while delaying the inevitable reckoning. Accounts cannot be overdrawn indefinitely, it is impossible to borrow out of debt. “If something cannot go on forever, it will stop,” says economist Herbert Stein. No amount of marginal borrowers can rescue a system that is foundationally bankrupt.

… this is after hundreds of trillion$ have been borrowed around the world already. The simple fact of the trillions suggests the managers are inept and perhaps insane. Our debts have grown beyond human scale, even the billionaires all together cannot hope to retire them, in fact their borrowings have contributed significantly to the total. Along with their managers, these stupendous debts fade to irrelevance in the practical sense; they can never be repaid. They are empty claims against resources that have long since been converted into useless waste. Machines that are dependent upon credit for their very existence cannot repay, certainly not labor which is feeble; which is otherwise depreciated, subordinated and oversupplied.

This is all part of the current crisis, it may indeed be its entirety. Whether the markets are repricing (in)competence, (in)solvency, systemic bankruptcy or perhaps all of the above; it is too soon to tell.

Figure 1: What is our over-extracted world worth? The underlying problem is resource stripping and its consequences. If that is being priced in right now we are in big trouble. Chart by TFC Charts (click on for big). The current crisis could not be predicted as was the oil price plunge in 2014, but it was inevitable nevertheless. Our economy requires cheap oil to run but the cheaper oil is exhausted, what remains is unaffordable. Low cost credit has offered the (fraudulent) appearance of a cure … but it has only delayed the inevitable reckoning.

A few years ago, the oil price that triggered crises was over $100 per barrel. We have been creeping toward a crisis for the past several months at $80 per barrel. Time and waste leave us less wealthy than we pretend to be …

Figure 2: Compare the likely crisis price suggested a few months ago. We clearly cannot afford $75 oil, higher prices are out of reach. At the same time, the drillers cannot stay in business selling their product below cost. What is common = access to credit which turns out to be the means by which resources are allocated. The customers are broke.

“Take an online survey and answer all your own questions!”

Knarf plays the Doomer Blues

https://image.freepik.com/free-icon/musical-notes-symbols_318-29778.jpg

Support the Diner
Search the Diner
Surveys & Podcasts

NEW SURVEY

Renewable Energy

VISIT AND FOLLOW US ON DINER SOUNDCLOUD

" As a daily reader of all of the doomsday blogs, e.g. the Diner, Nature Bats Last, Zerohedge, Scribbler, etc… I must say that I most look forward to your “off the microphone” rants. Your analysis, insights, and conclusions are always logical, well supported, and clearly articulated – a trifecta not frequently achieved."- Joe D
Archives
Global Diners

View Full Diner Stats

Global Population Stats

Enter a Country Name for full Population & Demographic Statistics

Lake Mead Watch

http://si.wsj.net/public/resources/images/NA-BX686_LakeMe_G_20130816175615.jpg

loading

Inside the Diner

Due to an ongoing conversation over on Knarf's Knewz, I was forced to break this newz before it's fully Ready for Prime Time.The Dooms...

Quote from: RE on Today at 06:23:32 AMQuote from: Eddie on Today at 06:10:15 AMYou're all talk.Not true.  I already have a Food Sharing and Gifting program going here in my Commun...

Quote from: Eddie on Today at 06:10:15 AMYou're all talk.Not true.  I already have a Food Sharing and Gifting program going here in my Community.  That's the Top Secret project.  What I am currently building is ...

Quote from: RE on Today at 05:53:13 AMQuote from: Eddie on Today at 05:46:08 AMYour characterization of me as an Ayn Rand or one of her one-dimensional characters says way more about you a...

Diner Twitter feed

Knarf’s Knewz

Quote from: RE on Today at 06:23:32 AMQuote from: [...]

Quote from: Eddie on Today at 06:10:15 AMYou' [...]

Quote from: RE on Today at 05:53:13 AMQuote from: [...]

Quote from: knarf on Today at 05:12:45 AMn mid-Jun [...]

Quote from: Eddie on Today at 05:46:08 AMYour char [...]

Diner Newz Feeds
  • Surly
  • Agelbert
  • Knarf
  • Golden Oxen
  • Frostbite Falls

Doomstead Diner Daily June 24The Diner Daily is av [...]

Quote from: Surly1 on June 23, 2019, 07:35:17 PMI [...]

Quote from: Surly1 on June 23, 2019, 07:07:08 PMTh [...]

Quote from: Eddie on June 23, 2019, 08:42:30 AMQuo [...]

Quote from: K-Dog on June 23, 2019, 03:19:21 PMCog [...]

Quote from: UnhingedBecauseLucid on March 18, 2019 [...]

CleanTechnicaSupport CleanTechnica’s work via dona [...]

QuoteThe FACT that the current incredibly STUPID e [...]

Quote from: RE on Today at 06:23:32 AMQuote from: [...]

Quote from: Eddie on Today at 06:10:15 AMYou' [...]

Quote from: RE on Today at 05:53:13 AMQuote from: [...]

Quote from: knarf on Today at 05:12:45 AMn mid-Jun [...]

Quote from: Eddie on Today at 05:46:08 AMYour char [...]

In November 2018, a 66-year-old man named Tommy Th [...]

Dear Readers, Things in Venezuela are getting mess [...]

Quote from: Golden Oxen on April 27, 2019, 01:49:4 [...]

Quote from: Eddie on April 25, 2019, 09:09:46 AMQu [...]

Quote from: Eddie on June 23, 2019, 07:06:14 AMYou [...]

You're gonna have to hire an assistant for th [...]

Go to Global Collapse Issues to read more or subsc [...]

Alternate Perspectives
  • Two Ice Floes
  • Jumping Jack Flash
  • From Filmers to Farmers

The Brainwashing of a Nation by Daniel Greenfield via Sultan Knish blog Image by ElisaRiva from Pixa [...]

A Window Into Our World By Cognitive Dissonance   Every year during the early spring awakening I qui [...]

Deaf, Dumb and Blind Who Is Better at Conceding They Are Wrong - Conservative or Liberal Extremists? [...]

The Apology: From baby boomers to the handicapped generations. by David Holmgren Re-posted from Holm [...]

Society Is Made Of Narrative. Realizing This Is Awakening From The Matrix. By Caitlin Johnstone Orig [...]

Event Update For 2019-06-22http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-21http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-20http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-19http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2019-06-18http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

MbS, the personification of the age-old pre-revolutionary scenario in which an expiring regime attem [...]

Daily Doom Photo

man-watching-tv

Sustainability
  • Peak Surfer
  • SUN
  • Transition Voice

Riding the Whale’s Tail"Our biological and cultural blinders are equal in every way to those worn by Material Evangeli [...]

Carbon in the Dale"Rather than put back the coal mines, we should seriously think about putting back the forests. [...]

Farewell to the Fishes"Ninety percent of the world’s marine fish stocks are now fully exploited, overexploited or dep [...]

Climate Change Reversal at Whole Village"During the burn people were taken around the farm to see the 40,000+ trees we have planted, ou [...]

Pitching Seaweed Straws"Kelp-based straws will beat the price of paper straw competitors later this year and could und [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

Why has it taken so long for the climate movement to accomplish so little? And how can we do better [...]

To fight climate change, you need to get the world off of fossil fuels. And to do that, you need to [...]

Americans are good on the "thoughts and prayers" thing. Also not so bad about digging in f [...]

In the echo-sphere of political punditry consensus forms rapidly, gels, and then, in short order…cal [...]

Discussions with figures from Noam Chomsky and Peter Senge to Thich Nhat Hanh and the Dalai Lama off [...]

Top Commentariats
  • Our Finite World
  • Economic Undertow

The individual areas seem to do a fair amount of self-rule. Perhaps these can hold. [...]

Part of the problem is all of the rules requiring higher mileage and less pollution. Get rid of thes [...]

"The [UK] car industry suffered its worst month in more than six and a half years in May as a s [...]

"A steady rise in employment has been one of the eurozone’s big successes over the past six yea [...]

Hi Steve. I recently found what I believe is a little gem, and I'm quite confident you'd a [...]

The Federal Reserve is thinking about capping yields? I don't know how long TPTB can keep this [...]

As some one who has spent years trying to figure out what the limits to growth are. let me say that [...]

Peak oil definitely happened for gods sake. Just because it isn't mad max right now is no indic [...]

@Volvo - KMO says he made some life choices he regrets. Not sure what they were. And I don't th [...]

RE Economics

Going Cashless

Off the keyboard of RE Follow us on Twitter @doomstead666...

Simplifying the Final Countdown

Off the keyboard of RE Follow us on Twitter @doomstead666...

Bond Market Collapse and the Banning of Cash

Off the microphone of RE Follow us on Twitter @doomstead666...

Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

Off the Keyboard of RE Follow us on Twitter @doomstead666...

Kurrency Kollapse: To Print or Not To Print?

Off the microphone of RE Follow us on Twitter @doomstead666...

SWISSIE CAPITULATION!

Off the microphone of RE Follow us on Twitter @doomstead666...

Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

Off the keyboard of RE Follow us on Twitter @doomstead666...

Merry Doomy Christmas

Off the keyboard of RE Follow us on Twitter @doomstead666...

Peak Customers: The Final Liquidation Sale

Off the keyboard of RE Follow us on Twitter @doomstead666...

Collapse Fiction
Useful Links
Technical Journals

The South Atlantic Ocean is currently undergoing significant alterations due to climate change. This [...]

This paper assessed the variability and projected trends of solar irradiance and temperature in the [...]

Following the impact of droughts witnessed during the last decade there is an urgent need to develop [...]

A “nadir-only” framework of the radiometric intercomparison of multispectral sensors usi [...]

A fuzzy random conditional value-at-risk-based linear programming (FCVLP) model was proposed in this [...]

Follow on our http://www.doomsteaddiner.net/forum/