Mayhem

It Only Gets Worse

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Published on the Economic Undertow on September 20, 2016

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Carl von Clausewitz famously remarked, “War is the continuation of policy by other means … ” What do the experts at the New York Times say?

Syria’s Paradox: Why the War Only Ever Seems to Get Worse

 

 

 

 

 

What is true for Syria is true for everything else. The economy only ever seems to get worse. Business and trade only ever seem to get worse. The state of the environment is flat-out getting worse no ‘seems to’ about it; much more of our precious industrial ‘prosperity’ and our world will be reduced to barren rocks surrounded by raging oceans of poisonous slime, an ‘out-world’ from a sci-fi novel. Our social- and political discourse only ever seems to get worse … our media … our public services. In our rapidly unfolding Age of Less, ‘Worse’ is the corollary. Heaven help us when we get to worst, we’ll be looking back at the Syria war as a kind of Golden Age.

Experts on civil wars say there are several reasons Syria is
“a really, really tough case” that defies historical parallels.

 

 

 

 

 

 

There is a basic fact about Syria’s civil war that never seems to change: It frustrates any attempt at resolution.

Despite many offensives, peace conferences and foreign interventions, including this week’s Turkish incursion into a border town, the only needle that ever seems to move is the one measuring the suffering of Syrians — which only worsens.

Academic research on civil wars, taken together, reveals why. The average such conflict now lasts about a decade, twice as long as Syria’s so far. But there are a handful of factors that can make them longer, more violent and harder to stop. Virtually all are present in Syria.

Many stem from foreign interventions that were intended to end the war but have instead entrenched it in a stalemate in which violence is self-reinforcing and the normal avenues for peace are all closed.

The fact that the underlying battle is multiparty rather than two-sided also works against resolution.

 

 

 

 

 

The experts’ conclusion in twenty-five words or less: there is indeed a war, it’s a big one, it has many adversaries arrayed against each other and it is likely to get worse. The subtext is ‘lucky for us Syria is safely out of sight’. This is the same subtext behind the endless barrage of marketing for the Pentagon and its minions. “Thank you for your service,” means ‘thanks for starting and fighting your endless, stupid wars somewhere far away.’

The experts never mention resource depletion and the battle over what little remains. In the conversation about wars that get worse, anyone bringing up limits is a Luddite consigning the human race to living in caves

Other experts weigh in … offering more of the same. It turns out experts are one of our corrosive, undermining problems; there are too many of them, they intermediate everything, or rather they insert their all-knowing intermediation into every aspect of our lives. Our economies are managed by bankers and economists, the environment by business executives and process engineers, foreign policy by think tanks and shadowy, unaccountable ‘intelligence’ agencies, by diplomats and generals and their staffs of sub-contracted experts … sorcerers’ apprentices and their armies of mop-slaves.

The professionals always seem to begin well, there are reasons why they become experts in the first place. Soon enough, they falter and then they are stuck; they have done their worst already they have nothing more to offer. All that remains is for them to throw up their hands and ‘rationalize’ which is expert jargon for ‘lie’. “Thank me for my service, suckers!”

The Syria war like all the others is the product of experts, their prescription is always more of what has failed already. According to them the war in Syria is about the war in Syria and nothing else. Obviously the experts cannot conclude they- or their fellows are at fault because doing so would call into question the entire enterprise. Expertise pursues it own internal logic, the perpetuation of the status quo in a kind of self- suspending animation until the problem — or the experts themselves — fade away, lose interest, become senile and die of old age.

Expertise is a form of marketing. The experts’ job is to craft narrative myths that ‘sell’ American-style material progress: more and more modernity, more cars and diversions, more real estate, consumer goods and services … Experts are actors, their first job is to conform to public expectations, ‘as seen on TV”. By so doing, the expert fixes his place within the culture while the materialist culture’s supremacy is reinforced at the same time.

Given the relationship between war and politics one would think the experts would put the players into some sort of political context. After all, politics is the art of resolution. Instead, they dance around the subject or leave it out of the conversation altogether as if it is distasteful. Politics is the dog that doesn’t bark; a Vatican convocation where Jesus is never mentioned; dying patients surrounded by doctors who cannot bring themselves to make a diagnosis. Part of the confusion is ‘the fog of war’; participants have little- or no idea what is going on right in front of them. Analysts have perspective that comes with distance but must rely on second- and third hand material. What appears in the media including the social networks is public relations intended to serve business interests. The Syria war is among the first taking place in real time on Twitter and YouTube, untangling trends from the background noise and red herrings becomes a labor of the gods. There are endless, conflicting ‘official versions’ layered with wishful thinking and the purposefully malign indifference of corporate marketing.

Meanwhile, around the corner, over the horizon and through the forest of trees lurks reality and its invisible, entropic, smashing hand. Reality is never hard to see, but like the nameless horrors of H P Lovecraft, one must be able to bear looking at it. We never do, we’d rather look at the pretty pictures, instead:

This *simple* chart shows all states of hostility currently being played out on ’s territory

 

Nice color scheme by Charles Lister, a bona-fide Middle East Expert! Can a six-figure Defense Department hire be far off? Here is another version from CNN, they both say ‘there is a war in Syria’: Dudes, we know that already!

screen-shot-2016-09-07-at-7-17-26-pm

Figure 1: Syrian combatants tastefully arranged in a circle by CNN, Note the central position of Islamic State. The graphics restate the obvious — and nothing else. Meanwhile, experts are busy creating more problems, all of which require more ‘expert’ solutions.

 

Comparison of Combatants 1

Figure 2: click on the image or on this link to bring up the full-size version in a new tab, (.pdf alert). If this looks familiar, it should be, it’s been used previously, courtesy of economist Ha-Joon Chang.

The chart is more or less self-explanatory: to the side are the countries involved along with non-state actors or ‘interests’. The global superpowers are at the top with militants toward the bottom. In between are regional powers such as Iran and Israel, the ‘in-theater states’ including Turkey, and the ‘innocent bystanders’, Lebanon and Jordan. Excluded for arbitrary reasons are Libyans, Iranian Kurds, Palestinians and Yemenis. They are engaged in related struggles but not within the Syria-Iraq theater.

Across the top are categories; what the countries and interests intend to gain by fighting; the overall cost up to and including national bankruptcy; what the nation or group ‘sells’ or offers as blandishments to its subjects and others; the political system of the enterprise and what it envisions for Syria or other areas of control. The final category is each country’s economy … all the above formatted into a table that is viewable on the web page!

Comparing Combatants in Syria – Iraq Theater

 

 

COUNTRIES –

 

 

 

 

 

INTERESTS

 

 

WHAT THEY INTEND TO GAIN COST WHAT THEY OFFER GOVERNMENT: CURRENT | PROPOSED ECONOMY
USA Arms sales. To destabilize region to import consumption Operational expenses & loss of influence Transient tactical advantage for no one in particular Corporate plutocracy / None Capital destruction – consumption / Ponzi finance
EC – UK Arms sales, thwart militant attacks on the Continent Irrelevance; expanses related to managing migrant influx Homeland for migrants Corporate plutocracy / None Capital destruction – consumption / Ponzi finance
RUSSIA Arms sales, increased international prestige Bankruptcy of Russia Transient tactical advantages for Syrian – Assad government Single party police state ‘Tyrant on a stick’ (TOAS) / Single party police state (TOAS) Petro-state
IRAN Regional hegemony vs. Saudi Arabia, strategic advantage vs. Israel Bankruptcy of Iran Transient tactical advantages for Syrian – Assad government Sectarian dictatorship (TOAS) / Single party police state (TOAS) Petro-state
SAUDI ARABIA Regional hegemony vs. Iran Bankruptcy of Saudi Arabia, civil war Funds, weapons, political cover, tactical advantages for anti-Assad forces Sectarian monarchy (TOAS) / Single party police state Petro-state
QATAR Collaborator w/ junior partner of Saudi Arabia Bankruptcy of Qatar Funds for militants, ideological support Sectarian monarchy (TOAS) / Single party police state Petro-state
ISRAEL Destabilize rivals – neighbor states Unknown Nothing Republic trending toward single party police state / None Capital destruction – consumption / Ponzi finance
SYRIA Perpetual rule by hereditary tyrant Total destruction of the country ‘Stability myth’ Genocidal single party police state (TOAS) / Genocidal single party police state (TOAS) Post-peak oil petro-state / agrarian
IRAQ Control over territory and resources (by factions) Partition of the country of the country into three components & operational expenses Sectarian intolerance Effectively partitioned ‘IRAQ’ is an Iranian protectorate – fake republic / Various – None Petro-state(s)
TURKEY Organic fuel supply by way of a protectorate including Syria and Northern Iraq Bankruptcy of Turkey, civil war and partition Sanction for genocide (by way of proxies) Sectarian single party police state (TOAS) / Neo-Ottoman satrapy sectarian police state(s) Capital destruction – consumption / Ponzi finance
JORDAN Repulse jihadi militant inroads, resolve refugee crisis Operational and refugee management expenses Nothing Old-school constitutional monarch / None Capital destruction – consumption / Ponzi finance
LEBANON Repulse jihadi militant inroads, resolve refugee crisis Political instability, refugee management expenses Nothing Quasi- republic (see Hezbollah) / None Capital destruction – consumption / Ponzi finance
ISLAMIC STATE Control fuel supply in Syria – Northern Iraq (for Turkey) Destruction of its basis of support ‘Fake’ political – religious legitimacy Warlord on a stick | ‘Sharia’ type warlord state Outright theft
NON-ISIS JIHADIS, FSA Replace current Syrian government (acting for Turkey, KSA, US, Qatar) Destruction of its basis of popular support Nothing Warlord(s) on a stick | ‘Sharia’ type warlord state Proxies of external powers w/ external funding
HEZBOLLAH Become Shia sectarian successor to Assad’s ‘Baathist’ regime in Syria: (Iranian proxy) Severe manpower losses, loss of credibility leading to the destruction of the organization ‘Security myth’ Sectarian single party police state ex-Lebanese Republic (TOAS) / Sectarian police state (TOAS) External funding by Iran
SYRIAN KURD Autonomy within a Syrian federal republic framework Operational expenses, subject to genocide by Turkish proxies Self-determination, womens’ rights, anti-jihadi secular government Modified self-rule / To be determined Agrarian – smuggling
IRAQI KURD Independent Kurdish state Operational- and refugee management expenses Anti-jihadi secular redoubt Hereditary duopoly, pan-Kurdish nationalist / possible amalgamation with other Kurdish states Petro-state
TURKISH KURD Political legitimacy within framework of Turkish constitution Operational expenses, political marginalizatin self-determination within framework of Turkish constitution Modified self-rule / Call for independence under certain circumstances (see below) Agrarian – smuggling

NOTE: ‘Government current / proposed’ lists the countries’ governments along with what they would impose on the areas where they operate.

A glance at the chart makes it clear why the experts avoid politics … and why end of the Syria war remains out of reach. Except for the Kurds in Syria and Turkey, also Lebanon, Jordan and Israel there are no politics at all, they have either failed or been swept aside. What remains are tactics and leverage intended to gain transient advantages; administrative overlordship by whatever means come to hand.

Of the seventeen state and non-state actors in the theater, ten are single party police states with personality cults erected around their aggressive, paranoid leaderships. These are ‘Tyrants on a Stick’, (TOAS) named for the official portraits carried by weeping followers at military parades. These Dear Leaders live like termite queens in impenitent splendor; their feet never touch the ground, they hear only what pleases them or else their (ex-)experts are taken out and … well, you know! Meanwhile, the business bloat-ocracies of the west are just as corrupt, their leadership just as isolated. They are concerned only with finding greater fools and maintaining the flows of credit- and resources toward themselves.

Tyrants rely on experts because they cannot trust anyone else: in a real democracy, the public decides to go to war … or perhaps not. They might decide the bosses have overstepped their bounds or are incompetent. In a police state, the expert reaches for his calculator, the boss nods and the yes-men go forth to announce the decision and break heads. In a tyranny the leader thinks himself better than his public because he has stolen power from them. The power itself is evidence of the tyrant’s capability: that the thief is smarter than his victims. In a democracy the people are smarter than the leaders, if nothing else they are more in touch with reality because they are not insulated from it. The people save the leaders from their vanities and those of their lackeys. In a tyranny there is no restraint on the bosses, as a consequence they are always one misstep from disaster.

This is why the Kurds are succeeding … without powerful patrons or great wealth, without a country to call their own or much in the way of an economy. By the accident of history and an abundance of good sense they’ve taken advantage of zero-cost resources that are spurned by the others or are useless to them; the inclusion and participation of women in their national project and bottom-up decision making. They know their neighbors are out to steal from them or murder them all; that their own leaders would be killed or thrown into prison. They have had to decentralize to survive, to push decision making down the ladder of authority then cut off the top. By doing so the Kurds have saved themselves from the tyranny of experts and self-centric malfeasance that weighs down their adversaries …

Like everything else in the West, politics has been hollowed out, turned into a ‘Punch vs. Judy’ spectacle that plays out in the media. Small-d-democracy is given lip service and nothing more, all the important decisions are made out of sight by ‘others’: as George Carlin famously remarked, “It’s a club and you aren’t in it.” Our representative system has devolved into a shopping network for cartels. Because politics are conversations intended to build consensus and resolve disputes they are an anathema to the tycoons and the system that enables them. Consensus cannot be compelled from the top only apathy and a grudging acceptance. Allowing the citizens their own initiatives is dangerous, they might balk at taking on the tycoons’ obligations. This would leave the tycoons to meet the obligations themselves, they would all go broke! The strategy is for the bosses to trivialize everything within reach, to boil away the character of resolution leaving a scrim of incomprehensible noise. The current US election campaign is a perfect example: billions are spent on marketing with winner certain to be ‘none of the above’.

Clausewitz could not have imagined war as being ‘business by other means’. There is also ‘war as the means to murder’ which would have been unthinkable to the bourgeois Prussian aristocrat, yet we have it. A drilldown into the Syria war reveals American meddling for short-term business gains from the beginning, expanding now to include the Russians. The intent on every side — except for the Kurds in Turkey and Syria — is to make money. When war is good for business — as the Middle East wars are for the Pentagon — there are few- if any incentives to end it.

Ciao, Britannia!

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Published on the Economic Undertow on June 8, 2016

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Triangle of Doom 062516

Figure 1: Chart by TFC Chartz (click for big): It’s called the Triangle of Doom for a reason, carried through to the end, no outcome is possible other than demise of the automobile industry and its petroleum dependencies. Since 2000, there have been a series of petroleum price surges intended to meet the industry’s exorbitant extraction costs. Each attempt has failed as credit conditions outside the fuel markets deteriorated. As can be seen, many of the credit failures originated within the European Union. These fails, credit shocks and price retrenchments are to some degree, a product of EU structural shortcomings. Now, the British have voted to leave the EU, panic ensues: (NY Times).

‘Brexit’ Sets Off a Cascade of Aftershocks …

 

 

 

Maybe the future does not include flying electric cars after all.

By Steven Erlanger

 

 

 

 

Britain’s startling decision to pull out of the European Union set off a cascade of aftershocks on Friday, costing Prime Minister David Cameron his job, plunging the financial markets into turmoil and leaving the country’s future in doubt. The decisive win by the “Leave” campaign exposed deep divides: young versus old, urban versus rural, Scotland versus England. The recriminations flew fast, not least at Mr. Cameron, who had made the decision to call the referendum on membership in the bloc to manage a rebellion in his own Conservative Party, only to have it destroy his government and tarnish his legacy.

 

 

 

So it goes. There is a huge reaction and certainly more to come as markets digest what has happened … and what is certain to come. In the end it is very simple …

The Brexit vote was inevitable. Britain had no choice but to jump in the lifeboat and abandon the sinking EU Ponzi scheme.

Will it succeed? Probably not but it has to try. If not England it would have been another big European country, perhaps Italy as the first to abandon the scheme. The rest have to wait … but not for long. England’s alternative would be to devolve in a few short years to a petty euro protectorate like Greece or Ukraine begging Russia for fuel and Frankfurt for loans and forbearance. At issue is UK’s massive (£6+ trillion) external balance sheet, its banking liabilities vs. the dubious quality of its assets.

Brexit states unequivocally the City of London is insolvent; at the the point where it cannot finance itself any longer. This is the reason why the establishment rolled out the Brexit referendum in the first place, to save the banks. Think of Brexit as a bailout: the small will pay for the excesses of the great. The City certainly cannot finance the rest of the country and its massive and non-remunerative fleet of gas-guzzling automobiles; something has to give. There are 31.5 million cars in a country of 64 million humans, each car requires the resources of 20 persons. UK staggers under the equivalent human population of 630 millions on a small island … the bulk of those being dented, metal deadbeats. Talk about immigration, no wonder the economy struggles.

The automobiles and their need for fuel imports and infrastructure paid for w/ endless credit issue have bankrupted the entire West, not just England. In Europe: the euro = gasoline. For once — maybe not realizing exactly why and not being entirely happy about it — the British have voted against their cars.

It’s about time!

Battleship

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Published on the Economic Undertow on May 2, 2016

 

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As JP Morgan famously remarked, markets fluctuate; its impossible at any particular moment to pick trends out of the background noise. Nobody can say for sure whether tops or bottoms are in. Trends only reveal themselves in the rear-view mirror, even as they are obscured by non-stop advertising campaigns and PR. By the time a trend is clear it is usually too late for investors — otherwise known as ‘fools in the market’ — to do anything about it, the free lunch is already eaten and the punch bowl taken away …

Triangle of Doom 042916

Figure 1: Is the bottom in? Chart by TFC Charts (click for big). Oil prices have been fluctuating higher in futures’ markets but nobody can be sure whether prices will rise from here or head back for the cellar.

With current prices at- or below the cost of extraction, drillers look to survive by reaching for the plastic, offering themselves and their properties as collateral. This is a medium-sized problem for drillers: along with all the other industries they have been borrowing from the beginning of time. In the good ol’ days they borrowed less, now they borrow more while praying for the trend change that brings that punch bowl back.

Ordinarily, the oil drillers’ customers step forward with their own borrowed funds to retire the drillers’ loans. Customers don’t simply sign over the money to the drillers, they over-pay for drillers’ products. This is what the term, ‘sustainable business model’ actually means; customers pay higher prices for successive rounds of cheaper-to-produce goods; the margin is used by firms for debt service and the retirement of maturing loans. Naturally, as each round of financing is rolled over the firms borrow more. Some of this money flows to executives, by way of this process CEOs become tycoons. Economists gain as well because every increase in borrowing represents GDP growth they can take credit for.

Fast-forward to the present: goods are unaffordably expensive to produce, emptied-out customers are no longer able to over-pay. They have nothing to offer as collateral for loans but their (near worthless) labor and frantic urge to Waste as seen on TV. Because the customers are unable to borrow, they cannot benefit the drillers, the drillers must borrow for themselves and pray …

Because the ‘waste as collateral’ concept is absurd/ridiculous, both the customers’ AND the drillers’ loans are effectively unsecured. This leaves a maturity mismatch between drillers and their customers. Firms are borrowing tens- of billions of dollars even as their customers are standing in line at the food bank. Customers cannot borrow => they cannot overpay => prices crash as drillers have no place to put unsold crude => whatever collateral the driller offers becomes worthless. The customers stiff their lenders => there is nothing for lenders to seize. At the end of the day, drillers, customers and lenders are all ruined … this dynamic is playing out in real time, right this minute, under everyone’s nose, all over our Great Round World.

This is perfect if unremarkable sense; conditions within oil industry finance must reflect resource depletion and it is clear that they do. The non-stop PR campaigns touting driller technology, efficiency and innovation are irrelevant, none of these things touch the customer. Losses cannot be made up with volume. Real returns, solvency and cash flows matter; when customers cannot gain the means to buy fuel industry products there is ultimately no more fuel industry. Redistribution, or giving customers the means to buy fuel is an immediate-term (non)solution. Some expensive time is borrowed until the customers’ financing is exhausted. Because resource waste offers no tangible returns to the waster; his credit will eventually run out, he will waste no more.

Meanwhile, the drillers must borrow or go out of business while lenders hold their noses and lend! The alternative is an output crash; we are caught between a looming crash and conditions that are pregnant with crash possibilities. Credit access becomes a matter of desperate necessity with every borrowed dollar lodged against the lenders’ deteriorating balance sheets. At the twilight of the petroleum age, drillers survive by cannibalizing their bankers who in turn are becoming the global economic link under the greatest strain.

Giant finance firms preserve the illusion of system sufficiency by lending to each other. Self-pleasure here is deadly; the lenders have become zombies rotten with non-performing loans. Growth is stagnating, economies are falling into deflation, turning Japanese. The zombification of the banks becomes both the reason for- and the consequence of extraordinary monetary quackery: the intent is to goad finance into squeezing out every possible loan, to kick that can one more day while hoping for a miracle. For business as usual, there is no alternative: interest rates fall to zero- then negative, currencies depreciate, pensions are looted and depositors bailed in … we must endure these abuses or else! Everywhere in the Westernized world useless industries and sectors are propped up regardless of consequences. Deflation results from the longer-term inability of billions of end-users to gain purchasing power or returns on capital from a mechanized regime that is designed from the ground up to annihilate capital.

No capital, no purchasing power, no problem; we’ve got iPhones, instead!

Blows are starting to rain down on the technology sector. Instead of saving our bacon as its promoters endlessly insist, the industry is having problems saving itself:

AAPL

Figure 2: It isn’t just the energy sector: looking at this pretty chart (Yahoo Finance, click for big): Apple’s decline looks to be part of a longer-running trend rather than a fluctuation. The firm reported earnings, which were terrible; the company is being punished for its customers’ misbehavior.

Rotten Apple: Stock plunges 8% on earnings, revenue miss

Everett Rosenfeld

Apple reported quarterly earnings and revenue that missed analysts’ estimates on Tuesday, and its guidance for the current quarter also fell shy of expectations.

The tech giant said it saw fiscal second-quarter earnings of $1.90 per diluted share on $50.56 billion in revenue. Wall Street expected Apple to report earnings of about $2 a share on $51.97 billion in revenue, according to a consensus estimate from Thomson Reuters.

That revenue figure was a roughly 13 percent decline against $58.01 billion in the comparable year-ago period — representing the first year-over-year quarterly sales drop since 2003.

Shares in the company fell more than 8 percent in after-hours trading, erasing more than $46 billion in market cap. That after-hours loss is greater than the market cap of 391 of the S&P 500 companies.

 

 

AAPL is not some disposable startup at the end of a cul-de-sac somewhere in suburbia, it is (or was) the world’s largest company by capitalization. It is the technology sector’s tech company. When people hear the word ‘progress’, chances are they think robots and iPhones. Yet, markets are becoming unfriendly for the behemoth: its shares presently lurk at a support level, that if breached, would indicate a decline to $55 or so … from $125 per share a little over a year ago. In other words, a slump that mimics the fuel price crash.

This is very serious business. Stockholders are a who’s who of finance: pension funds, sovereign wealth funds, central banks, private equity and hedge funds. Shares are collateral for billions in debt that has been used for stock buy-backs and mergers. The entire tech investment ecology is at risk. Damage from a sixty-percent-ish price decline would be severe. Leverage against the shares applied backward compounds the damage just as it expands returns on rising prices; this puts more pressure on the hapless lenders reeling from their debacle in the oil patch. It isn’t just the money: against a backdrop of hand-wringing and denial, the science fiction narrative of a future running on innovation (and sharp business practices) is falling apart.

Ironically, Apple is constrained by a cleverness shortage: successive iterations of iWhatevers have become predictable variations on now-familiar themes. Offering customers novelty in modest increments at stratospheric prices has consequences; buyers are skipping over the brand and buying cheaper look-alikes. Commodity ‘clone’ products represent the race to the price basement, they can’t generate the marginal returns or snazzy narratives that support inflated share prices. In this sense, Apple is a victim of its own success, it must either compete going forward with its imitators on price or invent the next great must-have-at-all-cost consumer product that will re-establish its position of leadership in the technology firmament.

This is what AAPL has come up with …

bmwi3-800x448

So much for redemptive innovation and technology … Apple aims to reinvent the Dodge Caravan. It turns out all roads lead to more and more roads. Why not battleships, instead?

Battleship1

HMS Dreadnought, a brilliant technological achievement in 1906, it was rendered obsolete before its keel was laid by the airplane.

Apple cannot be serious! In choosing the car, AAPL lurches in the direction of the hapless Japanese, who make brilliant cars (made brilliant battleships) but cannot return value to the cars’ users (neither do battleships). The auto (battleship) industry is a subsidy hog, it twists in the wind even as it is on life support. By way of its actions, APPL admits its customers can no longer subsidize the company and its lenders, it looks instead toward the government (just like battleship manufacturers), to gorge at the public trough.

ATSLA1

Figure 3: TSLA, another investors’ darling, (click for big). Strapped customers can afford the cars by bellying up to their friendly sub-prime auto lender for eight-year loans. Even this absurd financing is inadequate without billions in additional subsidies. These in turn can only come from finance, the same industry under so much solvency pressure from resource depletion … resulting from over-reliance on cars (battleships).

And all for what end? Nobody connects the big picture dots behind the empty gestures; battleships, Teslas and iPhones are status symbols, worth little- or nothing outside their self-generating, hubristic narratives. “In the long run,” said Keynes, “we are all dead”, it seems certain that we have to humiliate ourselves first.

A Look to 2016

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Published on the Economic Undertow on January 4, 2016

No doubt a lot of people are happy to see 2015 in the rear view mirror: refugees, their ‘hosts’ in Europe, bond investors, frackers and Brazilians, it is likely that 2016 will bring more of the same, challenges and idiocy … and a ray of light!

— Energy deflation to take hold in 2016

Triangle of Doom 123115

Figure 1 (above): The $64 trillion dollar question: ‘Is energy deflation under way’? If it is, get ready. It will be the biggest story of 2016 and years decades to come. (TFC Charts, click for big)

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Energy deflation is similar to Irving Fisher’s debt deflation: a premium or ‘scarcity rent’ is attached to the price of crude. This manifests itself as a reduction in customer borrowing power; the price of crude cannot fall fast enough to offset the ballooning scarcity rent! In energy deflation, fuel prices are always too high for customers while the same prices are too low the drillers. The outcome is a vicious cycle: increased scarcity rent and self-compounding fuel shortages => greater scarcity rent!

If oil prices happen to rise for any reason — such as a war between Saudi Arabia and Iran — the scarcity rent doesn’t go away, the entire combined price becomes even less affordable causing the price to crash again.

America’s waste-based economic infrastructure has been built assuming endless supply of sub- $20 crude into perpetuity. The inflated prices the world has endured since the turn of the millennium have left this ‘investment’ hopelessly underwater. The prices have also done a number on the credit-worthiness of ordinary customers. This is why declining prices for crude oil have so far been unable to reboot economic growth … current lower prices are still too high to offer much in the way of (debt) relief. This means more price drops to come; more driller pain.

Right now it is hard to tell whether the current ‘action’ in crude- and other markets is a trading phenomenon or something more, but we are soon to find out one way or the other. The inevitable outcome of energy deflation is the supply of fuel shrinking to the level that can be supported by productive, remunerative use … rather than the current wasteful level supported by access to credit. Because remunerative use of our fuel supply is a (very) modest fraction of overall consumption … a modest fraction of our current fuel supply is what we will be able to afford.
 

— Dollar Preference emerges as an economic factor in 2016

fredgraph velocity

Figure 2: Hoarding much? M2 money velocity (chart by St. Louis Federal Reserve). While the actual supply of M2 funds is increasing, the volume of transaction taking place with those funds has been shrinking (plummeting).

A component of energy deflation is the effect of constrained energy supply on money. When priced in crude, money — particularly dollars — have real worth (money never has value, otherwise it would never be spent). It turns out a very modest (flow) constraint has an out-sized effect on money-worth. Right now, dollars are exchanged on demand for a valuable physical good millions of times every single at gas stations around the world. Because of this exchange, the dollar can be considered a quasi-hard currency … similar to the way exchanging dollars for gold rendered the buck a hard currency during the early 1930s. What keeps the dollar somewhat ‘soft’ despite exchangeability has been the flood of fuel into markets and gas stations. There is no obvious reason to prefer dollars or make an effort to gain them vs. something else; little in the way of ‘scarcity rent’ to distort the worth of dollars.

Given the appearance of a fuel supply constraint and the scarcity rent, the perceived character of money shifts: dollars cease to be near-worthless proxies for commerce, becoming instead proxies for scarce and valuable fuel. They are then hoarded out of circulation … as is starting to take place around the world right this minute!

Commerce withers as the economic activity is reduced to currency arbitrage; trading different forms of money back and forth so es to gain the fuel ‘bargain’ dollars represent … This is what ‘dollar preference’ means: the buck is preferred to all other kinds of money because of its relationship to fuel.

The only way to escape the depression that results from this preference is to break the bond between dollars and petroleum the same way the Roosevelt administration severed the connection between dollars and gold in 1933. The US must ‘go off oil’ the same way it- and the rest of the world went off gold in the middle-1930s.

fredgraph-gasoline sales

Figure 3: Along with M2 velocity, gasoline sales have been declining. (chart by St. Louis Federal Reserve). When customer are broke — or tight-fisted — they don’t buy gas. Low prices can’t fix broke.

— The Kurds will destroy the Islamic State in Syria in early 2016.

The sharp decline in fuel prices since 2014 has severely dented the Islamic State which is not possessed of the material means of support: it has no economy to speak of, no industry, finance or organic credit. It must swap goods such as stolen fuel and antiquities with donor states by way of Turkey to gain materiel. Low oil prices means less funds to be spent on war-making, medical supplies and salaries.

Just days before Christmas, with little fuss and less warning, the Kurdish military force captured a vital road crossing over the Euphrates River, putting the Kurds astride ISIS supply lines and issuing the death-sentence for the group, (DW):

Syrian Kurds take strategic dam from ‘Islamic State’

 

 

 

 

 

An alliance of US-backed Syrian Kurdish and Arab rebels has taken a key dam on the Euphrates River from the so-called “Islamic State.” The alliance has pushed back “IS” from large swaths of territory.

The Syrian Democratic Forces (SDF), a rebel alliance that includes the powerful YPG Kurdish militia and Arab rebel groups, wrested control of the strategic Tishreen Dam from Islamic State on Saturday after making rapid advances south earlier this week, Kurdish media reported.

 

 

 

 

Tishrin 2

Figure 4: In war — as with finance — leverage matters: Tishrin dam on the Euphrates carries the highway from Jarabulus to Manbij- to points south and east including Raqqa and Mosul in Iraq. (Washington Post/Institute for the Study of War). Taking the dam (intact) and establishing a bridgehead on the western side of the Euphrates leaves the landlocked ISIS group at the mercy of the Kurds.

The road connection with Turkey is the only way in- or out of the Islamic State caliphate with Jarabulus-Manbij as the main thoroughfare. Leaders, recruiters, wounded fighters traveling to- and through Turkey, troop replacements from the rest of the Middle East and elsewhere, all ISIS military supplies must travel through this territory; trucks carrying purloined crude travel the other direction. As of now there is no scheduled airline service to/from anywhere in the Islamic State.

The group is responding to the existential threat by adopting a lifeboat strategy: upping efforts to organize in Libya and elsewhere in Africa. Stripped of its precious caliphate heartland and its leadership dead, captured or on the run, the group will lose relevance, becoming target practice for other ‘Brand X’ militant groups and Western commandos. In our current Islamic world without pity, every sign of weakness is an invitation to murder. At the same time, ISIS ‘threat’ will be unmasked as to a large degree a US-media creation, a fashionable ‘flavor of the month’; the ‘New al-Qaeda’ (as opposed to ‘Classic’ version), a militarily inept criminal group with violent tendencies but little else; an instrument to mold US public opinion into an appropriately warlike form.

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Figure 5: Syrian zones of control along with gains by Kurdish forces since November, 2015. Islamic State supply lines extend through the area claimed by Turkey as a ‘safe zone’. The weight of strategic necessity draws the Kurds toward Manbij and al-Bab. When these towns are captured the rout will be on. The only surprise will be how quickly the IS group collapses. It will be entertaining to watch the group’s ’emirs’ on YouTube in women’s clothes filter through Kurdish territories toward Turkey in small groups … and being found out; to see them jumping beardlessly into dented Toyota pickup trucks to race like rats across the countryside in every direction looking for a way out.

Fleeing to Iraq offers no hope of escape: there are Kurds in Iraq, too. They all have very long memories …

That the Kurds aim to close Manbij gap is indicated by heavy fighting between Kurds and non-ISIS militants near Azaz and US bombing in and around Manbij. The tactical cat is already out of the bag, there is nothing to gain for the Kurds by waiting … unless they hope to lure more IS fighters into the town so that they might be killed more efficiently.

Islamic State’s primary supporter is Turkey, a Nato member with all the military bells and whistles. It might be expected for the Turks defend their interests and send troops across the border to push the Kurds back. Not this time: they won’t risk stepping into Syria or attacking on the ground without air superiority, something they threw away without thinking … by shooting down a Russian aircraft that was doing them no harm.

 

In early November, a combined Iraqi-Syrian Kurdish offensive in Northern Iraq dislodged ISIS forces from Sinjar town in Northern Iraq, at the same time Kurdish led Syrian Democratic Force (now QSD) overran al-Hawl a few miles away across the border in Syria. This action cut the road running between Raqqa and Mosul. In December, Iraqi security forces attacked the Islamic State in Ramadi, pushing them out of the center of the city.

 

The patient Kurds torment the Islamic State in the east, causing them to pull in what reserves they possess, then attack in force in the west. The ISIS group is left with many widely separate places that must be held at all cost including Raqqa, Ash Shaddadi, the oil-producing region near Deir al-Zour and Manbij. This means that none of these place will be held at all.

Turkish blunder and Russian air defense means a Kurdish ‘cordon sanitaire’ along the northern Syria border connecting all the Rojava cantons. This gives Kurds an influence greater than their numbers would suggest. Their control over supply flows would constrain other rebel groups such as al-Nusra. They would be seen to ‘pick winners’, which in turn offers a potential a way out of the endless auto-destructive warfare between the irreconcilable factions. Kurds have demonstrated the ability to coexist with Syrian Arab Army, to collaborate on the ground with Sunni, Arab even Turkmen groups which are otherwise represented by extra-Syrian jihadi extremists. Kurds’ military capability and success increasingly renders Assad irrelevant regardless of Russian commitments … of all the groups involved in Syria the Kurds come across as most reasonable … grown up.

Islamic State — like Ashley Madison — has had a nice little run. Time for them to go, so also:

— Turkish strongman, Recep Erdogan, man of many blunders, to be removed from office by military coup.

The war that keeps on giving in the Middle East reaches out to touch everyone in the region. No escape for Erdogan who has lost his sense of balance. His approach to winning over Kurdish hearts and minds in Turkey is not to embrace them but to shoot. The inevitable outcome: a civil war leading to a belligerent Kurdistan carved out of southeastern Turkey, something the Turkish military — which is charged with the actual winning over part — views with alarm. Who gets the axe? 20+ million Kurds or one deluded mad man in an ill-fitting suit?

Prior to Erdogan and AK Party, the powerful military was the final political arbiter in Turkey. Prime ministers served at the pleasure of the command. If the Generals believed official policy was destructive or would lead to war there was a coup … as in 1960, 1971 and 1980. Erdogan purged the Turkish command by way of kangaroo corruption trials; the army has been a Stepin Fetchit fool-for-Erdogan ever since.

Undertow observes the Turkish military to be resentful and awaiting its chance … Turkish generals understand the army cannot defeat Kurdish militants in urban settings without destroying the country. The key is what the Kurds do over the next few months; as they defeat ISIS, they also defeat Erdogan at the same time. The emergence of ‘protection brigades’ like YPG in Kurdish areas will force the military’s hand. This is the Kurds’ moment, they will not be denied. Erdogan will be ejected and replaced with a national council until new elections can be held. The clue to this outcome is the exposure of Erdogan involvement in the smuggled oil trade with Islamic State. Corruption being the instrument by which the military is purged, corruption will also be the hammer to dismantle the Erdogan regime.

— The China economy will crash … who could have guessed?

Ho hum, who cares! Old news … Oops. The China stock market is crashing already. What took it so long? The cause is excess Chinese leverage + dollar preference, the flight of dollars from China and the stripping Chinese finance of collateral. Turns out China is not a credit provider but depends on millions of Americans borrowing from Capital One to buy stinky China-Brand Poison Dog Food and lead-painted baby toys.

Collapse of China’s economy is ironically best evidence of dollar preference! Said economy has been built on a foundation of borrowed dollars; repayment outside of China makes the dollars which remain in China that much more desirable. The bidding of dollars in China means the unbidding of everything else: China RMB depreciates, real estate stumbles, stocks are socked, the only thing certain in China is smog.

— The ‘Widowmaker Trade’ finally unravels.

Shorting Japanese bonds is called ‘the widowmaker’ because the prices never plunge … even when fundamentals such as the vast overhang of debt-relative to GDP suggest they must. The short-sellers wind up being fed to the pigs … Endless monetization and balance sheet expansion by Bank of Japan and reluctance (good sense) of Japanese themselves to spend has pushed bond prices high as possible and kept them there. (Bond yields are inverse to prices; yields decline and prices increase.) Beginning this year, dollar preference will undermine whatever worth the bonds represent as the yen will (continue to) depreciate relative to the dollar. A problem is the massive position accumulated by BoJ. Should it becomes necessary to sell some of its bonds, the Bank will find there are few buyers because they have been elbowed out of the market by the BoJ!

— Migrants will flood into the US as Puerto Rico defaults leaving millions of US citizens with no means of support.

The island has overspent and cannot retire its loans. Its ambiguous administrative status within the United States and inept leadership does not offer much hope for ordinary Puerto Ricans who will make their way in great numbers to the mainland.

— War between Iran and Saudi Arabia …

Both countries are fighting an all-out proxy war in Iraq, Syria, Yemen and elsewhere; the recent execution of a Shiite imam by the Saudis has inflamed tensions to the breaking point. Reality rules: despite the status of both countries as (wealthy) petroleum suppliers, both countries are actually too poor to afford a general war, particularly one that might adversely affect exports … or propel energy deflation.

— Economic uncertainties will cause world- industry leaders to shelve ambitious plans to combat climate change

Instead: ‘Conservation by Other MeansTM‘ … Entropy always wins, always.

 

 

 

 

 

 

 

 

 

Climate Tactics Redux

climate_change_action_protest-537x356gc2reddit-logoOff the keyboard of Steve Ludlum

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Published on the Economic Undertow on December 10, 2015

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The most effective policy is to pay people to conserve: to offer a basic income conditioned to meeting conservation standards; to pay citizens who do not have children or own cars.

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Figure 1: CO2 content of the atmosphere increases, now over 400 ppm. NOAA and Scripps Institution of Oceanography (click on for big).

Right now thousands of the world’s bosses and their underlings are meeting in Paris in an attempt to wrangle some sort of global reduction of warming gases without actually doing anything, from CNN:

COP21 climate change summit: ‘Never have the stakes been so high’

Leaders of 150 nations, along with 40,000 delegates from 195 countries, are attending the conference, called COP21. COP stands for Conference of Parties, an annual forum to try to tackle climate change on a global political level.

The leaders have one mission: Agree on legally binding reductions in greenhouse gas emissions meant to hold global average temperatures short of a 2 degrees Celsius increase over pre-industrial global temperatures.

 

 

The cognitive dissonance is head-spinning: the delegates are flown first-class into Paris or in their countries’ official jetliners; they meander in long convoys of armored limousines from Five-star hotels to Michelin-rated restaurants where they are stuffed like geese destined to become foie gras. Eventually, the meetings end and the delegates jet off to other conferences elsewhere. Filling the otherwise boring interval between flights and limo rides is mindless pontificating and empty promises, all of it paid for by the same sorts of industries that emit most of the carbon pollution in the first place!

One would think bringing relief from what is becoming a runaway global meltdown would be an all-hands-on-deck emergency. You would be wrong … because the only action that will make a difference is to reconfigure our Westernized, garbage-producing society from the ground up, to ditch the gangrenous American Way and its polluting industries and their ‘products’ at once, starting with the hundreds of millions of worthless, non-remunerative automobiles. But the bosses and their minions are like children with their hands caught in the cookie jar; they refuse to give up anything even if it means total destruction. Their strategy is to end pollution is to wait until after everyone as become rich, countries will then be able to afford expensive pollution-remediation technology, that so far nobody has been able to produce.

We live in ridiculous times: bosses are working against themselves. The newer, less-polluting industries are subsidized by legacy versions. Because these standbys — such as coil-fired power stations — are critically important, they are given a continuous lease on life. The output of new and old added together increases ‘economic growth’ that cannot be willingly surrendered. As it is, when the growth fails to materialize on its own, every effort is made to gain it, regardless of consequences. Regardless of consequences. Regardless of consequences. regardless of consequences!

François Hollande’s 34 projects aimed at sealing France’s ‘industrial renaissance’

 

 

 

Driverless cars, nanotechnology and electric aeroplanes – François Hollande launches 34 projects aimed at sealing France’s “industrial renaissance”.

François Hollande denied he was returning France to a bygone age of state interventionism as he launched 34 state-aided projects aimed at sealing the country’s “industrial renaissance” – from futuristic fast trains to electric-powered satellites.

Unveiling the state-subsidised “industrial battle plans”, the French president insisted cutting edge research into “energy transition”, health and food and new technologies would help return France to its glorious industrial past in a globalised world.

Projects include plans to develop a car that can run 60 miles on two litres of fuel, electric aeroplanes, driverless cars, nanotechnology and “intelligent” fabrics, such as incubators made of a material that “cures” jaundice without medical intervention.

 

 

… and more pontification and empty promises. What the bosses refuse to understand is there will be the reduction of climate gases; this is an absolute certainty. The process appears to be underway, but not for the reasons often cited. Rather, it is resource constraints/peak oil, deleveraging, breakdown in credit infrastructure, bankruptcies and increases in poverty, ‘Conservation by Other MeansTM‘ whereby citizens are reduced to penury and are unable to afford resources in any form … no matter how low the prices go.

The fundamental problem of any emission-reduction strategy is the benefits and risks are in the future while costs accrue in the immediate present. It makes business sense to do nothing and push the costs into the future even though doing so causes them to multiply. An alternative strategy would be to de-emphasize the frontal assault on carbon and target other forms of pollution, by doing so mitigate carbon emissions indirectly. The idea is to break the main problem into smaller components and deal with them in detail. For instance there are multiple heat-trapping items besides carbon dioxide; there is soot, also nitrous oxides, hydrofluorocarbons, methane- and related, perfluorocarbons and sulfur hexafluoride: some of these emissions are controlled, others such as carbon gas emissions have been reduced to some degree within the US and Europe by shifting manufacturing to other countries.

  • The means to manage pollution are familiar and have been deployed successfully for decades, such as the regulatory requirement to produce and market diesel fuel without sulfur. This requirement is uncontroversial, there are no arguments against it. The means to produce sulfur-free fuel exist now and have been proven cost effective. Management is relatively simple because diesel fuel is the product of a relative handful of large, centralized industrial facilities which can be monitored. If the facilities don’t produce the correct diesel they are easily shut down. After the introduction of sulfur-free fuel there are visible benefits both in the form of lower fuel user costs and cleaner air, the diesel fuel producers’ margins aren’t effected.
  • Administrative and technical tools to limit emissions can be perfected against more commonplace forms of pollution. Over time these tools can be improved enough to be effective against carbon emitters.
  • As components of the climate problem are chipped away, the problem shrinks, it becomes underwhelming. The final reduction of the carbon problem becomes a relatively modest exercise.

There is low-hanging fruit to harvest by reducing smog in developing countries where it is considered to be a naturally occurring by-product of progress. As Americans and Europeans discovered in the 1950s, the costs of smog can be unbearable. Clean air and non-polluted water are not luxuries but a basic requirement for a functioning country.

Once there are visible pollution ‘victories’ — whatever they might be — it becomes easier to produce follow-on victories. Right now there is nothing to the climate dilemma but one administrative failure after another … managers are perceived to be inept and untrustworthy, each failure making it more difficult to take effective action in the future.

  • To do nothing is to allow resource depletion and energy deflation to sharply diminish fuel consumption which will in turn reduce the output all hydrocarbon fuels including coal. Mining coal on an industrial scale is no longer a pick-and-shovel operation but requires vast amounts of petroleum. The coal customer must bear these costs otherwise, the coal remains in the ground. Resource depletion is the default solution to climate problems and is underway. The only word one must be mindful of regarding depletion is cost.
  • The world-wide increase in suburbs, cars, developments, infrastructure, mines and oil wells ironically renders carbon fuels too costly and valuable to waste. Cost is a hard school, but accelerated development is the most likely cure for climate ills because it is the most certain. The conjecture that billions of tons of fossil fuel resources are immediately available for conversion into climate gases is false, these resources are not affordable in a world visibly going broke.

Kobane 1

Kobane, Syria, 2015. Image by AFP Photo/Bulent Kilic: default climate gas management in action. Pollution is not emitted from these buildings. Consider changing the economic paradigm and look to Syria rather than Europe or the United States as the model customer for alternative energy. The shattered country filled with desperately impoverished people is somehow supposed to afford expensive replacement prime movers when they can barely afford what they have now.

  • Climate scientists are overexposed in the media and elsewhere, they should step off the public stage. Questions about climate should be answered with a terse, “no comment”. Climate change should become a hip and trendy insider secret, accessible by only a privileged few. This is strictly a cynical marketing ploy as the businessmen would rush to fill the information vacuum with obvious, self-defeating lies. Events and word-of-mouth would do the heavy lifting. Ominous silence from the science community would be terrifying … perhaps enough to stir individual action.
  • All climate scientists should get rid of their cars and other polluting luxuries: drive them to the junkyards and crush them. The scientists are either serious or they are not. If not, why should anyone else be?
  • Focus on ‘other’ ordinary pollution culprits: ozone, nitrous oxides, volatile hydrocarbon photochemical smog, soot, methane and chlorofluorocarbon gases used in refrigeration, perfluorocarbons and sulfur hexafluoride.
  • The primary components of smog are particulates, nburned fuel and nitrous oxides. Ordinary smog is reduced by the use of catalytic converters and fuel management systems. The catalyst combusts the unburned fuel in the stream of engine exhaust gas. Unburned fuel, nitrous oxides in the presence of sunlight produces ozone which is poisonous to vegetation. This in turn accelerates the release of greenhouse gases from agriculture lands and forests. Attacking ozone is a tactic to attack carbon emissions indirectly.
  • There is a long history or successful management of photochemical smog sourced from vehicles, this effort should be expanded laterally … to countries without effective smog controls … and vertically … to include all kinds of engines. This includes fixed sources of ozone producing pollution such as generators and industrial prime movers; ship power plants and aircraft engines.
  • Catalytic converters should be retrofitted to older engines. Those that cannot be retrofitted should be removed from service and scrapped. A country-by-country approach or by way of the WTO, the setting of requirements for manufacturers; all of these approaches would be effective and non-controversial. Half of the world operates engines equipped with with these converters and does so at low cost, the use of them in the other half represents a manageable expense. The public benefit is cleaner air, fewer pollution-related health problems and less damage to agriculture. The private benefit is the sales of catalysts and replacement engines.
  • Soot- and soot-like particles are important components of climate change and is sourced from coal- and oil fired boilers, auto tire wear, brake- and clutch linings, diesel exhaust and from poorly performing gasoline engines, also from wood-burning and forest fires. Soot can be managed by using cleaner fuels, reducing open fires and using particulate traps on prime movers.
  • Eliminate chlorofluorocarbon refrigerants that are produced and sold in developing countries. CFC’s are potent greenhouse gases: production and sale of bootleg refrigerants is a marginal activity whose loss would not effect national economies at all. Unlike narcotics and other contraband, CFCs are produced only in a few large factories which can be shut down or modified to produce non-destructive products. What is needed is the administrative impulse to do so.
  • Institute a universal ban on 2-cycle engines including those which burn lubricating oil along with gasoline. Unburned oil and diesel fuel in the exhaust stream contaminates catalysts in catalytic converters; the poorly combusted oil is also a source of soot. There are four-cycle alternatives that do not burn lubricating oil, that allow the use of catalytic converters. A short phase-in period would retire or replace all 2-cycle engines including outdoor equipment, chain saws, scooters and mopeds.
  • Ban carburetors on gasoline engines. Carburetors are obsolete and generally only found in the US on smaller engines used off-highway such as portable generators and lawn mowers. Carburetors do not allow fuel to mix completely with the air and are a source of photochemical smog. Carburetors are replaceable with electronic fuel management systems such as fuel injection.
  • End the export trade in older vehicles and prime movers from the West to developing countries. Older vehicles are a large source of pollution. Ending this trade would be a step away from the proposal that every human is entitled to personal automobile transport without regards to the consequences. There are hundreds of millions of 2-cycle engines, carburetors and antiquated junkers in the world, removing them would make a noticeable difference at very low cost or even provide a return as the use of these things is subsidized.
  • End the trade in partially-refined and unblended low quality fuels including but not limited to leaded gasoline and high-sulfur diesel. There should be an industry agreement regarding fuel quality; an international standard to meet. This standard would cost a modest amount of money to implement; like CFCs, fuels are the products of a few large factories that can be managed.
  • Mandate the switch to low-sulfur fuels, gas scrubbers and catalytic converters on all ocean-going ships.
  • Mandate only up-to-date electric generating plants which use low-sulfur fuels and pollution reducing technology … all of which is readily available. A schedule to update power stations should be agreed to reduce then eliminate non-carbon waste gases … doing so would indirectly reduce the carbon emissions. Non-performing prime movers would be scrapped even those that are relatively new. A fifteen year old thermal plant that produces excess waste gases can be scrapped the same as the fifteen year old merchant ship that falls into the same non-performing category. ‘Forced updating’ is cost-free as the new plant uses less fuel than what it replaces.
  • Any sort of conservation policy is low-cost and highly effective. Conservation is the cheapest form of power generation as the plant not built represents billions of dollars of credit effectively earned. At the same time, tackling smog, particularly in developing countries, would demonstrate that managing carbon emissions is possible.
  • The most effective policy is to pay people to conserve: offer a basic income conditioned to meeting conservation standards; pay citizens who do not have children or own cars.
  • Eliminate fuel subsidies in all countries! This would accomplish a number of goals; a) reduce sovereign expenses in countries currently being bankrupted by their fuel subsidies; b) fuel consumption would be reduced along with auto fleets. This is because subsidies are more useful to those with sub-standard vehicles, c) carbon emissions would be indirectly reduced as there would be less fuel consumed: fuel pricing is a form of rationing.
  • Ending subsidies risks aggravating motorists. Drivers and their entitlements will have to be dealt with sooner or later, easy way or hard: the ongoing world-wide bailout of motorists is unaffordable. Once government gains any sort of ascendancy over drivers it becomes a far simpler matter to bring the hammer down on them with regards to climate gas emissions as well as fuel waste. The default strategy to constrain drivers is to do nothing. This leaves fuel shortages caused by drivers’ bankruptcy to do the dirty work.
  • Implement a world-wide moratorium on forest clear cutting. This is another easy fix that is practically cost free except to gangsters/Chinese who traffic in bootleg lumber. Commandos would earn their keep by killing loggers who would be otherwise paid not to log. Implementation would suggest a hard limit: this and no more! Forest removal and followup agricultural exploitation add only the smallest marginal additions to national GDP at the same time the costs to the environment and ability of the biosphere to absorb carbon are extraordinarily high. Deforestation by itself is a greenhouse gas emitter.
  • Implement and fund a world-wide program of re-forestation, wherever possible. The cost would be modest, the returns would be felt in areas where deforestation has led to degraded soils and watersheds. Reforestation can also be a jobs-providing platform.
  • It is important to reforest in ways that increase diversity making forests less susceptible to pests.
  • Implement more effective forest-fire fighting efforts. The costs would be modest measured against the increased climate costs of forest fires.
  • Put out coal mine- and coal seam fires. This is more low-hanging fruit.
  • End gas flaring from oil wells, refineries and terminals. Not only do the flares produce carbon gases but they are also tremendously destructive of insect life.
  • Eliminate ‘incidental’ methane leakage from oil and gas wells. Most oil and gas wells do not leak, those that do should be denied connection and ordered plugged immediately at drillers’ expense. Given a few such expensive duds, there would soon be no methane leaks from hydrocarbon wells.
  • Eliminate tax advantages and subsidies for fuel use in the US, the world’s greatest waster of fossil fuels. Accelerated depreciation, depletion allowances for oil reservoirs, income tax deductions for ‘business vehicle’ purchases, favorable royalty rates and low cost access to public lands, access roads by the state(s), borrow-and-spend highway subsidies, mortgage interest deduction, favorable treatment of capital gains, etc. Reforms would not cost anything but would reduce costs, the obstacle is politics.
  • Reformulate plastics so they degrade when exposed to sunlight or sea water. At the same time, place a ‘producer deposit’ — no different from the old-fashioned bottle deposit — on plastic factories for the packaging products they produce.
  • Reform agriculture. CAFO’s — concentrated animal feeding operations or very large feedlots — provide utility the CAFO operator only. These operations with their confined animals contaminate water supplies with animal waste; they also produce massive amounts of climate gases. Shutting down CAFO’s would be a low-cost tactic that indirectly reduces climate gas emissions.
  • Reform agriculture, make wider use of biochar.

 
Temperature trend 1

Figure 2: Warming scenarios from UNEP by way of Robert Scribbler: Efforts to reduce carbon emissions and warming look to fall short, leaving the world to heat up to massively destructive +4°C which would wipe out our agriculture.

  • End biofuel subsidies. Feeding cars and feeding humans together at the same time means that ultimately neither get fed. Biofuels are barely net-energy neutral and subsidy dependent, the beneficiaries are a handful of biofuel tycoons who would ‘lose’ with the elimination of subsidies.
  • Implement a world-wide moratorium on road building. This is yet another easy fix that is cost free, both it and the moratorium on logging are easily enforced by way of satellite surveillance. Another, related step is to eliminate World Bank subsidies for logging, road building, dam building and other environmentally destructive policies that also produce climate gases or reduce the ability of the biosphere to sequester carbon.
  • Electrify railroads and increase both freight and passenger capacity.
  • Ban land-grabbing in undeveloped countries by 3d parties. Much of the so-called ‘new’ farm land becomes biofuel plantations, cash crop industrial monocultures that produce climate gases.

The most effective step is to provide incentives — to pay people — to conserve. Subsidizing conservation provides a direct capital return on investment that remains with the recipient. Subsidizing consumption as we do now leaves consumer without the resource, without the subsidy and his children with a mountain of unpayable debts. He’s older and poorer even if his consumption suggests otherwise.

The most effective tool is good management. Individuals can effect small scale changes on their own, in aggregate they can do much. American cities are being made over by younger people acting as individuals, who have turned their backs on suburbia. Managing at-scale industrial processes and mandating engineering approaches is more effectively done by governments with the wit to take action.

Ironically, government activism here would save the tycoons from themselves: left to their own unrestrained cruelty and greed, the tycoons’ self-serving activities will continue to price resources beyond the reach of their customers. Eventually, both resource- and the tycoon ‘problems’ are ‘solved’.

With a bit of effort it is not hard to think of other, indirect forms of action against carbon gas emitters. The benefit of these alternatives is that they would not cost very much or would provide economic gains. Meanwhile, the climate crisis is deflated by a thousand cuts leaving (hopefully) our descendants to wonder what all the fuss was about.

It All Falls Apart

Off the keyboard of Steve Ludlum

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Published on Economic Undertow on July 15, 2015

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Happy families are all alike; every unhappy family is unhappy in its own way.

— Leo Tolstoy, ‘Anna Karenina’

It is hard to keep up with events.

The current, non-Varoufakis Greek government has surrendered to German austerity demands. How this turns out is anyone’s guess … except for the big picture. At the beginning of the day, Greece and the rest of Europe were broke. At the end of the day, regardless of policy or direction, Europa and Greece will still be broke.

Fred GDP-debt 061515

Figure 1: US total credit market liabilities compared to US GDP, chart by @FRED. At the foundation of the crisis in Europe is a false narrative; that countries- or firms can retire their debts by way of labor. Those who do not do so are lazy or thieves. This US chart indicates that economic activity (GDP) by itself cannot retire the debts that are taken on to subsidize it. Maturing debts- plus accrued interest are rolled over into larger loans, debts are diluted over time — inflation — but never repaid.

Greece and the European Union are unhappy families right now but their misery is common. Greeks cannot repay … neither can the Spanish, Irish or Italians. Argentines cannot pay, neither can Puerto Ricans … or Chinese manufacturers. Energy companies whether in Canada, Australia, North Dakota or Brazil cannot pay, neither can citizens/governments/firms in Venezuela, Egypt, Ukraine, etc. All are broke, their pockets are turned out; unhappiness — along with total debt — expands exponentially.

The problem really isn’t so much a credit shortage but energy- and resource crisis coupled with political denial. Energy crisis does not take the form of physical shortages; there are no gas lines, coupon rationing or odd-even days. Instead, oil is depleted and credit breaks down at the margins … Since 1973, world governments have erected every sort of fuel price hedge, all of them make use of credit in some form or other to allocate fuel. What is underway the credit allocation taken to its logical conclusion, where for increasing numbers there is no more credit: ‘Conservation by Other MeansTM

The shortage of fuel => higher prices due to supply and demand => greater need for loans as the use of the fuel is non-remunerative => the combined cost of fuel + credit becomes breaking => insolvent customers can no longer borrow or repay => as credit unravels the fuel bid declines. Within this dynamic, the two larger themes are energy deflation and dollar preference:

– Energy deflation; which occurs when the real price of fuel — its price relative to other goods and services — remains unaffordable even as the nominal price declines.

– Currency preference; takes hold when one currency such as the dollar becomes a proxy for fuel rather than a proxy for commerce: both credit and foreign exchange are discounted against preferred currency, which is hoarded.

During energy deflation, fuel price declines become self-reinforcing: lower prices lead to shortages that adversely affect end users who are unable buy … this leads to even lower prices and more shortages in a vicious cycle. At the same time, the absence of solvent customers offers the appearance of a fuel supply glut. When one currency becomes dominant, fuel becomes scarce due to lack of investment. The price then falls to reflect actual return on use of fuel rather than false returns offered by way of credit — which vanishes. Because the actual return on fuel use is small- or negative, the ultimate fuel price is very low.

As with debt-deflation, the energy scarcity premium is levied against the economy as a whole, it can take any form including decreased employment or solvency, diminished reserve holdings and tax revenues, etc. Keep in mind, when fuel becomes unavailable due to its unaffordability it tends to remain so indefinitely. Fuel shortages do not make the oil users wealthier- or more credit worthy, the driller does not become wealthier by way of reduced output, either.

In order to promote commerce, currency is continually depreciated … as an outgrowth of policy- credit expansion. Because money is continually worth less, the incentive exists for citizens to spend it rather than hold it. Money becomes a proxy for commerce which is always worth more than money is by itself.

Trend price declines in fuel markets indicate currency appreciation; at some point the money as a proxy for fuel is worth more than anything that can be done with the fuel. As a component of energy deflation, currency preference is self-amplifying as commerce is starved of funds and worth less over time compared to holding (a particular kind of) money … which is always good for that last, emergency tankful of gas.

Leadership refuses to discuss energy and the ongoing consequences of wasting energy for lifestyle purposes. It isn’t just Europe: differences between the euro, yen, sterling, yuan and dollar currencies are minuscule. Euro debts are no different from the debts of the others, European waste is no different from the waste of others. There is nothing special about the euro other than a defective, failure-prone managing regime. Debt and waste ultimately condemns all currencies as all of them represent the elusive promises of a (low-cost) fill-up at the pump …

Energy deflation and currency preference are headwinds being faced by Greece and the other countries in the eurozone. But that’s not all. European lenders and their clients along with conniving politicians have erected a conduit scheme that is right now breaking down under the weight of its own costs.

 

 

Figure 2: The euro is a conduit scheme whereby contributors and the promoters/final recipients work together to take advantage of the conduits — the persons in the middle who are the promoters’ unwitting victims.

Conduit schemes are similar to Ponzis in that recipients gain unearned funds from others by guile and misrepresentation. Whereas Ponzis involve the transfer of savings/’investment funds’, conduits are debt transfer machines. Loans flow from contributors (banks) to recipients/beneficiaries who are often investors or clients of the same banks. The conduits are ordinary citizens who are offered vague abstractions with negligible- or negative worth that nevertheless are part of the ongoing progress sales’ pitch. The conduits are on the hook for the ongoing cost of the borrowed funds; fees, interest costs and repayment of principal: it’s his debt, someone else’s benefit.

Conduit schemes are highly leveraged. Because they are criminal enterprises there is little relationship- and much less concern regarding the ballooning cost of the funds lent to the schemes’ beneficiaries … or the conduits’ ability to meet these costs. As such, the scheme falls apart when conduits are unable to service the beneficiaries’ debts.

Conduit schemes have certain characteristics:

Conduits are coercive, gate-keeping regimes unlike Ponzis which require voluntary participation. Whether the participant borrows from the contributor or not, the costs to access the scheme’s services are set by the scheme itself, the conduit has no ‘bargaining power’.

– The benefit promised to the conduit is an abstraction: a ‘common good’ such as ‘European Unity’ … or a bailout. The abstract goods are unrelated to the actual funds-transfer.

– The transfer from the contributor to the recipient is always money, in staggeringly large amounts.

– The contributors are always entities with large capacity to generate funds; finance. The recipients are manufacturers, banking system creditors and tycoons.

– Both lender-contributors and recipients are aware of the scheme at hand and both actively promote it: falsely to the conduit (and the public), accurately to each other.

– The recipients who are part of the scam have no investment ‘method’, they simply accept the free money offered in the conduit’s name.

– The hapless conduit is incapable of acting in any interest other than those of the contributor/recipient. Taking on loans and accompanying repayment obligations are conditions of using the system in question! The process is self-limiting: those unwilling or unable to act in the scam promoter’s interest exclude themselves. The recipients gain enormous amounts of money, what the conduits receive has no worth outside of what they brought to the scam in the first place. Like the rest of the world’s industrial economy, the product of the eurozone is waste.

Greece has been rendered insolvent by the euro-scheme’s cost and its fantasy product. Every other EU country faces the same consequences because the relationship between sovereigns-and-scheme is no different from Greece. When enough conduits become insolvent, the euro regime will fall apart. Bailouts fail because they only add to the conduits’ burden.

Best thing to do is to walk away from the scheme and its false promises, to start thinking and acting independently. If enough people escape the outcome is the same as insolvency, the conduit racket unravels. Every ‘investment’ scheme requires a constant flow of new funds/credit; conduit schemes require gullible recruits willing to accept the scheme’s carrying costs. The euro racket insists its product has value … the Europeans can see the absence of value for themselves and come to their own conclusions.
 

Exiting the euro or introducing alternative currency.

– Because exit by any conduit would require beneficiaries to retire and service their own debts, almost every form of coercion is brought to bear to enforce the scheme. Coercion vs Greece takes the form of a ‘bankers’ strike’ depriving Greece of liquidity. Without swift, sensible action the Greek, and European economies will entirely collapse.

– The introduction of an alternative or parallel currency (unit of account) would bypass the conduit by allowing for internal Greek commerce. Information on an alternative and particulars can be found in papers by Trond Andresen – Robert W. Parenteau as well as Alan Harvey.

Alexis Tsipras; “Greece does not have the required currency reserves to support a return to the drachma.” That is, Greece cannot borrow, under any debt-money regime the country would still require external credit as it cannot provide for itself. Meanwhile, the minutes tick by, the Greek financial position deteriorates as banks remain closed and the government continues to miss interest payments.

On Greece issuing greenback euros.
 

Greek Outcome

Figure 3: Chart by Deutsche Bank/Zero Hedge with addendum by Steve Ludlum (2015). Note outcomes in Greece and euro area. Original chart does not show introduction of Greek fiat ‘Greenback’ euros.

– In a fiat scheme, the Greek government would issue funds denominated in euros to repay debts to Greek businesses and banks as well as individuals. This ‘money’ would have no liability attached, it is not debt-money, it would not be loaned into existence. A notable example of sovereign issue money is US Demand Notes introduced during the Civil War during the Lincoln administration by Edmund Dick Taylor. The notes were necessary because big Philadelphia- and New York banks would not lend the the government at reasonable rates.

– The current government in Greece has played into the hands of forces intent on consuming it as if Greece was itself a form of capital. Greece has become pathetic: even as it defaults it begs for more loans. Greece needs to do for itself rather than beg. The Greek government can do so by issuing non-liability fiat euros — Greenbacks — and use them to retire euro denominated obligations on a fixed schedule.

– Payments would be made electronically, out of ‘thin air’, the same way loans are made by banks … out of thin air. Payments would be made both inside- and outside the country.

– Issuance of drachmas or any parallel currency would still require Greek repayment of €320+ billion of euro-denominated debts in a state where Greece could not hope to borrow. Greenbacks would offer means for repayment … possibly even across Europe. Whereas repudiation and insolvency will break down the euro conduit scheme; issuance of electronic greenbacks would render the scheme irrelevant. Euros are fungible: Cyprus notwithstanding, each euro is the same as all others. Fiat issuance by a government is the same as fiat issuance by a private sector bank, however, there is no liability to the government issue. The government can issue without digging itself deeper into the debt hole.

– Loans made to Greece are simply issued by banks as credits on a spreadsheet. This ‘bank money’ does not exist until a loan is made. The gain from lending is the requirement on the part of the borrower to repay with money that is more costly to him than the loan is to the lender. Bank money costs the lender almost nothing to create as it requires only keyboard entries. The borrower must repay with circulating money; he cannot create repayment on his keyboard but must beg, steal or more likely borrow repayment- or have it borrowed by others in his name (bailout). Whereas interest cost tends to be a small fixed percentage of the principal payable over time, the expense of circulating money is determined by its availability in the marketplace, by supply and demand. When circulating money is scarce the real worth of repayment can be much greater than the nominal balance due, yet this is invariably when the demand to repay is fiercest, as during a margin call. If the loan is secured and the borrower cannot repay, he must surrender collateral along with other rights. These are always worth more than a keyboard entry.

The point of greenback euros is to give the government the ability to make keyboard repayments, to pay lenders ‘in kind’.

– Money created by lending is extinguished when the loan is repaid. What makes up the supply of circulating money is unpaid debts. Ironically, these are funds that are out of circulation, largely overseas or hoarded. When the sovereign issues fiat to retire debts, the borrowers’ liability is extinguished. There is no net increase in the amount of funds in circulation, which can only occur if funds are repatriated or dis-hoarded which would only take place if there is demand for them that the sovereign could not satisfy.

– By creating ‘greenback’ euros, the Greek government can recapitalize its banks directly, rather than by bailing in depositors. Over time, the flow of liquidity would temper the shortage of funds outside of Greece. A Greek repayment agency would act as ‘lender of last resort’ in place of- or alongside the (worthless) ECB.

– Issuing greenback euros would re-balance the relationship between banks and sovereigns. Creditors have gained power at the expense of sovereigns and the citizens. Greenback euros would represent power to render irrelevant the private creditors and their schemes.

– Location, location, location: Greece will always be a part of Europe. Greek exports and tourism will bring in euros and other hard currencies. Foreign exchange can be leveraged or merged with greenback issue. What would keep fiat issue local is inefficiencies of Greek transfer mechanism. Fiat euros would be more effective if issued by Italy or another, larger European country.

– The euro is the official currency of Greece, it has the same natural right to issue as does a private — crooked — bank in Frankfurt.

– External lenders would not be able to hold countries hostage by withholding funds, should they do so, the government would issue in the banks’ place.

– Whereas drachmas or a parallel currency would allow Greece to leverage its euro purchasing power by way of foreign exchange, fiat greenback euros would render such leverage unnecessary. More on this later …

Article 124 of the Lisbon Treaty does not specifically prohibit greenback euros. The Greek government would have to repeal the (pro-banking) 1927 Statute of the Bank of Greece which prohibits the government from issuing ‘money’ of any kind.

Any fiat regime would require stringent energy conservation as the external flows of borrowed euros to purchase fuel are what bankrupted the Continent in the first place.

It’s the economy energy, stupid!

– The current bailout proposal does not address any of the eurozone structural defects particularly its fuel waste and diminishing purchasing power.

– Spain, Portugal, Ireland and Italy are in the same situation as Greece. What befalls Greece will befall them. They are conduits, their debts cannot be retired, the waste of fuel-capital for lifestyle purposes provides no means to do so.

– The foregoing countries’ debts are currently assets to German firms, the benefits of the European conduit. When the debts are unpaid these assets become instant liabilities, when that occurs Germany must exit the euro or follow the others into destitution.

– Austerity is a permanent condition arising from the ongoing annihilation of irreplaceable capital. Managers need to address the resource issue directly rather than pretending it does not exist. The euro conduit scheme turns out to be a ‘blunt instrument with which to ration capital. Ironically, so also is a breakdown of the scheme! Adjustments to interest rates or bailouts will never return Europe to the ‘good old days’ of American suburban-style waste. Modernity advertises itself as a provider of abundance and prosperity, in our onrushing ‘Age of Less’ modernity becomes increasingly a harsh form of rationing and social control. What is poorly understood is the inevitability of this process.

What ties energy deflation, conduit schemes and currency preference together is credit/loans and debt. The banks have a death grip on us and our life-support system. The mechanism of funds’ dilution as debt repayment is incentive to strip-mine our entire capital base. The credit regime is falling apart under the weight of its own costs, not just in Europe. Government issue money ends a monopoly over a vital private good so that it becomes a public good, in this way the power of the banks to run our affairs is reduced. As a necessary component of this effort, the establishment must hold the financiers accountable for their crimes and negligence. The present conditions and schemes cannot be endured any longer. If the establishment refuses to act the citizens will take matters into their own hands, there will be revolutions.

Outmoded sovereignty- and policy fantasies must be thrown into the trash. The time for posturing is past, nobody is in a separate boat, there is not one labeled for Germans or Italians or ‘others only’. Like it or not every European country is a part of the world, each must carry its own burden of responsibility, which some countries such as Germany currently refuses to do.

Germany — and the rest of the world — must do with its auto tycoons what Germany has done with its nuclear variety and put them out of business. No country or economist acknowledges the ongoing drain of European credit overseas in an endless stream for petroleum energy to run the Continent’s toys. Running out is running out: as the EU runs out of credit, it runs out of petroleum at the same time … once energy deflation takes hold … it is permanent.

Voluntary conservation by way of policy is ‘friendlier’ than the alternative. Left to the status quo in Europe is nationalism and war.

Conservation by other means = Syria.

Euro Margin Call

Off the keyboard of Steve Ludlum

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Published on Economic Undertow on July 5, 2015

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http://www.economic-undertow.com/wp-content/uploads/2015/06/Triangle-of-Doom-0601151.png

Figure 1: Triangle of you-know-what, continuous WTI futures contracts, chart by TFC Charts, (click for big). Petroleum price decline is just one piece of evidence for credit distress; another is the steady increase in bond yields which reflects the anxiety on the part of lenders that they might not be repaid.

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It is difficult to make heads-or-tails out of the Greek melodrama playing out at this moment. To default or not default, in the eurozone or out. Who knows? Observers are confused and so are the participants, what is clear is that the stakes are very high. The group designated to absorb the hardest blows cling to the bottom of the economic mast; workers, pensioners, students and suckers lured into investing in countries like Greece … then again, maybe not. There is the chance of contagion, anything is possible including the chance that some tycoons might lose their fortunes.

Regardless of outcome, the politicians are winners. Even as their follies multiply they meet nothing in the way of discomfort. Walking on gilded splinters, they spend every moment within settings as extravagant as Hollywood sets, fawned over by hordes of lackeys. Stuffed like geese for foix-gras on mysterious ‘luxury food’, their greatest hazard is that they might get too fat … or that they might be revealed as libertines. When their crimes and blunders have ripened they retire with their fortunes; enormous (borrowed) pensions, favorable (borrowed) business arrangements, excessive (borrowed) speaking fees and … (borrowed) … consulting jobs even as their constituents are hounded into penury so as to make the interest payments.

Other winners include the ordinary ‘Brand X’ criminals who take advantage of the vacuum that is the natural outcome of their betters’ ineptitude. Misery multiplies … none of this is new. The die for the current round of crises was cast long before the turn of the millennium … there has been that long to do something about it.

One thing is clear; that the brouhaha in credit markets is a symptom, not the disease. Analysts must observe carefully the larger trends and connect the dots. The problem is not a matter of adjusting the model but with the model itself. Industrial enterprise does not offer a return. Capital and value — and purchasing power — are converted into waste, what stands for ‘wealth’ is a measurement of the wasting process. Our economy has bloated into a monstrous organism that consumes everything and puts nothing back. The disease is the reaching of planetary limits; access to water, fuel, minerals, soil fertility, waste-carrying capacity and credit. Capital resources are being allocated by rationing access to loans. No credit = no resources, taking place under everyone’s nose is ‘Conservation by Other MeansTM‘.

This is a nasty and unpredictable process, what connects the dots together is the common outcome: ‘less’.

The one fact about parties is that they all end. The cocaine runs out. Everyone has to go home.

 

In the Eurozone and elsewhere, the cocaine — cheap credit — is running out. What remains is the hangover and daunting task of sobriety. Along with the credit, going is the gasoline. Things will never be the same.

‘Never be the same’ are fighting words for the Establishment which entrenches itself more deeply into the present even as both it and establishment become less relevant. Because it has lost the ability to reform itself, the establishment lashes out in a reflexive attempt to preserve its vanishing prerogatives. This is self-evident: if reform was possible it would have already taken place, the reforms would have prevented the crises.

Managers do not grasp the currency risk that emerges from both continued austerity programs or default. Economies are containers of social- and political values, shared understanding built upon edifices of trust. Within economies a collective suspension of disbelief takes place that insists bits of colored paper or electronic data are worth something. The trust emerges as more people share the same ‘worth’ idea and gain benefits from it.

Germany is Europe’s responsible party, it is EU’s paymaster and the long-time primary beneficiary of the Euro-economic activity. Mercantile Germany sits at the center of Continental trade; German euro surpluses are the consequence of its partners’ deficits. Ironically, German currency risk is no different from Greek risk, because both countries do business in what amounts to a foreign currency. Germany holds a borrowing advantage at the moment but both are built with the same financial armature, the defects of one country are the defects of all the others. The idea that Germany can integrate Europe around its economy … then somehow pull up the ladder when convenient is a hallucination.

Presently, managers carelessly discount one group’s sense of worth then another’s. Today is Greece, tomorrow is another country. Trust wavers then evaporates, at that point the economy is junk and the money is worthless, even if ‘the numbers’ indicate otherwise.

Reckless Germany gambles with euro risk even as it cannot afford to do so. It holds trillions of EU liabilities both in the form of currency and credits in its banking system along with ongoing business relationships with companies outside of Germany and the Eurozone. German wealth is nothing other than the trust earned over the entire post-WWII period. The ideal is that each European will engage profitably with others; not as slaves, some paying while others collect. Germany pretends it controls its destiny but this is something it cannot guarantee. Trust cannot be directly inserted into the minds of others: what Germany has cultivated carefully with one hand it casually undermines with the other.

Right now Germany plays the part of enforcer for Europe’s criminal banks. The blows it levels against its neighbors rebound against itself; the outcome of this is slow suicide. The impaired assets on European balance sheets outweigh investor equity and bondholder credit together. Europe is insolvent, liabilities are looking for a place to hide. The logical destination is Germany whether there is a euro or not. Within the euro, Germany cannot escape the full weight of its neighbors’ liabilities. Consequently, it has no choice but to succeed at its unification endeavor … otherwise, the worthlessness of the others’ balance sheets will be marked up against its own.

German banks and industry are right now stuffed with euros but this is momentary. There is no way possible for the current conditions within German finance to survive the demise of the currency. Germany cannot simply pick up its luggage and move itself away from Europe taking its ‘wealth’ with it. There is no road map for Germany to get from the euro to a substitute currency space The Germans and other creditor countries frozen to the spot: any sign that the Germans might abandon the euro would be the alarm for the others to do the same, to the instant ruin of German creditors, who are owed tens of trillions of euros.

The end of the euro anywhere within the Eurozone would also cast into doubt the security of Germany’s bank deposits. Uncertainty would trigger a run on German banks just as there is a run on Greek banks today. Germany would find itself bound by domestic politics to defend the euro to the bitter end, to protect its depositors. By doing so, Germany would become the fool of the market, the dumping ground for all European liabilities. This is a fate it cannot avoid, because of its long-running success it is the only European country with money!

The alternative strategy would have Germany racing Greece and Italy out the door. The survivor would be the first to grab a lifeboat on the Titanic. This is the nature of unraveling Ponzi schemes where the few winners get out early.

Add the currency trap to Keynes’ liquidity trap amplified by the political expediency trap. In its desire to party forever Europe is confronted with the persistence of liabilities that are generated along the way. These liabilities pitch Germany’s tent on the lip of the abyss. With the passage of time and accumulating mis-management, holders question whether euros are ‘worth the hassle’ and ‘worth the risk’ or not. This is not the proper sort of inner dialog to have about any currency.

With a non-euro currency, Germany’s option would be to depreciate. Doing so at a scale that would ‘manage’ liabilities would be default by another name with the costs falling on German depositors. To choose otherwise and not depreciate would leave Germany facing the same ruin as Greece faces right now; it would ‘become’ Greece, with massive and unsupportable demands for repayments in a foreign currency, a shortage of money, the absence of liquidity and a breakdown of export trade.

The only way for Germany to manage EU-legacy repayment claims would be to re-denominate them from euro to d-mark and then somehow inflate them away against a background of economic growth. However, jettisoning the euro would cut Germany off from its now-captive European markets. This would eliminate the growth potential; Germany would be crushed by its debts in a deflationary environment.

As bad as conditions would be for Germany, they would be worse for the other European countries. There would be a scramble for hard currency: everyone for themselves. If this is to be a hard German currency there would be a shortage much worse than there is today. The Europeans would be faced with the task of cobbling together a monetary system while the rubble of the current regime collapses on its head. Constructing a new model would require enormous investment of funds and good will that the Continent does not now possess; a breakdown would remove any possibility of either, there would be insufficient capital with which to (re)build anything.

The euro monetary union has had obvious structural defects from the get-go as admitted to by the Euromasters themselves. Now there is resolute refusal to address these defects even as the entire European enterprise accelerates to destruction. If not now, when? Does Angela Merkel or Wolfgang Schäuble honestly believe the Greeks will ever trust the Germans again after such rough treatment at the hands of faceless Troika functionaries? What good can this portend for German business? How do German businessmen expect their enterprises to succeed, on what alternative planet?

Dire times are when political instincts abandon professional politicians at a moment when these instincts are necessary. The Germans refuse to share any of the hardships their policies inflict upon their neighbors. Germans whine but their finance industry underwrote the bad loans, with eyes wide open, for the benefit of German manufacturers … whose ‘goods’ cannibalize the trading partners’ capital. German finance ignored the risks as it ignores currency risk today.

There are depositors run from Greek- and other banks into Northern Europe. The run itself is a part of the long-standing flow of funds from the rest of Europe into Germany’s national account. The ‘First Law’ states that as surpluses increase, the cost of managing them becomes greater than the surpluses’ worth. This can be seen in Europe where cost of Germany’s current account surplus is a shortage of liquidity and broken markets. Germany must unwind its surpluses, reducing the costs to both its customers and itself. It can unwind its smug sense of institutional superiority at the same time.

 

The world falls apart, nobody has an idea what to do about it.

 

Europe has been in a finance crisis for years, there has been plenty of time to ‘innovate’ solutions. Sadly for the Euros, all of the real solutions require giving up something … which nobody wants to do. Instead there is punishment for those tied to the mast; the workers, pensioners, students and suckers lured into investing in countries like Greece. The best the bosses have come up with so far is bailouts for giant banks, ‘appropriation’ of depositor funds and (incoherent) public relations.

Europe needs debt relief and stringent energy conservation. Finance collapse turns out to be the implement of conservation as bankrupt Europeans cannot drive, small countries with nothing to offer but their own worthless currencies cannot import fuel. Finance dares not risk relief to Greece because it cannot withstand the losses. Relief to Greece means granting relief to other Euro-deadbeats France and Italy (Germany). What is taking place right now is a margin call against the euro. The absence of relief insures the collapse of the entire finance edifice as defaults proliferate and distrust propagates.

In Part II we will look at some of the steps that can be taken including The Greek government issuing non-liability fiat euros — Greenbacks — and use them to retire euro denominated obligations on a fixed schedule.

Dead Man on the Side of the Road

Off the keyboard of Steve Ludlum

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Published on Economic Undertow on March 6, 2015

Death-on-the-Ridge-Road

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Somebody shot Boris Nemtsov to death late last Friday evening as he was walking along a street in downtown Moscow with his girlfriend. The couple were making their way toward his apartment near the Kremlin when an unknown assailant ran up from behind and emptied a pistol into Nemtsov before fleeing in a car. The girlfriend, Ukrainian model Anna Duritskaya was unhurt.

According to her account, she was waiting for Mr. Nemtsov since 10 pm at the Bosco-café of the GUM shopping mall at the Red Square right across the Kremlin.The couple had dinner at around 11 pm Moscow time and then left the mall and went for a walk toward Vasilievsky embankment right by the Kremlin walls. Their intended destination was the posh building half a mile away from the Kremlin where the murdered politician had an apartment.

As they were crossing the Bolshoi Moskvoretsky Bridge, an unidentified man ran out of the underpass of the bridge and shot Mr. Nemtsov multiple times. Then he jumped into the passing white car without a license plate.

Mr. Nemtsov died on the scene.

Nemtsov was deputy Prime Minister in the Yeltsin government, an implementer along with Yegor Gaidar and Anatoly Chubais of the Washington Consensus, ‘shock therapy’ and market reforms of the Soviet economy. At the time, the charismatic minister was briefly considered as a potential alternative to Vladimir Putin. He most recently opposed the Russian invasion of Ukraine. Nemtsov killing is the latest in a long line of unsolved politically related murders in Russia that have punctuated the Putin regime.

Part of the mystery is how such a lurid crime could take place in one of the most tightly guarded areas in the World, under constant surveillance with hundreds of security officers nearby. The easy answer is that the officers themselves, acting covertly under orders, were responsible. Nemtsov clearly felt comfortable walking in plain view without escorts or entourage; he expected to be followed closely and under constant scrutiny by agents of the FSB. Nobody knows anything for certain, no group has come forward to claim responsibility.

Because the majority of ordinary Russians support are distracted by both Putin and Russian territorial expansion it is hard to imagine Nemtsov as anything other than an sideshow/irritant. Gunning down celebrity activists risks making martyrs out of them; this is reason for governments to be cautious. Yet, none of the Kremlin’s alleged crimes to date have triggered a backlash: like Nemtsov before his final stroll, the government — if indeed it was directly involved — appears to feel secure in its actions.

Nemtsov’s death is a component of the onrunning collapse of the Soviet Union.

Many of the places that are suffering unrest and war were components of- or client states of the USSR during its heyday: Libya (client), Egypt (a Soviet client before becoming an American client), Somalia (client), Eritrea (client), Afghanistan (client) Yemen (client), Syria (long-term client), Iraq (client); Armenia, Azerbaijan, Chechnya, Georgia, Ukraine, Dagestan, Nagorno-Karabakh (all components of USSR); also Vietnam, Laos, Angola and North Korea (all Soviet clients but wars have ended in these countries) … also Russia itself. Seen from a long-term perspective, the end of the Soviet Union government turns out not to be the bloodless event as was advertised, the rotting empire still has some collapse left in it.

One of the duties of the Economic Undertow is to turn conventional historic narratives on their heads, to where they begin make sense. What Americans have been fed about the demise of the Soviet Union is a self-serving, political/ideological fairy tale: that the United States under the direction of Ronald Reagan’s brilliant conservative leadership outspent the USSR in an arms race that eventually — along with collapsing oil prices caused by new oil on the markets from Prudhoe Bay and the North Sea — bankrupted the Communist government. Once the economic and ideological fault lines were revealed, the various client/satellite states that made up the Soviet empire peaceably went their own way without interference from Moscow. All of this ‘revealing’ and ‘peaceable-ness’ took place over a remarkably short period of time in the early 1990s: here today, gone the next.

The more realistic narrative has Soviet intelligence agencies — perhaps collaborating with those of the West along with Western interests (banks) — gaining control over Russian assets, shifting them to well-connected insiders, with the decrepit- and ossified Communist government powerless to do anything about it. This process began before- or during the Brezhnev period with matters well underway by the time of Gorbachev … Perestroika being a (feeble) attempt on the part of the Communist establishment to regain both credibility and some measure of control. What happened in Russia was not reform and the end of communism was an accident: what actually took place was the greatest crime of the modern era, the theft of an empire by the country’s intelligence services and criminal associates.

This outcome was a natural consequence of the Soviet Union as a regimented national security state with outsized spy agencies … as well as the slow commercial opening with the West beginning during the Khrushchev era. Within the immense ganglia of the Soviet intelligence- and internal security apparatus there was a kind of singularity or dawning self-awareness … the managers grasped in an instant they had access to the levers of control outside the reach of the Party, the Politburo and the Red Army. The rise of the agencies’ power was a consequence of Stalin’s paranoia; the Stalinist Russia was built on a foundation of intrusive spying and control/liquidation of potential internal enemies. Stalin held the agencies in check by way of periodic purges, no group of operatives could become too comfortable or entrenched, they had to constantly look over their own shoulders. Once ‘Uncle Joe’ was gone there were no further checks on spy agency power, they could act with impunity and did: what occurred was a silent coup d’etat with the KGB state first emerging publicly under Yuri Andropov. Once the looting and undermining was well-established in the center it spread out and took hold among the clients with consequences that can be seen clearly today.

At the same time, contact with the West, as tentative as it was, informed the Russian intelligence elite what was possible … that the Western standards for wealth and success were both qualitatively- and qualitatively superior to what was available under egalitarian communism. In 1975, to be wealthy and successful as a Swiss or Londoner far exceeded what was possible in Leningrad or Kiev.

Under this scenario, ‘Nemtsov the reformer’ was either a co-conspirator — or, more likely a tool of intelligence services and/or Western business interests; an operative within the looting scheme along with Gaidar, Chubais and others. Instead of being the heir to Stalin’s strongman legacy, Putin recedes to become the technocratic figurehead who serves to distract public attention as the Russian Mario Monti or Antonis Samaras … meanwhile, the stealing takes place in the background. The context for the Nemtsov hit becomes much murkier with a wider range of potential adversaries, not necessarily Putin but unknown ‘others’ deep within intelligence nebulae … and for possibly more prosaic reasons such as an unpaid debt. It is also likely that the Ukrainian ‘model’ had something to do with Nemtsov’s death as well; perhaps she was bait, leading him by the hand to a carefully mapped kill zone.

No doubt Nemtsov had more to do with running Russia into the ground than Western media lets on, his Yeltsin- era associates have bona-fides that raise questions:

From 1998 to 2008, he (Chubais) headed the state-owned electrical power monopoly RAO UES. A 2004 survey conducted by PricewaterhouseCoopers and the Financial Times named him the world’s 54th most respected business leader. Currently, he is the head of the Russian Nanotechnology Corporation RUSNANO. He has been a member of the Advisory Council for JPMorgan Chase since September 2008 and a member of the global board of advisers at the Council on Foreign Relations since October 2012.

Honore de Balzac famously remarked, “Behind every great fortune is a great crime;” hovering near the crimes is the criminal banker. Readers can come to their own conclusions about Chubais; regarding Gaidar, (Pravda – 2006):

Litvinenko’s death, Gaidar’s poisoning and Politkovskaya’s murder may have the same rootsDoctors in Moscow said yesterday that the former Russian prime minister, Yegor Gaidar, had been poisoned with an unidentified toxic substance on a recent visit to Ireland , adding a new twist to the Alexander Litvinenko affair.

Mr Gaidar, an economist and one of the “young reformers” responsible for privatising Russia in the early 1990s, lost consciousness and was rushed to hospital last Friday during a conference near Dublin. Last night his daughter said she believed it was “a political poisoning”. Doctors saw “no other grounds” for his sudden illness, she told the BBC’s News 24.

Gaidar died in Moscow in 2009 of coronary artery disease. He was 53; while it is not unheard of for a person to die of heart trouble at a relatively young age, the circumstances of his death … like Chubais’ relationship with JP Morgan-Chase … is suggestive.

Regarding public perception of Nemtsov within Russia, (National Interest):

In a 2011 survey of twenty-three Russian political experts, a lack of fresh faces, ideas, or practical programs aimed at helping ordinary citizens were cited as the primary reasons for the perennial failure of Russian liberalism. Along with Anatoly Chubais and Egor Gaidar, Nemtsov was named as one of those most directly responsible for discrediting liberal discourse in Russia, Unlike Chubais and Gaidar, however, Nemtsov was not regarded as being an intellectual driving force for liberalism, but rather a pure politician. For a person of such staunch principles, it must of been particularly galling to be regarded as a mere politician.

Perhaps less galling than being regarded as a spy … a stalking horse for uncertain international business interests.

The new, improved narrative fits into the theory of, ‘Zero Government’, which postulates a transition from a functioning government to technocracy as the means to loot national assets. Technocracy is the last step before default/repudiation of non-payable debts. After technocracy comes the void: ‘zero-government’; the capitulation of the establishment, its dissolution into factions and chaos. This is part of post-petroleum transition, the breakdown of the status quo. The process runs like this:

Government => Technocracy => Zero Government

The process is easy to remember for even simple- minded business tycoons and their agents, also easy enough to set into motion particularly when the thermodynamic headwinds are blowing in the world’s face.

In Russia, the Soviets made up the last, functioning government, what followed was the relatively long technocracy that was born as Perestroika and ‘Shock Therapy’ that continues under Putin. The ordinary citizens’ collective wealth was swindled away- or hyperinflated into worthlessness. Entire industries and resources were stolen- or handed off to well-positioned opportunists. Russia itself is a gigantic country with massive resources, it has taken a lot of time to steal it all, the thefts are ongoing. To fill the vacuum left by the vanished wealth there is bread and circuses: demonstrations of Russian ‘power’ and evanescent ‘personal mobility’. What comes next is economic and political breakdown — already underway — then dissipation when there is nothing left to steal = zero government.

The zero-government dynamic is not necessarily political, rather it is a component of decline in energy throughput. Governments and ideological ‘operating systems’ are nothing more than mechanisms to allocate- and manage the costs associated with energy surpluses; as the costs multiply the ideologies are stranded. Conventional wasting regimes are unable to adapt to straitened conditions where waste cannot be easily financed: zero-government is a manifestation of ‘Conservation by Other Means ™’.

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Figure 1: Oil industry has become a dead man on the side of the road: WTI forward continuous contract by TFC Charts (click on for big). As Russian bosses steal everything the citizens are bankrupted => the price of crude declines. At the same time, the ability of the Kremlin to function properly unravels; citizens are murdered a few feet away from Red Square even as war rages in Ukraine next-door. The marginal oil consumer turns out be as likely a Russian as a Japanese. Under the circumstances, with increase of marginal deadbeats worldwide, it is hard to see oil prices ever increasing, certainly not to the level that would allow extraction of expensive unconventional fuels.

We can see what zero-government looks like because some of the ex-Soviet clients have already crossed the River Styx into oblivion: Syria, Iraq, Ukraine and Libya. In these countries effective government is a myth, the countries themselves are ruins. In Syria, hundreds of different militias operate without rhyme or reason, some claim regions within the country such as Rojava Kurds or Islamic State; others control a neighborhood or a few blocks in a city … or they control nothing at all! Syria has descended to bellum omnium contra omnes, Hobbes’ war of all against all. At this point, whether Syria has resources or not is particularly relevant because there are no means or opportunity to extract them.

The militaries of a dozen Western- and allied nations operate with impunity within Syria’s territory without any legal basis, declaration of war, absent any aggression on the part of Syria in complete disregard of the country’s (non-existent) sovereignty. It is the concept of sovereignty itself that is disintegrating right under everyone’s nose; even putative states offer non-state alternatives to conventional nationality. Syria’s armed trespassers include Iran, Jordan, Israel, UAE, Qatar, UK, US, France, Hezbollah/Lebanon; last week, Turkey. Bashar al-Assad is ‘leader’ in name only, and that in only within a relatively small part of the country. Even if he were to somehow magically make the militias vanish overnight he would not be able to govern. Syria has been so reduced by violence and natural disaster that it has become unmanageable. Assad is damaged goods, anyway … credibility he might have at one time possessed has been destroyed along with the cities his air force has flattened with barrel bombs.

The tragedy that has overtaken Syria … that has rendered millions of its citizens into refugees … has many more years to run according to those who are in the best position to know.

There is little difference in Iraq where the south of the country has become a de-facto province of Iran, where the Baghdad government is made up of Iranian spies … all of this taking place with the acquiescence/participation the United States, nominally Iran’s adversary. The tapeworm process that was perfected in the Soviet Union has been applied without mercy to the Iraqis … with dire consequences. One only needs to examine both countries together to see the process play out. Unlike Russia, theft in Iraq has been accompanied with wanton, high-tech devastation. The country has been bombed and rocketed flat, then lavished with artillery with over a million deaths. Roaming across the north-western and central parts of the country is an alphabet soup of militant groups bent on outdoing each other in corruption and barbarity. Like Syria, Iraq has become a free-for-all Western militaries and their regional allies all acting without restraint … except those imposed by their own onrushing bankruptcy.

Ukraine has been looted by a succession of corrupt post-Soviet governments, what remains is to fight over the scraps. The country is fast becoming a Syria on Europe’s doorstep, a theater of operation for countless militant battalions fighting each other for ‘gains’ that evaporate as soon as they are obtained. Ukraine, like the other countries — and Libya too — has resources, but ‘zero-government’ leaves these in the ground … this is what conservation by other means ™ amounts to.

When the wars finally die out due to exhaustion of combatants, these countries will become sparsely inhabited wastelands.Without economic growth/business expansion, without the increased flows of energy, without decrease of energy efficiency that drives all business expansion, there are no means to recover after wars- or other disasters. Managers either understand the implications completely and are too corrupt to care … or they refuse to understand because the implications are too frightening.

The zero-government world that we are now entering into is not at all like the one that the human race has occupied for the past five-hundred and fifty odd years, there is no more growth to it. For Syria or others to rebuild some prosperous countries such as France or Canada — or China — must fall into ruin; for anyone to gain others must lose. If this is not serious business then such a thing does not exist.

Zero-government is literally what it says it is; a one way state of existence whereby a country is rendered into an administrative vacuum that convention cannot occupy. The rot of technocracy leading to zero-government is plainly evident not only in Russia but in the West as well: the American and European governments are riddled with corruption and self-dealing, irrelevance and denial. Ballooning intelligence services and ‘internal security’ agencies gain ascendency/tighten their grip. What saves the West so far is that its property is already mostly owned by the thieves; they can only steal from each other. Issues are disregarded or waved away; there are no more statesmen only advertising managers and shallow demagogues offering blatant lies/crowd-pleasing distractions. Meanwhile, in the background a thermodynamic process that cannot be negotiated with is steadily and relentlessly underway …

Peak Oil…

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on December 24, 2014

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Discuss this article at the Energy Table inside the Diner

Part of the current frenzy about energy prices is the insistence on a petroleum ‘glut’. According to conventional wisdom, there is simply so much excess crude on the markets there is nowhere for oil prices to go but down.

The reasons given for the excess crude are many: Saudi intransigence, a Saudi-US geopolitical contest (price war) with Russia/Iran, pesky futures’ market speculators … because/in spite of the president, because/in spite of the governments energy (non)policy … because of clear and concise leadership from Congress. Excess crude is the incredible free enterprise system working its magic! There is a glut of crude because Americans are incredibly clever and hard-working, because they are too fat/not fat enough … because they take too many drugs/not enough drugs, are red (blue); because our brilliant technology has permanently solved the problem of shortages so that our greatest challenge is to manage the onrushing, cornucopian abundance …

Keep in mind, a glut or the appearance of one makes sense at the oil extraction peak, after all, what is a ‘peak’ but the period of the greatest rate of extraction? There cannot be more petroleum available any time than at a peak. All that remains is for consumption to sort itself out; our brilliant-as-technology marketplaces will take care of that by themselves. Glut = cheaper crude! It’s morning in America, again!

That’s can’t be what’s happening … there has to be some mistake. What goes down must go up, right? If prices drop too far the entire extraction industry will go out of business, that the prices have crashed indicates half the industry is already out of business, it just doesn’t know which half it is yet.
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Figure 1: various rates of extraction from multiple data sources compiled by Stuart Staniford, this chart is from December, 2013. The top line indicates 92 million barrels of various flammable ‘liquids’ per day including bitumen, natural gas plant liquids and biofuels.

The increase in petroleum volume isn’t necessarily a blessing as the energy content of the newer fuels is no greater than that of smaller volumes seven- or eight years ago. The increased volumes cost more to extract, transport and process so the net-energy yield is less. Regarding conventional crude, the likelihood is that the output peak occurred in 2005.

Every single one of the billions of barrels indicated on this chart have been burned up for nothing. This is the topic that is never discussed, never even acknowledged; our incredible permanently extinguished oil. There are literally zero returns for the precious capital we have burned, nothing to show but junk. This is the collateral for all of our (borrowed) ‘money’ … and the reason why we have financial ‘difficulties’. The dollar and other currencies are backed by fraud, used cars and smog.

Given that the world is at some sort of peak right now, what happens afterward? Because the world has not experienced a peak of existential magnitude before, we tend to make assumptions about what to expect. One assumption is that technology will provide substitutes, higher prices will allow extraction of deeper, harder to extract reserves. In this line of thinking, nothing really changes because extracting crude oil and using it has always been a costly endeavor, it will be a little more costly but manageable.

The plunging price of crude oil does not reflect the cost of extracting it or finding substitutes but rather the paucity of return on its use. This is sensible because returns are what are supposed to pay for extraction- plus a profit. What pays instead are sub-prime loans made against promises of bottomless production rather than actual remunerative use. The highest and best use for crude oil and related goods has been as subjects in a Wall Street finance shell game which is undone by the crash in crude prices … and crash it is, (Bloomberg):

Energy Commodity Futures

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 55.26 0.00 0.00% Feb 15
Crude Oil (Brent) Hammered again USD/bbl. 60.13 -1.25 -2.04% Feb 15
RBOB Gasoline USd/gal. 153.50 0.00 0.00% Jan 15
NYMEX Natural Gas USD/MMBtu 3.14 0.00 0.00% Jan 15
NYMEX Heating Oil USd/gal. 195.14 0.00 0.00% Jan 15

Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,179.80 -16.20 -1.35% Feb 15
Gold Spot USD/t oz. 1,177.06 +0.62 +0.05% N/A
COMEX Silver USD/t oz. 15.69 0.00 0.00% Mar 15
COMEX Copper USd/lb. 287.25 0.00 0.00% Mar 15
Platinum Spot USD/t oz. 1,182.88 +0.88 +0.07% N/A

Individual countries are going through the Peak Oil process making it fairly simple to see what sort of outcomes can be expected … these are generally ugly.

Mazama-Egypt 122214

Figure 2: Egyptian crude imports, exports and domestic consumption. Map- graphics by Mazama Science; data by BP. Egypt’s oil output peaked in 1995 at roughly 1 million barrels per day and has followed the classic M. King Hubbert decline curve since then. At its peak, Egypt was a substantial exporter, since then it has become a socioeconomic basket case, increasingly dependent upon both dollar- and fuel subsidies from the US and Persian Gulf states plus the meager returns from the European tourist trade. The country’s fabulously corrupt, autocratic government pretends to manage its zooming human- and auto population, Islamic militancy in the hinterlands, diminished foreign currency reserves and ballooning external debts. Like many other producing countries, Egypt offers, albeit in diminished amounts, subsidized fuel for its millions of worthless cars.

Explosive unrest occurred in the country in 2011 as part of the Arab Spring. Egypt’s management was able to keep the lid on the mid- 90’s as long as there was an increase in marketable fuels, once supplies tightened so did the grip of poverty and a sense of middle-class hopelessness.

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Figure 3: Crude oil extraction never allowed for a Nigerian ‘golden age’ as much of the returns from sales were stolen by elites. Output increased sharply beginning in the 1970s. It is possible that the peak occurred during that period or later, in 2010. It is hard to say because much of the country’s crude is siphoned off by criminal gangs or spilled from the country’s leaky pipeline infrastructure. Like Egypt, post-peak Nigeria is slowly becoming a hospice patient with grinding poverty, instability and a thievishly inept, autocratic government. Like Egypt, Nigeria is plagued with militants who make life miserable for farmers and villagers in the northern hinterlands.

High crude prices over the past few years allowed the Nigerian establishment to take on the appearance of stability and to paper over some of its economic problems, one such effort has been subsidies for millions of drivers. Lower overall crude prices can do little but cut ordinary citizens’ purchasing power while intensifying the Nigerian elites’ urge to steal as much of the country’s remaining portable wealth as they can and remove it from the country while they still have the chance.

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Figure 4: Arguments regarding ‘above-ground issues’ notwithstanding, the peak of Iranian crude production occurred in 1974. The output bumpy plateau from 1990 to 2012 has kept the country ‘open for business’, but the story so far appears to be that of a mature fuel producing region that now extracts less — for whatever reason. At the same time domestic consumption is relentlessly increasing largely due to fuel subsidies for motorists. Like other petro-states, Iran is controlled by an autocratic regime that rules by fear, informants and secret police. Recent high crude prices have allowed Tehran to fund a proxy war against Saudi Arabia for hegemony over the Middle East. Iran also funds ‘resistance’ to Israel at the same time pursuing a costly, pointless nuclear weapons program. The high prices + hard currency inflows by way of Dubai have tended to counteract the effects of international trade- and economic sanctions against the country. Those days are over: lower prices and dollar shortage will amplify the effects of sanctions and certainly act to constrain Iran’s influence, its solvency along with its ability to wage proxy war against ideological- but otherwise almost identical adversaries.

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Figure 5: Under the lash of Soviet commissars and the prodding of Five Year Plans, Continental Russia experienced its output peak before the regime collapsed in the late 1980s. Since then, Russian output recovered to some degree but the oil experts within Russia admit now that future output will irretrievably decline.

As in Iran and Egypt, the long, post-peak interval in Russia has been marked by a slide into despotism, sputtering external conflicts, internal repression, harassment and spying, loss of liberties and varying degrees of economic hardship. The role of the ordinary citizens within the current regime is to bear the regime’s ballooning costs: the outcome is a race to remove portable wealth from the country as fast as possible. Russia subsidizes its energy consumers which accelerates depletion, mostly natural gas. Instead of leveling the economic playing field, subsidies divert funds to drillers, toward Russia’s elites, with the customers as conduits.

High crude prices have allowed Russia to keep up pretenses. Hard currency inflows counteracted the effects of the Russian government’s incompetence and corruption. Lower prices and a dollar embargo will have the opposite effect, magnifying Russian leadership failures and burying Russia’s economy: go to sleep in Moscow, wake up in Cairo.

Mazama-UK 122214

Figure 6: the word ‘England’ looks to mean ‘unending crisis’ as the country’s petroleum fuel resource was dumped on the world markets for narrow political advantage in the mid-1980s and ’90s with the peak output occurring in 1999. Since then, England has been experiencing what can only be called a ‘Long Descent’ into the energy abyss. Along with the other post-peak examples, England suffers from incompetent and increasingly autocratic government and an economy undermined with fuel subsidies on one hand, unpayable debts on the other. The UK’s economic assets are opaque derivatives and pricey houses for tax exiles in central London. Its liabilities are millions of guzzling automobiles and a hodgepodge of poorly considered, blindingly expensive energy megaprojects that have zero chance to solve the country’s problem … if they are ever finished! England and fuel-starved Japan look to be the world’s first credit providers to default or experience runs out of their respective currencies.

Low prices will hammer what remains of the UK’s petroleum industry which is almost entirely offshore. This version of the Seneca Curve will leave Britons more dependent upon imports … and an increasingly shaky pound. Worst-case scenario would have UK looking to buy hard to find dollars at any price in order to gain fuel; conservation taking the form of a bitter and cruel comeuppance.

Mazama-Australia 122214

Figure 7: This is what denial looks like: Australia’s peak occurred in 2000, since then fuel output has relentlessly declined alongside Australians’ galloping internal consumption. Australia government has coped by becoming increasingly inept. As the coal- and iron miner to China, Australia has been able to avoid some of the worst outcomes that afflict other post-peak economies. If nothing else, lower China consumption and the more costly US dollar will end the lucrative carry trade that has subsidized Australian credit expansion and wasteful consumption.

Mazama-Argentina 122214

Figure 8: Argentina’s oil output peak took place in 2002, the same time auto-driven consumption began to increase; like other oil nations, Argentina subsidizes consumption. The outcome as been creeping bankruptcy … default, hyperinflation/currency collapse, goods-shortages and riots, instability, increasing poverty; all helped along by the usual inept, thievish government(s). Lower prices and the broken Argentine economy look to strand drillers leaving the country to import fuel … if citizens can find the dollars to do so.

Mazama-Venezuela 122214

Figure 9: Venezuela’s peak was in 1970 … it has been a roller-coaster ride since. Output- and price fluctuations have since played havoc on Venezuela’s clownishly inept governments and flailing economy. If oil bounty is a curse, the depletion of bounty is descent into Inferno: as in Argentina, there is government corruption, inflation/hyperinflation, instability, social unrest. Even though the country is bankrupt, the government subsidizes fuel for its non-remunerative fleet of worthless automobiles. Venezuelans can use their last tankfuls of gas to drive to the poorhouse …

Mazama-Mexico 122214

Figure 10: Poor Mexico; so far from God, so close to the United States. Mexico’s petroleum story has largely been that of the super-giant Cantarell oilfield; its peak was in 2005. Since then, Mexican output has declined despite much hand-waving on the part of the Mexican establishment. Up until recently, petroleum extraction was nationalized, Mexico also subsidized motor fuel consumption. Along with the baleful effects of NAFTA and the burgeoning drug trade to the US, Mexico suffers the usual economic- and political rot found elsewhere in other oil states: sclerotic government, wrenching poverty, corruption, pollution with drug mafias standing in for the ‘Brand X’ militants found elsewhere.

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Figure 11: The USA peak in 1970 looked to be overtaken by new output from Bakken and other shale plays leading to throaty proclamations of ‘energy independence’. Even with shale additions, US finds itself importing six million barrels per day; ongoing reductions are due to creeping impoverishment and less consumption. As with other countries the US massively subsidizes petroleum consumption:

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Figure 12: Industrial nations’ fuel subsidies by way of BBC/IMF: The cost of subsidies ultimately proves to be unbearable even for petro-states with large reserves such as the US. Subsidies are a primary driver of declining net exports. Subsidies directed toward consumers flow immediately from them to the drillers: they are loans, laundered by way of governments from the same customers who receive them. As with monetary easing: more subsidies => more bankrupt customers and ultimately, bankrupt drillers.

Most oil states post-peak share the same characteristics: inept, pilfering, absolutist regimes, faltering economies overburdened with debt, over-reliance upon subsidies; there is war, militancy and social unrest. Some of these countries face more of some problems and less of others. Of the oil ‘producers’ that are post-peak only a handful, such as Norway and Denmark, have been able to maintain a tentative of political-economic equilibrium.

Mazama-Denmark 122314

Figure 13: Denmark’s extraction peak occurred in 2005, Norway’s in 2002. It would appear the best way to cope with oil peaking is to reduce consumption, for countries to become more like Denmark and less like Argentina or Egypt. Consumption in Denmark has declined by more than half since 1973; for it to decline by half again over the next ten years does not look to be a big problem.

With world-wide financial repression and the propping up of key-men everywhere, any energy crisis initially will not take familiar forms: gas lines, rationing and highway speed restrictions. Instead, the crisis will emerge as a credit crunch which is underway right now. Credit is being systematically revealed as worthless, leaving the fuel industry to provide for those elements of the fuel-use economy that can pay for themselves. This amounts to a very small fraction of current ‘use’ which is mostly for entertainment and pleasure.

It is hard to see how prices can rise in real terms from here.

Purchasing power rests more with the tycoons. Given enough deflationary medicine and tycoons will be just as broke as the rest of us. Purchasing power is the equivalent relationship between a good that is exchanged and what is gained for it: one is always worth the other; otherwise the exchange does not occur. Capital is non-renewable resources, it is the ultimate good, the basis of all ‘production’; as capital is depleted or diminished for whatever reason, so is purchasing power.

Customers must buy the fuel products that allow the drillers to retire their own loans. Customers can only buy when they borrow themselves … or after their employers borrow in turn from their own customers. The cost of ongoing oil peak = fewer customers borrowing overall, they have been fired, lost their businesses, have had their wages cut or they have other more important costs to meet, like food, housing or medical care.

Every post-peak country is in the same boat. China is slowing … because Americans and Europeans are buying less Chinese-made goods with borrowed money => less purchases from Australia and other resource providers. Large swaths of the world are embroiled in conflict which is a dead- loss to all sides. There are fewer places for any bid going to come from. How are prices going to rise?

“Central banks will print money,” is the usual nonsense refrain. Central banks cannot increase purchasing power, they can only dilute it. Finance can lend but the cost of moral hazard — a kind of indirect subsidy — has risen to where even largest governments cannot bear it. More loans won’t work anyway: money flows to drillers starving customers of funds leaving nobody to retire the drillers’ loans.

At the same time, oil states need to sell as much as they can to gain what cash-flow is possible. All petroleum is high cost now b/c of the need to work over old, depleting fields. Drillers are frantic to make up their losses on volume …

There is nobody with a handle on this situation, it is running away on its own.

Good News, Bad News, Deux

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on October 28, 2014

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For all you wandering billionaires looking for a place the crash, the brilliant (tall) cudgel-shaped concrete tower at 432 Park Avenue in Midtown, Manhattan has just been topped out! With the Brooklyn Bridge (temporarily) off the market, this is your second- best opportunity to own a piece of the Big Apple, (Curbed):

Today, the concrete for the Rafael Vinoly-designed tower’s highest floor will be poured, which means that it has reached its superlative 1,396-foot height, making it not only the tallest residential building in New York City, but also the entire western hemisphere. But one could argue that it’s the tallest building in the city. That title official belongs to the 1,776-foot One World Trade Center, thanks to its 408-foot-tall spire, but the roof of One World Trade Center is actually 28 feet below that of 432 Park Avenue. The tower will open next year, and more than half of its 104 condos have already sold, including the $95 million penthouse.

432 Park Avenue, NYC

The best architecture too-much money can buy turns out to be a blunt, square-ish concrete post set to bludgeon the New York skyline … how appropriate to our new age of ‘inverted totalitarianism’, perpetual war and capital constraints. Look to the right-foreground next to the ‘White Stripe’ building and pick out the graceful Sherry-Netherland Hotel from 1927, with its copper clad spire and Italian Renaissance terra-cotta/brick facades. The 38-story hotel is a large building but is dainty compared to the neo-fascist stalagmites erupting all over Midtown.

The Great Real Estate Orgy of the ‘oughts and the deflating panic of ’08- ’09 have been overtaken by an even less-restrained speculation madness. New York City has been blitzed by the international uber-rich; as a consequence, New Yorkers cannot afford to live in their own home town. At the same time, even fewer parts of the city are off-limits to developers seeking to build high-end versions of Third Reich flak towers. As in China, the bulk of the uber-apartments are to remain vacant; 432 Park is a poker chip with elevators. Apartments are to be ‘flipped’ to greater fool-billionaires in the future; there is no point to actually ‘living’ in the apartments, (Curbed):

Onto the numbers: census data from 2012 shows that “from East 56th Street to East 59th Street, between Fifth Avenue and Park Avenue, 57 percent, or 285 of 496 apartments, including co-ops and condos, are vacant at least 10 months a year.” A swath that’s a bit north of that, from East 59th to East 63rd, shows that “628 of 1,261 homes, or almost 50 percent” are pied-a-terres. All those dark windows? Not your imagination. The place is deserted but for the tourists packed into the Apple Store’s glowing cube.

A reason for emptiness: the dark windows cannot be opened, there is no way for the tycoons to empty cauldrons of boiling lead upon the masses below. Another reason is what amounts to a New York City tax subsidy: non-residents avoid city income taxes; the property rates for non-primary residences in the city are stupefyingly low:

Property taxes here are based on a complex equation related to rental values and can be very low. At One57, for example, a unit that sold for nearly $3.6 million is estimated by the city to have a market value of just $430,000 when calculating its property tax.

432 is one of a number of super-tall, super-needle towers set to rise in Midtown, all are destined to sit vacant: 157 West 57th Street, (One57), 220 Central Park South, 111 West 57th Street, the Nordstrom Tower and 53 West 53rd Street, at the Museum of Modern Art.

It isn’t just ‘dwellings’ where billionaires can squander their fortunes, (Bloomberg):

One Percenters Drop Six Figures at Long Island MallCarol HymowitzAmericana Manhasset, about 30 minutes from Manhattan, is one of several American malls that have figured out how to thrive by catering to One Percenters. Some customers spend more than $100,000 a year. Frank Castagna, owner of the mall on Long Island’s North Shore, and Danielle Merollo, manager of personal shopping, talk with Bloomberg’s Carol Hymowitz about the luxury center. (Source: Bloomberg)At Americana Manhasset, the salespeople know your closet better than you do. They call designers in Paris or Milan to find the perfect little black dress. They deliver soup when you’re ill.Situated on Long Island’s Gold Coast, about 30 minutes from Manhattan, the open-air shopping center is one of several American malls that have figured out how to thrive by catering to One Percenters.Americana Manhasset’s 60 shops sell the priciest status brands — Dior, Gucci, Hermes, Cartier, Prada. Some customers spend more than $100,000 a year and five times that if they’re planning a wedding or buying fine jewelry. Danielle Merollo, the mall’s personal shopper, recently accompanied a client to a private Prada show in New York to buy a bespoke fur cape.

… what is good for billionaires is good for America. If you are wealthy enough, your life is a floating dream of vacant apartments in the stratosphere and Prada capes that are better than all the others. The non-wealthy are muppets … who must pay for everything and do so by borrowing.

Good news! The USA is to be spared the worst ravages of something or other … (Bloomberg):

U.S. Gains From Good Deflation as Europe Faces the Bad KindRich Miller, Simon KennedyWhen it comes to deflation there’s the good — and there’s the bad and ugly.Europe faces the risk of the latter as it teeters on the edge of a recession that could trigger a debilitating dive in prices and wages. The U.S., meanwhile, may end up with the more benign version as surging oil and gas supplies push energy costs down and the economy ahead.“Bad deflation weakens growth,” Nancy Lazar, co-founder and a partner at Cornerstone Macro LP in New York, wrote in a report to clients this month. “Good deflation lifts growth.” Lazar also co-founded International Strategy & Investment Group LLC more than 20 years ago.The Trouble With Falling Prices

That’s welcome news for U.S. investors. Billionaire Paul Tudor Jones, one of the most successful hedge-fund managers, said on Oct. 20 that U.S. stocks will outperform other equity markets for the rest of the year, according to two people who heard him speak at the closed-door Robin Hood Investors conference in New York.

Hedge fund manager David Tepper, who runs the $20 billion Appaloosa Management LP, told the same conference the following day that investors should bet against the euro, two people familiar with his remarks said.

For a country that is as indebted as the US, deflation or even diminished inflation is fatal. Deflation exists when assets (capes, vacant apartments) are worth less than the debt taken on to gain them. At the same time the (borrowed) funds needed to retire the debts are worth more and increasingly difficult to find (the muppets cannot borrow). A ‘scarcity premium’ is added to the funds in real terms; this premium increases faster than debts can be reduced.

Debt repayment removes funds from circulation: this drives up the scarcity premium in a vicious cycle; the more you repay the more you owe in real terms! At some point the only way to reduce debts fast enough to keep up with the increasing scarcity premium is for lenders to fail and for debts to be repudiated! This is definitely not good news …

Fuel prices have declined because fuel customers are bankrupt … not due to any ‘glut’. Those enlisted in the repayment endeavor are the masses scurrying around the bases of the billionaires’ massive towers. If the billionaires are required to repay their own debts they obviously won’t be billionaires any more, nor will there be funds available for others to repay. The bad news is that billionaires and their personal shoppers refuse to understand how the economy works. If they did they would not borrow more than what the non-billionaires can repay by way of their labor. Excess borrowing = illusion of wealth = inevitable insolvency.

In our interconnected world with giant forex- and dollar bond markets, deflation respects no borders, its effects are not confined to one country. China deflation ships out to South America and Australia, it punctures mortgage debt bubble in Canada which in turn cuts funds needed by tar sands operators. Ultimately, deflation results in illiquid markets and credit freezes.

Good News! Petroleum prices have declined, now what?

Fuel price action reflects markets that are actually functioning as they should rather than manipulated one-way markets as with equities. Customers are making a choice between purchasing fuel or purchasing alternative goods. Even as fuel price declines spare customers at the pump/ticket counter, the drop in price reflects a loss of worker income along with an increase of unserviceable worker debt: always customers = workers. The resulting shortage of funds ricochets though retail, consumer producer- and China export sectors.
Screen Shot 2014-10-27 at 11.57.00 AM
Figure 1: Americans are burning less fuel, prices are steadily declining, supply-and-demand does work, chart by Doug Short, (click on for big).

Declining energy prices reflects both consumer choice and declining worker purchasing power. Customers adapt by not bidding for fuel. At some point customers choose to hold off purchases looking for still lower prices in the future; as funds in circulation decline the consumers are left with no choice, they cannot afford any fuel at any price no matter how low: this is ‘energy deflation’.

Customers are only able to afford big-ticket items such as cars by taking on excessive leverage. In addition to the high costs for fuel there are the increased costs for healthcare, government/military and higher education … also costs incurred by way of deteriorated infrastructure. All of these cost must be met by more customer borrowing.

Today’s customer cannot borrow enough to meet his systemic obligations. There is nothing he can afford to buy that he can borrow against, he cannot afford an apartment in a tower in Manhattan.

Lower petroleum prices aim to undermine oil driller balance sheets, (Energy Policy Information Center- EPIC):

Report Warns of Capex Crisis for Oil MajorsCrude oil prices tumbled this month on the heels of historically high U.S. oil production and a downwardly revised global energy demand outlook. The conventional economic wisdom is that the market requires high oil prices for international oil companies to break-even. High prices, after all, boost the profitability of expensive, unconventional ventures. A new report finds that, in addition, high prices impact long-term investments in unconventional projects and heighten the oil majors’ risk of stranded assets.Kepler Cheuvreux, a research organization, contends that market conditions evolve to shift supply from more expensive energy sources to less expensive ones. Over time, they say, high oil prices encourage investment in alternative energy research and development, and lead to a decline in the cost of those sources over the long term. For oil majors, this means that capital-intensive unconventional projects, like the Canadian oil sands, or deepwater and Arctic drilling, may lose profitability, and actually become financial risks.

From the Wall Street Journal, (WSJ):

Fracking Firms Get Tested by Oil’s Price DropRussell Gold, Erin AilworthTumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump.Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012.Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85.“There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.”

Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets.

The real problems are on the consumption side. Because drillers are firms, they have access to credit that is unavailable to customers who are individuals. The cost of credit scales inversely to potential borrowing capacity. A firm can borrow at less unit- cost than can a human, a government can borrow at even more cheaply. Between drillers and their customers, affordable funds are available to the drillers that cannot be had by customers. The consequence is customers are starved for funds even as they need more to meet both fuel- and non-fuel costs:
Screen Shot 2014-10-14 at 5.16.17 PM
Figure 2: How low a price? Price of historical Brent Crude illuminating longer-term downtrend since 2008, (Zero-Hedge):

Scale buys time (now) but there is a time cost to fuel; customers must retire the drillers’ loans, they must do so by borrowing because ‘using’ (destroying) the fuel does not offer any returns. When drillers purchase time they add to customers’ loan burdens. When customers are unable to borrow the drillers fail … along with both parties’ lenders!

Customers are being gutted, (Wolf Richter):

What NCR just Said about the American Retail QuagmireAn epidemic of store closings, restructurings, bankruptcies… as the American consumer runs out of options …When NCR announced its preliminary and disappointing third quarter results today, it lowered its guidance for the rest of 2014. Its stock got knocked into a breathtaking 21% plunge. While at it, NCR revealed to just what extent brick-and-mortar retailers were sinking into a quagmire …NCR, a thermometer into (the butt of) the retail industry beyond the latest sales statistics, has noticed that brick-and-mortar retailers are cutting back. And they’re not just cutting back buying point-of-sale devices; they’re cutting back, period. “Ongoing retail consolidation,” Nuti called it. And some are using bankruptcy courts to do it.

More carnage, more Wolf Richter:

What Unilever just Said About Consumers Around the World: “It’s Really Tough out There”Over the last few days, one after the other reported what are more or less unvarnished quarterly revenue and earnings debacles.At McDonald’s, global revenues fell 5% and net income plunged 30%. At Coca-Cola, international volume was up a measly 1%, but in the US, volume declined 1%. Revenues were down fractionally for the quarter and 2% year-to-date. Net income in the quarter dropped 14%. Revenues at third largest beer-giant Heineken, which brews its stuff in 70 countries, dropped 1.7%. People are scratching their heads: are consumers actually cutting back on beer? Other companies too have reported disappointing results.On Thursday it was Unilever, the Anglo-Dutch giant maker of shampoos, deodorants, laundry detergents, ice cream… that warned in its quarterly report about what it looks like “out there,” not in the stock market, but in the real economy around the world.“It is really tough out there,” said CFO Jean-Marc Huët. “We have been at pains to say that for a long period of time.” Consumers are in trouble and are cutting back across key markets, leaving the company with price pressures and crummy sales.

Still more carnage, (Retail Industry About dot com):

Retail chains, large and small, have announced a veritable epidemic of store closings in 2014. Here are the “Top 20″ announcements of store closings. For these 20 chains, the total number of stores to be closed exceeds 4,200!
400 Office Depot/Max (by 2016)
370 Family Dollar
365 Coldwater Creek
360 Dots
300 Blockbuster
300 Sears
225 Staples (through 2015)
223 Barnes & Noble (through 2023)
200 Radio Shack (through 2017)
180 Abercrombie & Fitch (by 2015)
175 Aeropostale (“over the next several years”)
170 Jones Group (by mid-2014)
155 Sbarro
150 American Eagle Outfitters (through 2017)
150 Rent-A-Center
145 Brown Shoes / Famous Footwear
128 GameStop
125 Children’s Place
125 P.S. from Aeropostale
100 Advance Auto

Online retailer Amazon makes up its ballooning losses with volume (and borrowed investor dollars); it is a Ponzi scheme, (Wall Street Journal):

 

View image on Twitter

 

Figure 3: chart of Amazon expenses, revenue, share price and operating earnings. No doubt, some online retailer somewhere is making money selling to broke people.

Retailers are on the front lines, not just within the US; look to the lenders who are underwater, (Guardian):

Twenty-four European banks fail financial stress testsEuropean Banking Authority finds €25bn black hole in finances with nine banks in Italy failing the testsJill TreanorOne in five European banks have failed crucial tests of their financial strength, leaving a €25bn (£19.6bn) capital hole in the continent’s banking system at a time of renewed fears that the five-year long eurozone crisis may be flaring up again.European banking regulators published the test results on Sunday. The findings put particular focus on Italian banks – nine of which failed and contributed €9.4bn to the overall shortfall.The tests by the EBA were imposed on 123 banks, including the UK’s bailed-out Lloyds Banking Group and Royal Bank of Scotland. They were intended to draw a line under concerns about the health of Europe’s banking system by showing if banks had enough capital to withstand a series of economic shocks, such as a rise in unemployment, a sharp fall in house prices or declining economic growth. Twenty-four banks failed the examination.

The gain the needed ‘capital’ (investment funds) the tycoon owners of the banks will borrow more and spend on shares, adding to the burdens of the customers, etc … Upward and ever upward … Those looking to the success of tycoons have to feel pretty good about our economy, those looking at the cohort charged with paying for it all as well as their lenders … they are filled with despair.

The original ‘Good News, Bad News’ article was published in January of this year.

Nothing Lasts Forever

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on November 4, 2013

Forever

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Triangle of Doom 110313(1)

Figure 1: the Triangle of Doom® Brent crude futures by CommodityCharts.com. Where we are within the triangle is a bit like Alice half-way down the rabbit hole. What is at the other end?

Americans don’t want to know as their precious cars slowly slip away … along with the suburbs, the jet vacations to Las Vegas and Orlando, the college educations for the children, the ‘money-for-nothing’ investments, the privilege and the absence of accountability. Right now the car and the cost of fuel is pricing everything else out of reach … and the Americans are too dumb and TV-addled to recognize it.

Drillers are able to borrow from finance for modest periods of time. They have done a very good job promoting their latest speculative efforts and have been able to find hundreds of billions of dollars in new financing for plays that are marginal compared to previous plays. After the drillers borrow the customers arrive to retire the drillers’ loans with their own … either that or the drillers go out of business.

Because the new plays are more complex and difficult to exploit, the amounts needed by the drillers steadily increase. Fifty years ago a dollar would return fifty dollars or more worth of new crude, presently a dollar returns ten dollars or less. This diminution of returns is the consequence of our society’s extraction- and consumption success. No greater drilling effort … or monetary ‘cheating’ … can retrieve lost productivity. Waste has a lower entry cost than drilling; what we do best is waste more, faster.

Customers ultimately meet the cost of petroleum, they must borrow to do so. Meanwhile, what is borrowed for is simply thrown away. Oil in the ground is perpetual but its use is one-time and instantaneous. Because fuel has historically been improperly priced as a ‘loss-leader’ for the rest of industry there is no incentive to find other uses but to burn it for pleasure and label the process ‘work’. This lie has become very costly over the long term,

Continued borrowing in ever-increasing amounts of fuel slowly pauperizes the oil consuming customers who are ruined by their goods’ absence of return. Besides fuel, customers must borrow to pay for cars, freeways, parking lots, insurance companies and militaries. Think of energy components as accounting entities: the cost of fuel- plus the cost of credit needed to gain the fuel are on the ‘expense’ side of the ledger, the returns from using the fuel, the cars, freeways and whatnot are entered on the ‘income’ side, these two entities added together must equal zero. However, fuel use offers minimal returns; driving the car cannot pay for the car or anything else. Balancing the national energy ledger requires borrowing; eventually the account becomes nothing but a mass of bad loans.

This is how the world has accumulated so much debt, not social programs for humans but credit subsidies for the auto- and auto related industries and the absence of return for these things’ users. Right now, the arguments about continuing social programs are about choosing what to jettison in order to keep driving cars and wasting fuel. This is a foolish choice because the onrushing costs of subsidizing the car industry and fuel supply are unsustainable. Regardless of what choice is made the end result is insolvency and deleveraging … and fuel shortages.

A too-high price for fuel causes distress within the credit system: consider the too-high price to be the ‘upper bound’ where enough damage is done to the economy to destroy fuel demand. Since 2008 there has been an observable series of stepwise declining high fuel prices along with repeated crises; each succeeding price lower than those preceding, each crisis being more damaging. The world is becoming poorer every day … made so by the marching real costs of credit and petroleum.

The demand destruction process is incremental and cumulative: over time more customers become insolvent and can no longer borrow. As a consequence, governments have become the world’s borrowers of last resort. They are the ‘last man standing’ able to indirectly subsidize the petroleum industry. Governments and their central banks have become the rear guard of the waste-making status quo even as their own credit costs mount.

The next step down the rabbit hole is for governments themselves to become insolvent … and for the fuel-waste regime to simply fall apart, as it must. This will occur even as the extraction industry by itself appears to be robust … due to its own self-aggrandizing propaganda and wishful thinking on the part of consumers.

Here’s a note by Jeffrey Brown on rising costs, (Peak Oil Barrel/Ron Patterson):

Recent Global Annual Crude Oil Prices Versus Global Net Exports of Oil and Rising US Crude Oil Production.We have of course seen a cyclical pattern of higher annual highs and higher annual lows in global (Brent) crude oil prices in recent years, but I think that the rates of change between successive annual price lows, or troughs following annual oil price peaks, is very interesting.Peak to Trough Annual Brent Crude Oil Prices, 1997 to 2013

    • 1997: $19
    • 1998: $13
    • 2000: $29
    • 2001: $24 (1998 to 2001 rate of change: +20%/year)
    • 2008: $97
    • 2009: $62 (2001 to 2009 rate of change: +12%/year)

 

The 11 year 1998 to 2009 overall of change in trough prices was 14%/year.

    • And then we have 2012 to 2013.
    • 2012: $112
    • 2013: $108 (Est. price)

 

Based on estimated price for 2013, the four year 2009 to 2013 rate of change in the trough price would be 14%/year ($62 to $108).

The long term 15 year 1998 to 2013 rate of change in trough prices would also be 14%/year ($13 to $108).

While currently rising US crude oil production has certainly contributed to keeping annual Brent crude oil prices on a plateau of about $110 for three years, something that is not widely understood is that the annual volume of oil lost to declining production from existing wells is almost certainly increasing at a rapid clip.

Assuming an average production rate of 7.5 mbpd (million barrels per day) for 2013 and assuming a 10%/year decline rate from existing oil production, we would need to replace the productive equivalent of 100% of current US crude oil production over a 10 year period, everything from the Gulf of Mexico to Alaska, in order to maintain 7.5 mbpd.

If we assume that the the decline rate from existing US oil wells increases from about 10%/year in 2013 to 20%/year in 2023 (a more likely scenario in my opinion), we would need about 12 mbpd of new production in 10 years, in order to maintain 7.5 mbpd for 10 years. Under this scenario, the annual volume of oil production lost due to declining production would increase from 0.75 mbpd in 2013 to 1.5 mbpd in 2023.

 

Even if the US can come up with the needed credit, it is hard to see where the needed oil will come from.

Figure 2: decline rates vs. number of wells and extraction rate of new well @ Bakken from EIA, (from Matt Mushalik/CrudeOilPeak). As tight wells age, the rate of depletion increases. More wells must be drilled to keep pace with depletion along with even more to increase ‘production’.

It is not simply age that causes wells to deplete but our restless urge to waste capital for fun, driven by a false understanding that if we do not waste, then someone else will waste in our place.

A proverb in the futures’ markets is, “the solution to $10 corn is $10 corn …” The high priced corn is an incentive for farmers to bring more to the market which would drive prices lower. The energy analog is, “The solution to waste is waste …” Given accelerated rates of waste the outcome is resource capital exhaustion, bankruptcy and the inability to waste at all … not the best way to run a business.

Ruminations on Modern…

Off the keyboard of Steve from Virginia

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Published on Economic Undertow on October 24, 2013

Auschwitz_gas_chamber

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mod·ern
adjective \ˈmä-dərn, ÷ˈmä-d(ə-)rən\
: of or relating to the present time or the recent past : happening, existing, or developing at a time near the present time: of or relating to the current or most recent period of a language: based on or using the newest information, methods, or technology

– “Modern”, from the Merriam-Webster online dictionary.

We live in a modern world, during the modern period; we take ‘modern’ for granted, at the same time it is very difficult to pin down what ‘modern’ is, exactly. We have modifiers and word-association but these are vague and ill-defined. At the same time, everyone knows modern when they see it …

Modernism (disambiguation)

Jump to: navigation, search Modernism refers to a movement in the arts in the late 19th and early 20th centuries, or more generally to modern thought, character, or practice.

Modernism or modernist may also refer to:

  • Modernism (Roman Catholicism), theological opinions expressed during the late 19th and early 20th centuries characterized by a break with the past
  • Modernism (music), change and development in musical language that occurred at or around the turn of the 20th century
  • Modern architecture, attempts at the turn of the 20th century to reconcile the principles underlying architectural design with rapid technological advancement and the modernization of society
  • Modern art, artistic works produced roughly from the 1860s to the 1970s, and the style and philosophy of the art produced during that era
  • Modernist literature, a self-conscious break with traditional styles of poetry and verse in the late 19th and early 20th centuries
  • Modernism/modernity, a peer-reviewed academic journal founded in 1994
  • Modernism: A New Decade, a 1998 album by The Style Council

See also

 

– from Wikipedia

Modern is our culture, a collection of ideas we have about ourselves. Once people become conscious of ideas, they don’t disregard them although some less practical ideas might be forgotten: we are- and will remain modern until we consciously become something else.

Modern is about ‘new-ness’ but it is over five hundred years old. It emerged during the Middle Ages after Johannes Gutenberg invented printing. In short order, ordinary persons learned how to read, they became educated. They learned about the world in a practical way, as it really functioned by way of physical, chemical and biological processes, rather than by mysticism and magic. The myths and fantasies of preceding generations were retired and replaced with more practical versions; this is a reason why modernity has succeeded as long as it has. Myths have remarkable staying power — thousands of years — as long as they are simple enough to remember and be passed on to others.

Modern is the culture of science and technology; it offers nations, constitutional governments, improved medical care, sanitation, media, popular arts, status, wealth, transportation, finance, the sensation of speed, comfort, instant communications, leisure … at least eight intercontinental wars, death camps, mass deportations, epidemics, overpopulation, colonialism, banality, finance bubbles, mass delusions and … all-out assault on natural systems, nuclear weapons and resource exhaustion … Modern is the culture of how to scientifically kill things.

Publius Democritus says:
September 26, 2013 at 11:26 am
As far as the elite’s ability to survive, I think they greatly overestimate their chances. The idea that modern, high-tech industry will survive the coming catastrophe is laughable.The author of this article makes the cardinal mistake of other techno-optimists – and yes, I put him in the camp of a techno-optimist. He deifies human ingenuity, as though it places us in a whole new category of creature that is almost immaterial, and can magically “survive” the destruction of the environment to which it is adapted.At the very least, industrial civilization will collapse. Good riddance. It has been on a genocidal, omnicidal rampage. It no longer produces art worth reading, listening to, or viewing.

— a comment from another blog.

We assume new things are good, that is, they are possessed of a positive virtue. Because modern is always new, it is presumed to be an improvement upon the old. Modernity creates its own values: new = good, old = bad. Every time modernity sells something, these new values are reinforced even if these ‘values’ don’t reflect any sort of reality.

Virtue also exists because everything new passes through the filter of gigantic business- or state entities that are the gatekeepers for all products, useful and otherwise. Because these entities exist and we do not question them, approval assigns virtue to a product, it does not matter whether there is merit to the assignment or not.

Modern is the relationship between a seller and what he offers for sale at any given time. This concept is a little hard to pin down because the relationship appears to be both self-evident and unimportant. However, if the product is ‘life’ during some marketing minute, the promoter will sell life. If on the next minute the product is ‘death’, the promoter will sell death and will do so the same way he sold life. Given time and enough sales, it becomes impossible to tell the difference between life or death or anything else as they are all products that are sold exactly the same way.

 

“A single death is a tragedy, a million deaths is a statistic … “

 

– Joseph Stalin

A modern myth is that material progress is the antidote to war; that given enough generalized prosperity — by way of economic growth and increase in material possessions — the primary motivation for going to war will vanish. At the same time, there is the observable tendency on the part of moderns toward horrific crimes.

Modernity, progress and prosperity provide the illusion of means by which successful war can be waged …

In the beginning of modernity, wars of conquest were indeed remunerative: a handful of adventurers armed with a royal decree were able to conquer a continent, a century later much of Asia and Africa were overrun. Afterward, these places were used up; would-be conquistadors had nowhere to turn but against each other, costs multiplied and returns evaporated even as the technicians invented more diabolical means to murder. Advantages never lasted as the means were either duplicated by adversaries or ways were found to neutralize them.

Modernity created the state, rather it was the instrument by which the state was created by reckless and violent men. Modernity anoints the state by default as the arbiter of power. Of all the characteristics of modernity, the relationship between violence and the state is the most enduring as well as the most self-destructive. Within modernity violence is cultivated- or pulled away from the extremities, from individuals and their natural tendencies toward the center, toward the authority of the state … where the individuals’ urge to violence is given sanction. This amplifies the state’s aggressive tendencies; moderates are swept aside by radicals and the state becomes militant, then bankrupted or destroyed by its own violent actions.

To be modern is to surrender individuality and to merge with the state. Conformity becomes another commercial product of the state and big business … Individuality is non-marketable, it is a competitor to both modernity and state control both of which work to ruthlessly stamp it out.

Modern offers itself as being relentlessly commercial, that is a guise. As such it can dodge away from the accusations that it is an instrument of state excess. Modernity also claims to be idiosyncratic and individualistic, which is absurd. Ideologies that propel nations and enterprises reveal themselves to be components of marketing campaigns red and blue, communism or fascism; Shia or Sunni. Modern is totalitarianism with the human face.

Within modernity, there is no real difference between business and warfare besides tactics, one is a version- or a servant of the other … both pretend to be what they are not, progress must be considered to be war by other means.

Ours is indeed an age of extremity. For we live under continual threat of two equally fearful, but seemingly opposed, destinies: unremitting banality and inconceivable terror.

– Susan Sontag

We wage war against ourselves, our war takes the form of a gigantic, mindless force waging war against everything while pretending not to do so.

Sign on Packard Plant, Detroit

– Niraj Warikoo/DFP, graffiti sign on Packard Plant, Detroit.

Definitions of modern tend toward the self-referential … things are modern because they are modernistic. Ironically, what we see of modern are its artifacts, modern emerges out of history, it exists in the past … and in advertising. We are modern in retrospect because of various modern-appearing calling cards/wreckage we have left behind.

‘Modernity’

Related terms

The term “modern” (Latin modernus from modo, “just now”) dates from the 5th century, originally distinguishing the Christian era from the Pagan era, yet the word entered general usage only in the 17th-century quarrel of the Ancients and the Moderns—debating: “Is Modern culture superior to Classical (Græco–Roman) culture?”—a literary and artistic quarrel within the Académie française in the early 1690s.

In these[which?] usages, “modernity” denoted the renunciation of the recent past, favoring a new beginning, and a re-interpretation of historical origin. The distinction between “modernity” and “modern” did not arise until the 19th century (Delanty 2007).

Phases of modernity

The history of Modernity is construed in many ways. It is mainly aligned with the age of Enlightenment in the 18th Century (also known as Age of Reason).[citation needed] Others[weasel words] have noted that its spread went so far back as the 16th century during the period of Western imperialism. In relation to Media theory it is commonly understood as having emerged in and around the 15th century where the Printing press was first invented.[citation needed]

According to one of Marshall Berman‘s books (Berman 1982, 16–17), modernity is periodized into three conventional phases (dubbed “Early,” “Classical,” and “Late,” respectively, by Peter Osborne (1992, 25):

  • Early modernity: 1500–1789 (or 1453–1789 in traditional historiography)
  • Classical modernity: 1789–1900 (corresponding to the long 19th century (1789–1914) in Hobsbawm‘s scheme)
  • Late modernity: 1900–1989

In the second phase Berman draws upon the growth of modern technologies such as the newspaper, telegraph and other forms of mass media. There was a great shift into modernization in the name of industrial capitalism. Finally in the third phase, modernist arts and individual creativity marked the beginning of a new modernist age as it combats oppressive politics, economics as well as other social forces including mass media (Laughey 2007, 30).[citation needed]

– from Wikipedia

Modernity submits that it is nothing more than a neutral carrier of information; its priests always demand the benefit of the doubt. Within modernity choices are offered between more-or-less identical products, rather than between what is offered and what is excluded. This sleight of hand gives progress its power to co-opt. Modern is propaganda that does not look like propaganda …

Whether it is Clausewitz calling war “the continuation of politics by other means,” or Engels defining violence as the accelerator of economic development, the emphasis is no political or economic continuity, on the continuity of a process that remains determined by what preceded violent action. Hence, students of international relations have held until recently that “it was a maxim that a military resolution in discord with the deeper cultural sources of national power could not be stable, ” or that, in Engels’ words, “wherever the power structure of a country contradicts its economic development” it is political power with its means of violence that will suffer defeat. Today all these old verities about the relation between war and politics or about violence and power have become inapplicable. The Second World War was not followed by peace but by a cold war and the establishment of the military-industrial-complex. To speak of “the priority of war-making potential as the principal structuring force in society,” to maintain that “economic systems, political philosophies, and corpora juris serve and extend the war system, not vice versa,” to conclude that “war itself is the basic social system, with which other secondary modes of social organization conflict or conspire” — all this sound much more plausible than Engels’ or Clausewitz’s nineteenth-century formulas.

– Hannah Arendt

Even as modernity exists only in the past, it aggressively colonizes the future … ‘now’, cool, hip, curvy, trendy, ‘happening’, immediate, hard, metallic, industrial, streamlined, chic … the modern future is relentlessly newer, it is what comes next; every form of post-modern is also modern … Even when current version of modernity is swept away, the replacements will be modern, with slight variations. Our ‘stuff’ requires energy and resources, myths require only memory.

Modern is also fast, which is the modifier for every idea about modern. Everything about modern is fast, it is also about more. Speed for its own sake is a modern virtue the same way violence is a modern virtue: fast and more make right.

ModernityModernity typically refers to a post-traditional, post-medieval historical period, one marked by the move from feudalism (or agrarianism) toward capitalism, industrialization, secularization, rationalization, the nation-state and its constituent institutions and forms of surveillance (Barker 2005, 444).

Charles Pierre Baudelaire is credited with coining the term “modernity” (modernité) to designate the fleeting, ephemeral experience of life in an urban metropolis, and the responsibility art has to capture that experience.

Conceptually, modernity relates to the modern era and to modernism, but forms a distinct concept.

Whereas the Enlightenment (ca. 1650–1800) invokes a specific movement in Western philosophy, modernity tends to refer only to the social relations associated with the rise of capitalism. Modernity may also refer to tendencies in intellectual culture, particularly the movements intertwined with secularisation and post-industrial life, such as Marxism, existentialism, and the formal establishment of social science. In context, modernity has been associated with cultural and intellectual movements of 1436–1789 and extending to the 1970s or later (Toulmin 1992, 3–5

– from Wikipedia

Modernity is the business of replication of ‘goods’ and ideas. What matters is increasing numbers, of products, of sales, of customers of wealth; modernity is the triumph of counting over meaning and the parallel ascendency of economists. Mathematics is the science of numbers, economics is the science of lying with numbers. Progress is the substitution of human labor and art with machines powered by fossil fuels. Modernity empowers the wicked; by making wickedness useful and necessary, it becomes an integral component to the modern state …

Never pick a fight with people who buy ink by the barrel.

– Mark Twain

The passage of five-hundred years has left a world with little to plunder outright, there are diminished returns to wars and conquest, the plunderers are left to cannibalizing each others’ economies if they can. There is the pittance of gain that has resulted from these calamities — as if the human race set out to create a short-cut to paradise but invented the tornado instead. Now, there is the existential challenge to the cult of murder that is modernity, we have no choice but to reinvent ourselves and discover different ways to do business. Instead we keep improving the old methods and amplifying the wickedness … we are trapped.

Society evolves along with the means to distribute information, what can be made of the present? Distribution in our present requires only access to the Internet, a smart-phone or a computer, a printer and money to buy copies at a store. Anyone can say anything they want … and they do … and there is nothing to say. Content evaporates even as the means to distribute it expands in every direction. Information has become facile and incompetent, redundant and pointless; there is nothing but contradictory noise that drowns out everything else.

The populations of dying empires are passive because they are lotus-eaters. There is a narcotic-like reverie among those barreling toward oblivion. They retreat into the sexual, the tawdry and the inane, retreats that are momentarily pleasurable but ensure self-destruction. They naively trust it will all work out. As a species, Margaret Atwood observes in her dystopian novel “Oryx and Crake,” “we’re doomed by hope.” And absurd promises of hope and glory are endlessly served up by the entertainment industry, the political and economic elite, the class of courtiers who pose as journalists, self-help gurus like Oprah and religious belief systems that assure followers that God will always protect them. It is collective self-delusion, a retreat into magical thinking.

 

— Chris Hedges

Yet, this noise is meaningful: the entire edifice of modernity is rotting from the inside out; it relies on a quality of information which it can no longer obtain. Modernity has been undone by its success … as well as the absence of returns. It has become senile, corrupt and decadent. All that remains of it are the residues of its crimes; these are disguised now behind the scrim of myth but due time will reveal these for what they are, no amount of effort will be able to disguise them …

Top image: unknown photographer, a killing room at Auschwitz, a monument to modernity.

They Hang Elephants, Don’t They?

Off the keyboard of Steve from Virginia

Published on Economic Undertow on August 2, 2013

Hanging Elephant 1 Unknown photographer, ‘Hanging of circus elephant ‘Mary’ in 1916. The elephant was strangled with a railway crane after she trampled a handler prior to a show in Kingsport, Tennessee.

Hanging Elephant 1
Unknown photographer, ‘Hanging of circus elephant ‘Mary’ in 1916. The elephant was strangled with a railway crane after she trampled a handler prior to a show in Kingsport, Tennessee.

Discuss this article at the Geopolitics Table inside the Diner

America is a world leader in innovation and technology. Our big idea is to develop solutions where problems do not exist … then contrive problems specifically to justify expanding the use of the solution. A good example is the automobile; humans have had little difficulty getting around the surface of Planet Earth before the auto arrived, we are all born with feet. Afterward it was decided that every component of human existence should be spaced fifteen miles away from all the other components so that use of a car is mandatory.

Likewise, the railroad crane sits idly waiting for the need to arise … to lift something heavy: solution (crane), meet problem (elephants).

 

“Give me your tired, your poor,
Your huddled masses (of elephants) yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost (elephants) to me,
I lift my lamp (elephant) beside the golden door!”

 

Apologies to Emma Lazarus … who could not have possibly imagined in her most fevered dreams the level of balloon-headed idiocy … to which the United States of America has descended at the beginning of the new millenium. The golden door has been re-engineered into a solution searching desperately for problems. It has become a portal through which agencies and individuals smash others as they please for any reason, without any consequences: the revolving golden trap door. It excuses itself for any collateral damage, it is the solution, the problems are ‘threats’ that must be continually created so that the door can continue to justify its existence.

Along with the door is the absence or decline of strategy: the process is sanctified, the end or purpose the process is meant to address … vanishes.

Consider Hassan Mustafa Osama Nasr; also known as Abu Omar: Nasr gained his fifteen milliseconds of fame for being kidnapped in Italy in 2003 by a group of CIA and Italian operatives, afterward hustled off unceremoniously — or rendered — through the golden door to Egypt where he was tortured by Hosni Mubarak’s intelligence service.
“CIA Kidnaps Its Own Informer in Broad Daylight in Italy, Damaging Italian Al-Qaeda Investigation”
The snatch from the middle of a crowded Milan boulevard created an uproar in Italy which understandably felt its sovereignty had been abused. Nasr’s detention then release from confinement triggered an Italian investigation which led to the conviction in Italian courts of 23 Americans plus 5 Italians. While none of the operatives spent any time in prison — the Americans had fled the country and were tried in absentia — the top-secret operation was entirely exposed. For the first time, Americans in their official capacity were convicted of crimes by an ally; the CIA as well as the Bush administration were publicly humiliated.

’24′ is an American television series produced for the Fox network and syndicated worldwide, starring Kiefer Sutherland as Counter Terrorist Unit (CTU) agent Jack Bauer. Each 24-episode season covers 24 hours in the life of Bauer, using the real time method of narration. Premiering on November 6, 2001 …

 

November 6 + 19 + 31 = 56. Television bosses move fast when there is money to be made, in this case, just days after 9-11, Fox Television had America’s most potent response to International Islamic Terrorism ready to deploy! Life imitates art, as Oscar Wilde observed; CIA rendition offered the chance for career bureaucrats in cushy overseas billets to pretend to be Jack Bauers in real time using real humans as disposable props … and because the analog was on prime-time television, for the public to approve of it!

Nasr was just one of dozens detained then ejected through the infernal golden door into CIA-associated dungeons then abused. None of the information obtained with torture from the detainees amounted to anything. Little- or nothing was accomplished by way of the effort except to demonstrate in real time the US as a rogue country run by incompetent criminals. The rendition program was a public relations stunt -slash- solution to a non-existent problem.

The CIA could have left the entire Nasr matter to the Italians without getting involved. The US bosses post-9-11 felt that to be too ‘unmanly’; operatives flew into Italy ready pounce on the hapless Nasr. Presumably the spies checked into their hotels using the code-name ‘Jack Bauer’ …

 

The operation, it turns out, took much longer to complete than the CIA had planned, and as it dragged on, discipline on the eleven-member abduction team broke down. Two agents used their cell phones to call home. At least two others decided to use the trip for romantic encounters in rooms at some of Milan’s swankier hotels, like the Sheraton Diana Majestic and the Principe di Savoia, on the CIA’s dime. One team member, believed to be a freelance contractor, used his real name when checking in to hotels. Worst of all, Langley had given the team walkie-talkies to use for operational communications -— a $20 solution that would have kept the operation airtight. (The former senior CIA official told me the agents felt the two-way radios “made them look too much like spies” when they were on Via Guerzoni and scrapped them for cell phones.)“This was amateur hour with a bunch of Keystone Kops,” said former CIA officer Milt Bearden.

 

Of course they didn’t want to ‘look like spies’ … who would?

The CIA station chief in Rome was an ex-cop with a Honduran background named Robert Seldon Lady. He was a year from retirement at the time of the kidnapping, looking forward to the good life in the north of the country. He had just bought a multi-million dollar villa outside of Turin with his wife, from where he could employ himself as a (highly-paid) security consultant. As it turned out, circumstances compelled Lady to leave the country in a hurry and his property behind. Ironically, Lady’s villa was eventually confiscated by the Italians, then sold to provide a partial restitution payment to Nasr for damages suffered at the CIA’s hands!

 

“Bob should have been a minor figure in this operation,” said a former senior CIA official. “Unfortunately, that is not how things played out. It’s sad, really. He should not have put anything work-related on his home computer. That was just stupid.”

 

The question never asked is how a mid-level civil service employee with a modest salary could possibly afford a multi-million dollar villa in Turin in the first place. Lady recently materialized on the Panamanian-Costa Rican border waiting to be hustled away by Americans before he could be turned over to the Italians on an Interpol warrant.

It is not just intelligence services that are solutions looking for problems …

From the Open Society Foundation website:

 

After being extraordinarily rendered by the United States to Egypt in 2002, Ibn al-Shaykh al-Libi, under threat of torture at the hands of Egyptian officials, fabricated information relating to Iraq’s provision of chemical and biological weapons training to Al Qaeda. In 2003, then Secretary of State Colin Powell relied on this fabricated information in his speech to the United Nations that made the case for war against Iraq.

“They were careless people, Hotel Two-Six and Crazyhorse One-Eight — they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.”– F. Scott Fitzgerald ‘The Not-So-Great Gatsby’

 

‘Rambo 4′, starring Sylvester Stallone was produced by Millennium Films, Nu Image Films for Equity Pictures and Medienfonds GmbH. Released in 2008, the film cost $50 million to make with a box office of $113,244,290. It has a Rotten Tomatoes score of 37%. The video released by Wikileaks cost two trillion US dollars and 100,000+ lives to make and is due to send Bradley Manning to the stockade for 20 years- to life. Its Rotten Tomatoes score is unknown, however the result was the revelation of the military — by the military itself — as a collection of anxious, undisciplined solutions hunting for problems; Rambos desperate to find someone or anyone to kill, just to be able to do so.

The Army’s helicopter footage exposed the rottenness at the heart of American Exceptionalism, exposed the wars in Iraq and in Afghanistan as PR campaigns gone badly awry just like Extraordinary Rendition. Online spying and interception of the world’s cellphone conversations are more of the same; expensive, ultimately useless endeavors looking for ways to justify themselves: our disciplined adversaries use the $20 walkie-talkies and avoid the Internet.

It is unsurprising the establishment is frantic to punish Manning and the others: the USA sells itself to the world as omnipotent; history’s last superpower. The revealed inner workings of the establishment and failed outcomes offer a completely different narrative: a country that is disconnected from reality, living in the past; a country whose leadership relies on bullying and abuse of others, cannibalizing goodwill earned in blood by the efforts of previous generations. It is a country that has no idea what it is about or what it is doing. In a flash of lightning perceptions are permanently altered: the empire’s garments are tatters; the elephants are out of the bag never to be retrieved.

The Senate Judiciary Committee is investigating the spy program; the failures are obvious, not much effort should be needed …

 

Senate Panel Presses N.S.A. on Phone LogsAt a Senate Judiciary Committee hearing, the chairman, Patrick J. Leahy, Democrat of Vermont, accused Obama administration officials of overstating the success of the domestic call log program. He said he had been shown a classified list of “terrorist events” detected through surveillance, and it did not show that “dozens or even several terrorist plots” had been thwarted by the domestic program.

 

Nobody asks the security and military bosses who is getting rich by way of these programs, nobody follows the money. To ask is un-American; the country exists so that a handful of diabolical tycoons can become richer than they already are. There is no doubt that some of the hundreds of billions- and trillions of dollars directed toward ‘security’ are being diverted into hungry pockets. Left up to the establishment, nobody will ever find out.
Crazed Terrorists 1

Identify the terrorist® if you can; he is the one with the cold, pitiless stare. The marketing industry labors without pause to meet expectations in the public mind of what a terrorist is supposed to look, dress and act like as they do with economists and other public figures.

The wars, renditions and spying taken together are distractions. Instead of al Qaeda, the danger to America has more to do with its own success; cannibalized resources and the country’s monstrous debts. The cost in lives is paid not on the battlefield but on our nation’s highways to the count of thirty thousands and more casually written off every single year as the price for doing the auto industry’s dirty business.
Detroit-USA Debt 1
Chart by Heritage Foundation, (click on for big). Using public relations, the establishment of central banks and state treasuries manipulates the finance markets at will; within the American market state there is the belief that everything outside of finance can be manipulated the exact same way.

The establishment doubles-down with more distracting PR: instantly there are new ‘threats’ exposed by now-discredited spying programs. Soon to come is the charade of color-coded alerts, more groping and humiliation at the airports, more warrantless searches and seizures, more SWAT team raids as well as more declarations alternating between fear and vengeance. The bosses have fully invested the country in the notion that success in national endeavors comes from fooling yourself: there is ‘fracking’ and the “100 years supply” and ‘Energy Revolution’ and ‘Saudi America’ … we content ourselves with the thin gruel of ‘Mission Accomplished’ and ‘they will welcome us as liberators’. We live vicariously through the media, we abandon our own lives to interested others … plutocrats who do not care if they destroy everything.

We are caught out in a frenzy of villas and luxury cars, jet vacations and money; we know instinctively without any intelligence agency having to tell us that all of these things are vanishing like mirages before our eyes. The grip these things have on us tightens and we lash out in futility …

“Gatsby believed in the green light, the orgastic future that year by year recedes before us. It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms further … And one fine morning –So we beat on, boats against the current, borne back ceaselessly into the past.”

Knarf plays the Doomer Blues

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