Silver

Commodity Complex Crash Commences

 Deflation-problemgc2reddit-logoOff the keyboard of Michael Snyder

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Published on the The Economic Collapse on December 8, 2015

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The Global Commodity Crash Tells Us That A Major Deflationary Financial Crisis Is Imminent

If we really are plunging into a deflationary global financial crisis, we would expect to see commodity prices crash hard.  That happened just before the great stock market crash of 2008, and that is precisely what is happening once again right now.  On Thursday, the Bloomberg Commodity Index closed at 79.1544.  The last time that it closed this low was 16 years ago.  Not even during the worst moments of the last recession did it ever get so low.  Overall, the Bloomberg Commodity Index is down more than 28 percent over the past 12 months, and it has plummeted by more than half since mid-2011.  As a result of this stunning commodity collapse, extremely large mining companies such as Anglo American are imploding, giant commodity trading firms such as Glencore and Trafigura are in full-blown crisis mode, and huge portions of the global financial system are in danger of utterly collapsing.

In recent days, I have been trying to stress that many of the exact same patterns that we witnessed just prior to the great stock market crash of 2008 are happening once again.  This includes the staggering crash of commodity prices that we are currently witnessing, and even CNN acknowledges that there are parallels to what we experienced seven years ago…

The last time raw materials like copper and oil were this cheap, an economic depression loomed just around the corner.

It’s no secret that commodities in general have had a horrendous 2015. A nasty combination of overflowing supply and soft demand has wreaked havoc on the industry.

But prices for everything from crude oil to industrial metals like aluminum, steel, copper, platinum, and palladium have collapsed even further in recent days.

As I mentioned above, this crash in prices is hitting mining companies really hard.  Just this week, the fifth largest mining company in the entire world announced a massive restructuring and will be laying off tens of thousands of workers…

In the latest example of just how bad things have gotten, Anglo American–the world’s fifth largest miner–just kitchen sink-ed it, announcing a sweeping restructuring, a massive round of layoffs, and a dividend cut. The company will reduce its assets by some 60% while headcount will be cut by a whopping 85,000 or, nearly two-thirds. 

Overall, the U.S. has lost approximately 123,000 good paying jobs from the mining sector since the end of 2014.  And if commodity prices stay low, this sector is going to continue to bleed good paying jobs.

Meanwhile, investors have been dumping the debt of any companies that have anything to do with commodities.  This has significantly contributed to the emerging junk bond crisis that I discussed in my last article.  As I write this, a high yield bond ETF known as JNK has fallen all the way down to 34.31, which is the lowest that it has been since the last recession.  For much more on the junk bond implosion, I would encourage you to read an article that Wolf Richter just put out entitled “Bond King Gets Antsy as Junk Bonds, Which Lead Stocks, Spiral to Heck“.

So why are commodity prices falling so rapidly?

Many analysts are pointing to the economic slowdown in China as the primary reason.  For years, the Chinese economy voraciously gobbled up commodities from sources all over the planet, but now things are changing.  The Chinese economy is really, really slowing down, and some recently released numbers give us some clues as to the true extent of that slowdown…

-Chinese exports fell 6.8 percent in November on a year over year basis after being down 6.9 percent on a year over year basis in October.

-Chinese imports were down 8.7 percent in November on a year over year basis.

-Chinese manufacturing activity has been contracting for nine months in a row.

-Last week, the China Containerized Freight Index plummeted to 718.58 – the lowest level ever recorded.

And of course it isn’t just China.  Goldman Sachs says that the seventh largest economy on the entire planet, Brazil, has plunged into a “depression“.  And as I pointed out the other day, of the 93 largest stock market indexes in the entire world, an astonishing 47 of them (more than half) are down at least 10 percent year to date.

Even though stocks slid in the U.S. this week, the major indexes still seem somewhat stable.  But this is a bit of an illusion.  Yes, the biggest names on Wall Street are still flying high for the moment, but shares of a multitude of smaller and mid-size firms have been plummeting.  At this point, nearly 70 percent of all U.S. stocks are already below their 200 day moving averages.  This is yet another thing that we would expect to see just before the bottom falls out for stocks.

Everything that I have been writing about this week (see here and here) is perfectly consistent with all of my warnings from earlier this year.

We are plunging into a deflationary financial crisis in textbook fashion.  And if the Federal Reserve actually does decide to go ahead with an interest rate hike next week that is just going to make things even worse.

But most people are not patient enough to watch a process play out.  Most people that write about “the coming economic collapse” hype it up like it is going to be some sort of big Hollywood blockbuster that is going to happen over a week or a month and then be over.  That is definitely not the way that I see things.

To me, “the economic collapse” is something that has been happening for decades, that is still in the process of happening right now, and that will continue to happen as we move forward into the future.  The long-term trends that are ripping our economy to shreds continue to intensify, and our leaders are not doing anything to fix our underlying fundamental problems.

And the financial crisis that I warned would start during 2015 and accelerate in 2016 has already begun.  More than half of all major global stock market indexes are down by at least 10 percent year to date, and some of them have plummeted by more than 30 or 40 percent.  Trillions of dollars of wealth has been wiped out around the globe, and this is just the beginning.

All of the numbers tell us the same thing.

Big trouble is ahead.

My job is to inform you of these things.  What you choose to do with this information is up to you.

Survey: Ordering Preps for Collapse – Results: Fate of Countries in Collapse

survey-says-2gc2Off the keyboard of RE

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Published on the Doomstead Diner on Septemeber 30, 2015

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TAKE THE ORDERING PREPS FOR COLLAPSE SURVEY HERE

Our new Collapse Survey TM for this week is on how you should order up your preps for Collapse.

There is a lot of dispute on this topic, particularly with folks who think Gold & Silver are important Collapse Preps to have.  Theory there is that the PMs will hold their value when the fiat money collapses. So do you want to convert your current paper or digibit money into Gold if you have some savings?  How much of your pile should be held in Gold? 

Alternatively, you have many folks looking at a Mad Max scenario unfolding, so they are more partial to Steel & Lead as an investment.  AKA, Guns and Ammo.

Then you have the Back to the Land folks who feel the best investment is to buy your own piece of property and start growing your own veggies.  Except, once your Goobermint is outta biz, who exactly enforces you Property Rights to that patch of land?  If you are a Libertarian or Anarchist who wants to see Goobermint disappear, than what gives you the right to own a piece of property?

In the survey, you get $10,000 to spend on whatever preps you like, distributed out however you like.  If you're going to buy land with that, it's probably going to take at least half of it right there.

Anyhow, you can express some of your opinions on these topics in this Survey.

survey-saysNow. on to the results from last week's survey, the Fate of Countries in Collapse! 🙂

Although I did include questions to rank many countries and/or regions as to their fate in collapse, mainly the survey was focused on the "Big 3", the FSoA, Russia and China.

There s a constant debate ongoing in the Collapse Blogosphere as to which of these countries will fare the best as collapse marches onward, and there is a lot of ideological spin that goes along with that analysis also.

So, here I tried to strip some of that out and just get a hard and fast global viewpoint on which will be best and worst as time goes by.

Below here are the results from this survey.

For most dead people in gross numbers, the Winner is

  1 2 3 4 5 6 7 8 Standard Deviation Responses Weighted Average
China 19
(31.15%)
15
(24.59%)
7
(11.48%)
5
(8.2%)
2
(3.28%)
7
(11.48%)
2
(3.28%)
1
(1.64%)
5.9 61 3.18 / 11
India 12
(19.67%)
11
(18.03%)
10
(16.39%)
6
(9.84%)
7
(11.48%)
5
(8.2%)
2
(3.28%)
2
(3.28%)
3.8 61 3.97 / 11
Middle East-North Africa 3
(4.92%)
7
(11.48%)
13
(21.31%)
10
(16.39%)
5
(8.2%)
7
(11.48%)
10
(16.39%)
2
(3.28%)
3.96 61 4.74 / 11
Japan 4
(6.56%)
10
(16.39%)
2
(3.28%)
8
(13.11%)
8
(13.11%)
8
(13.11%)
6
(9.84%)
5
(8.2%)
2.81 61 5.38 / 11
USA-Canada 10
(16.39%)
3
(4.92%)
4
(6.56%)
8
(13.11%)
5
(8.2%)
3
(4.92%)
4
(6.56%)
6
(9.84%)
2.31 61 5.8 / 11
Sub-Saharan Africa 4
(6.56%)
8
(13.11%)
7
(11.48%)
4
(6.56%)
9
(14.75%)
0
(0%)
4
(6.56%)
9
(14.75%)
2.54 61 5.95 / 11
Europe 2
(3.28%)
3
(4.92%)
4
(6.56%)
6
(9.84%)
8
(13.11%)
11
(18.03%)
8
(13.11%)
8
(13.11%)
3.37 61 6.08 / 11
Southeast Asia 3
(4.92%)
3
(4.92%)
5
(8.2%)
5
(8.2%)
7
(11.48%)
7
(11.48%)
7
(11.48%)
3
(4.92%)
2.84 61 6.49 / 11
Russia 3
(4.92%)
1
(1.64%)
7
(11.48%)
4
(6.56%)
4
(6.56%)
3
(4.92%)
9
(14.75%)
11
(18.03%)
2.78 61 6.89 / 11
Central-South America 0
(0%)
0
(0%)
2
(3.28%)
2
(3.28%)
4
(6.56%)
8
(13.11%)
8
(13.11%)
9
(14.75%)
4.48 61 7.9 / 11
Australia-New Zealand 1
(1.64%)
0
(0%)
0
(0%)
3
(4.92%)
2
(3.28%)
2
(3.28%)
1
(1.64%)
5
(8.2%)
10.7 61 9.62 / 11

China!

India #2.

Since these are the two most populous countries on the planet currently, this makes perfect sense.  The Kollapsniks TM got this one right! 🙂

Now going by percentage of the current population:

  1 2 3 4 5 6 7 8 Standard Deviation Responses Weighted Average
Middle East-North Africa 14
(22.95%)
9
(14.75%)
4
(6.56%)
6
(9.84%)
3
(4.92%)
6
(9.84%)
15
(24.59%)
1
(1.64%)
4.92 61 4.28 / 11
China 7
(11.48%)
16
(26.23%)
7
(11.48%)
3
(4.92%)
10
(16.39%)
7
(11.48%)
0
(0%)
3
(4.92%)
4.31 61 4.41 / 11
India 3
(4.92%)
13
(21.31%)
6
(9.84%)
5
(8.2%)
13
(21.31%)
5
(8.2%)
5
(8.2%)
5
(8.2%)
3.85 61 4.87 / 11
Japan 6
(9.84%)
7
(11.48%)
6
(9.84%)
16
(26.23%)
5
(8.2%)
4
(6.56%)
4
(6.56%)
4
(6.56%)
3.65 61 4.9 / 11
USA-Canada 16
(26.23%)
3
(4.92%)
5
(8.2%)
3
(4.92%)
4
(6.56%)
6
(9.84%)
6
(9.84%)
5
(8.2%)
3.87 61 5.07 / 11
Europe 6
(9.84%)
2
(3.28%)
6
(9.84%)
6
(9.84%)
5
(8.2%)
14
(22.95%)
3
(4.92%)
8
(13.11%)
3.29 61 5.77 / 11
Sub-Saharan Africa 4
(6.56%)
7
(11.48%)
6
(9.84%)
6
(9.84%)
5
(8.2%)
1
(1.64%)
5
(8.2%)
20
(32.79%)
4.96 61 5.87 / 11
Russia 2
(3.28%)
3
(4.92%)
14
(22.95%)
2
(3.28%)
3
(4.92%)
4
(6.56%)
10
(16.39%)
6
(9.84%)
3.53 61 6.3 / 11
Southeast Asia 1
(1.64%)
0
(0%)
2
(3.28%)
11
(18.03%)
7
(11.48%)
3
(4.92%)
8
(13.11%)
5
(8.2%)
5.09 61 7.15 / 11
Central-South America 0
(0%)
1
(1.64%)
2
(3.28%)
1
(1.64%)
4
(6.56%)
9
(14.75%)
5
(8.2%)
4
(6.56%)
6.16 61 7.92 / 11
Australia-New Zealand 2
(3.28%)
0
(0%)
3
(4.92%)
2
(3.28%)
2
(3.28%)
2
(3.28%)
0
(0%)
0
(0%)
11.62 61 9.48 / 11

In this case, MENA got the nod for most dead people by percentage of population, which I also would generally agree with considering so much of it is already DESERT.  However, I would have ranked both Japan and sub-Saharan Africa higher.

Now the "Big 3" questions, comparing the fate of the FSoA, China & Russia in the post-collapse world:

Which one does best?

  USA China Russia Standard Deviation Responses
All Data 19
(31.15%)
11
(18.03%)
31
(50.82%)
8.22 61

The Ruskies win this one hands down.  Most Kollapsniks believe that since Mother Russia has already experienced collapse, they're more resilient.  Also, they like the people/land ration and the resources.

Here's Text Responses:

Strict. Authoritarian. Tight control. Strong military. Organizational capability and enforcement.
Our words are backed by working nuclear weapons.
Technology, temperate lands with a relatively large amount of resources, mid-large population, science.
abundance of natural resouces, people/land ratio
 

Where would most Kollapsniks prefer to be living post-collapse?

  USA China Russia Standard Deviation Responses
All Data 47
(77.05%)
2
(3.28%)
12
(19.67%)
19.29 61

Despite most Kollapsniks believing Mother Russia will do better, they still would rather be here in the good old FSoA.  This also is not surprising given the demographic of Kollapsniks is about 50% Amerikan and most folks want to stay where they are comfortable, know the language and fit in culturally.

Here's text responses on this one:

As a country, the United States may still be able to hold things together. Even if not, the social and cultural landscape is most familiar.
I speak English
The other two have a funny history when it comes to instability and killing people.

Finally, which country is likely to experience Political Upheaval and Revolution first?

  USA China Russia Standard Deviation Responses
All Data 26
(42.62%)
27
(44.26%)
8
(13.11%)
8.73 61

This is almost a dead even race between China and the FSoA, with Mother Russia coming in a distant 3rd.  Not sure why Kollapsniks think the Ruskie Goobermint is so stable though.

For myself, I will take a Middle Ground here (not available on the Survey) and stay in Alaska, but have it Repoed by Mother Russia. 🙂

OK, now get to it and take the new Ordering Preps for Collapse survey!

How to Lose an Empire

Off the keyboard of Ugo Bardi

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Published on Extracted on March 23, 2014

Image from an advertising campaign for Pirelli in the 1990s.

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Power is nothing without control

Empires seem to be a typical human structure that reappears over and over in history. The problem is that empires are often so efficient that they tend to overexploit and destroy even theoretically renewable resources. The final result is a destructive cascade of feedbacks: not only the empire gradually runs out of resources, but it also runs out of the capability of controlling them; with the two effects reinforcing each other. Power is nothing without control. And, usually, control seems to run out before power.

In practice, empires in trouble tend to fragment into independent blocks or statelets before actually disappearing as economic systems. It is the result of the increasing costs of control, which are not matched any more by the diminishing flux of natural resources. We have seen this phenomenon in recent times with the fragmentation and the disappearance of the Soviet Union. We may be seeing it today with the modern worldwide empire we call “Globalization.” The recent events in Ukraine seem to show that the system, indeed, has troubles in controlling its periphery and may soon fragment into independent blocks.

Of course, it is still too early to say whether what we are seeing today in Ukraine is just a bump in the road or a symptom of impending systemic collapse. As usual, however, history may be a guide to understand what lies ahead. In the following post, I examine the collapse of the Roman empire in light of considerations based on control and resources. It turns out that, even for the ancient Romans, power was nothing without control.

Peak gold: how the Romans lost their Empire

by Ugo Bardi

 

A Roman “Aureus” minted by Emperor Septimius Severus in 193 CE. At nearly 8 grams, the Aureus was truly an imperial coin – the embodiment of Rome’s wealth and power. (image from Wikipedia).
In this post, I argue that precious metal currency was a fundamental factor that kept together the Roman empire and gave to the Romans their military power. But the Roman mines producing gold and silver peaked in the first century CE and the Romans gradually lost the capability of controlling their resources. In a way, they were doomed by “peak gold.”

When I heard for the first time that the Roman Empire fell because of the depletion of its silver and gold mines, I was skeptical. Compared to our situation, where we are facing the depletion of fossil fuels, the Roman case seemed to me to be completely different. Gold and silver don’t produce energy, they don’t produce anything useful. So, why should the Roman Empire have fallen because of something we might call “peak gold”?

And yet, as I delved into the matter, I noticed how evident was the correlation of declining gold and silver availability with the decline of the Roman Empire. We have scant data on the production of Roman mines, mainly located in Spain, but it is commonly believed that production peaked at some moment during the first century CE (or perhaps early 2nd century CE). Afterwards, it rapidly dwindled to nearly nothing, even though gold mining never completely stopped (1).

As you can see in the figure, the loss of precious metal production was reflected in the silver content of the Roman currency. The Romans didn’t have the technology needed to print paper bills, so they just debased their silver currency, the “denarius,” by increasing its copper content. By mid 3rd century, the denarius was nearly  pure copper: “fiat money” if there ever was one. During that  period, gold coins were not debased, but they basically disappeared from circulation. (graph above from Joseph Tainter (2)).

As I argued in a previous post, the progressively dearth of precious metals  correlates well with the various events that took place during the declining phase of the empire and with its eventual disappearance. Of course, correlation doesn’t mean causation but, here, the correlation is so strong that you can’t think it is just a question of chance. With time, it appeared clear to me that there were also clear links between several factors in the collapse of the Empire.

In general, complex systems tend to fall in a complex manner and the Roman Empire did not simply fall because of the lack of its primary energy source which, at that time, was agriculture. Energy (and power) is useless without control and for the Romans controlling the energy generated by agriculture requires capital investments for troops and bureaucracy. Both were affected by the decline of the production of precious metals. In time, the reduced military effectiveness of the empire disrupted the ability of controlling the agricultural system. That condemned the Empire to collapse.

This is a hugely complex story that can’t possibly be exhausted with a mere blog post. Nevertheless, the problem is very general and it can be condensed in a single sentence: “power is nothing without control” So, I believe it is possible to lay down in a relatively short space the main elements of the interplay between gold, military power, and food in Roman times. Let me try.

– The Romans and gold

Ultimately, what creates and keeps together empires is military force. The Roman Empire was so large and so successful because it was, possibly, the mightiest military force of ancient times. The Romans had been so successful at that not because of special military innovations. The recipe for their success was simple: they paid their fighters with precious metal currency. The combined technology of gold mining and coin minting had allowed the Romans to create one of the first standing armies in history. Still today, we call our enlisted men “soldiers”, a term that comes from the Roman word “Solidus;” the name of the late empire gold coin.

Not only money could create a standing army, it could also swell it to large sizes. Enlisting in the legions – the backbone of the army – was reserved to Roman citizens, but anyone could enlist in the “auxilia“, “auxiliary” troops. In the figure, you see Roman auxilia (recognizable by their round shields) presenting the severed heads of Dacians to Emperor Trajan during the Dacian campaign of the 2nd century CE. Normally, Romans were not supposed to cut off enemies’ heads, it was seen as uncivilized, but the auxilia were notoriously a little unruly (note how the Emperor, on the left, looks perplexed). But, by the time of the Dacian wars, the auxilia had become a fundamental part of the Roman army and they were to remain so for the remaining lifetime of the Empire.

Gold and silver were essential elements in the hiring of troops for the Romans and that was especially true for foreign ones. Put yourself in the caligae (sandals) of a German fighter. Why should you put your framea (lance) in the service of Rome if not because you were paid? And you wanted to be paid in serious money; copper coins would not do. You wanted gold and silver currency that you knew could be redeemed anywhere in Europe and especially in that gigantic emporium of all sorts of luxury goods that was the city of Rome, the largest of the ancient world. And, by the way, where did these luxury items come from? Mostly, were imported. Silk, ivory, pearls, spices, incense, and much more came from India and China. Importing these items was not just an extravagant hobby for the Roman elite, it was a tangible manifestation of the power and of the wealth of the empire; something that was an important factor in convincing people to enlist in the auxilia. But the Chinese wouldn’t send silk to Rome in exchange for worthless copper coins – they wanted gold and they obtained it. Then, that gold was lost forever for the Empire which, basically, could produce only two things: grain and troops, neither of which could be exported at long distances.

This situation explains the gradual military decline of the Roman empire. With the decline of the precious metal mines, it became more and more difficult for emperors to recruit troops. The lack of a strong central power caused the empire to become engulfed in civil wars; with the army mainly engaged in fighting chunks of itself and the empire splitting in two parts: the Eastern and the Western. During this phase, the number of troops was not reduced, but their quality strongly declined. After the military reform by Emperor Diocletian during the third century CE, the Roman army was formed mainly of limitanei; not really an army but a border police unable to stop any serious attempt on the part of foreigners to puncture the borders. To keep the empire together, Emperors relied on the “comitatenses” (also with other names) mobile crack troops which would plug (or try to plug) the holes in the border as soon as they formed.

The combination of limitanei and comitatenses worked in keeping the barbarian out of the Empire for a while. But the hemorrhage of gold and silver continued. So, during the last decades the empire, the paradigmatic Roman troops were the “bucellarii” a term that means “biscuit eaters”. The name can be taken as implying that these troops fought for food. Of course that may not have been always true, but it is a clear indication of the dearth of money of the time. There are also reports of troops paid in pottery and in some cases with land – the latter use may have been a factor in creating the feudal system that replaced the Roman empire in Europe.

In a way, as we see, the Romans were doomed by their “peak gold” (and also “peak silver). By the loss of their precious metal supply, the Romans lost their ability of controlling their troops and as a result of their resources. And power is nothing without control.

But the Roman empire did not fall just because it was invaded by foreigners or because it split in multiple sectors. It experienced a systemic collapse that wasn’t just a military one: it involved the whole economy and the social and political systems as well. To understand the reasons of the collapse, we need to go more in depth in the way the Roman economic system worked.

– The Romans and energy

The energy of the Roman Empire came from agriculture; mainly in the form of grain. At the beginning of their history and for several centuries onward, it seems that the Romans had little or no problems in producing enough food for their population. That makes sense considering that in Roman times the population of Europe was less than one tenth of what it is today and hence there was plenty of free space for cultivations. Reports of food problems in the Empire appear only with the 1st century CE and truly disastrous famines appear only with the 5th century CE – when the Western Roman Empire was already in its terminal phase. “Peak food”, apparently, came much later, about 3-4 centuries later than “peak gold”.

The very existence of a “peak food” for the Roman empire is somewhat puzzling: agriculture is, in principle, a renewable technology that had been able to feed the Roman population for several centuries. During the last period of the empire, there is no evidence of a population increase; on the contrary, it is clear that it declined. So, why couldn’t agriculture produce enough food?

The problem is that producing food doesn’t just involve plowing some land and sowing crops. Agricultural yields depend on the vagaries of the weather and, more importantly, agriculture has the tendency of depleting the land of fertile soil as a result of erosion. To avoid this problem, the ancient had a number of strategies: one was nomadism. From Caesar’s “De Bello Gallico” we learn that, as late as in the 1st century BCE, European populations still practiced a nomadic life style. They would do that in order to find new, pristine land and planting crops in the rich soil that they could produce by slashing and burning trees. That was possible because continental Europe, at that time, was nearly empty of people and entire populations could move unimpeded.

The Romans, instead, were a sedentary population and they had the problem of soil depletion. As population grew, it became a larger and larger problem, especially in a mountainous region such as Italy (3). In addition, some urban centers – such as Rome – became so big that they were impossible to supply using just local resources. With the 1st century BCE, the situation led to the development of a sophisticated logistic system based on ships that carried grain to Rome from the African provinces, mainly Libya and Egypt. It was a major task for the technology of the time to ensure that the inhabitants of Rome would receive enough grain and just when they needed it. It required large ships, storage facilities and, more than all, a centralized bureaucracy that went under the name of “annona” (from the Latin world “annum“, year). So important it was this system, that Annona was turned into a full fledged Goddess by imperial propaganda (you can see her in the image above, on the back of a coin minted at the time of Emperor Nero – from Wikipedia). For us, turning bureaucracy into a divine entity may appear a bit farfetched but, perhaps, we are not so far away from that.

Despite its complexity, the Roman logistic grain system was successful in replacing the insufficient Italian production and it permitted to feed a city as large as Rome, whose population approached (and perhaps exceeded) one million inhabitants during the heydays of the empire. But it was not Rome alone which benefited from the annona and the system could create a relatively high population density concentrated along the shores of the Mediterranean sea. It was this higher population density that gave to the Romans a military edge over their Northern neighbors, the “barbarians”, whose population was limited by a lack of a similar logistic system.

But what actually moved grain from the shores of Africa to Rome? In part, it was the result of trade. For instance, grain shipping companies were in private hands and they were paid for their work. But grain itself didn’t move because of trade: the provinces shipped grain to Rome because they were forced to. They had to pay taxes to the central government and they could do so either in currency or in kind. It seems that grain producers paid usually in kind and Rome didn’t ship anything in return (except in terms of troops and bureaucrats). So, the whole operation was a bad deal for provinces but, as usual in empires, opting out was not allowed. When, in 66 CE, the Jews of Palestine decided that they didn’t want to pay taxes to Rome any more, their rebellion was crushed in blood and Jerusalem was sacked. In the end, it was military power that kept the system under control.

The Roman annona system may not have been fair, but it worked fine and for a long time: at least a few centuries. It seems that the African agricultural system was managed by the Romans with reasonable care and that it was possible to avoid soil erosion almost until the very end of the Western Empire. Note also that the annona system doesn’t seem to have been affected – in itself – by the debasing of the silver denarius. This is reasonable: grain producers had no choice; they couldn’t export their products at long distances and they had only one market: Rome and the other major cities of the empire.

But the system that fed the city of Rome appears to have rapidly declined and finally collapsed during the 5th century CE. We have some evidence (3) that it was in this period that erosion turned the North African shores from the Roman “grain belt” into the desert we see nowadays. Possibly, the disaster was unavoidable, but it is also true that warfare does a lot of damage to agriculture and this is surely true for the North African region, object of extensive warfare during the last period of the Roman Empire. More in general, the strain to the economic system generated by continuous warfare may have led producers to overexploit their resources, privileging short term gains to long term stability. Were it not for these events, it is likely that the agricultural productivity of the land could have been maintained for a much longer time. But that was not the case.

With the North African land rapidly turning into a desert, King Genseric of the Vandals (see his face on a “siliqua” coin in the figure), ruling the region, halted the shipping of grain to Rome in 455 CE, then proceeding to sack the city in the same year. That was the true end of Rome, whose population shrunk from at least a few hundred thousands to about 50,000. It was the end of an age and never again would the North African shores be exporters of food.

– The fall of the Roman empire

Complex systems tend to fall in a complex manner and several interlocked factors played a role together first in creating the Roman empire, then in destroying it. At the beginning, it was a technological innovation, coinage of precious metals, that led the Romans to develop a military might that allowed them to access a resource which would have been impossible to exploit otherwise: the North African agricultural land. But, as it is often the case, the exploitation mechanism was so efficient that eventually it destroyed itself. Lower productivity of the precious metal mines reduced the efficiency of the Roman military system and this, in turn, led to fragmentation and extensive warfare. The increasing needs of resources for war were an important factor in destroying the agricultural system whose collapse, in turn, put an end to the empire.

The dynamic interplay of the various elements involved in the growth and the fall of the empire can be seen in the figure below, from a previous essay of mine.  In the diagram, the source of energy is agriculture, but it is just an element of a complex system where various entities reinforce or dampen each other.

The diagram is patterned after the one originally created by Magne Myrtveit for our society described in the 1972 “Limits to Growth” study. This, as other studies of the same kind, provide a nice, aggregated view of the trajectory of an economic system which tends to overexploit the resources it used. As models, however, they are not completely satisfactory in the sense that they don’t include the question of control. It is a cost which needs to be paid and the gradually declining flow of resources makes it difficult. As a result, empires rarely collapse smoothly and as a whole, but rather tend to fragment and engage in internecine wars before actually disappearing. That was the destiny of the Roman Empire which experienced the general rule that power is nothing without control.

The Romans and us

It has always been fashionable to see the Roman Empire as a distant mirror of our civilization. And, indeed, we see that the points of contact are many. Just think of the sophisticated Roman logistic system: the navis oneraria which transported grain from Africa to Rome are the equivalent of our super-tankers transporting crude oil from the Middle East to Western countries. And think how China and India are playing today exactly the same role they were playing in the remote Roman times: they are manufacturing centers which are gradually soaking the wealth of the empire that we call, today, “globalization”.

This said, there is also an obvious difference. The Roman energy system was based on agriculture and hence it was theoretically renewable, at least until the Romans didn’t overexploit it. Our system is based on fossil fuels, which are obviously non renewable resources. Hence, we tend to be more worried about the depletion of our energy resources rather than that of gold and silver which – it seems – we could safely remove from our financial system without evident problems.

Still, there remains the fundamental problem that power is useless without control. The control system of the globalization empire works on similar principles as the older Roman one. It is based on a sophisticated financial system which, eventually, works because it is integrated with the military system. In the globalized army, soldiers, just like the Roman ones, want to be paid. And they want to be paid with a currency that they can redeem with goods and services somewhere. The dollar has, so far, played this role, but can it play it forever?

Eventually, everything that humans do is based on on some form of belief of what has value in this world. The Romans saw gold and silver as stores of value. For us, there is a belief that bits generated inside computers are stores of value – but we may be sorely disappointed – not that there will ever be a “peak bits” as long as there are computers around, but surely a major financial collapse would not just impoverish us, but most of all it would disrupt our capability of controlling the energy resources we need so desperately.

So, when oil pundits line up oil reserves as if each barrel were a soldier ready for battle, they tacitly assume that these reserves will available for use of the global empire. That’s not necessarily true. It depends on the degree of control that the empire will be able to exert on producers. That depends on the financial system which may well turn out to be the weak link of the chain. Without control, power is useless.

The Roman empire was lost when the financial system ceased to be able to control the military system. When the Romans lost their gold, everything was lost. In our case, it may well be that we will lose our ability to control the military system before we actually lose our ability to produce energy from fossil fuels. If the dollar loses its predominance in the world’s financial system, then producers may be tempted to keep their oil for themselves or, at least, not so enthusiastic any more in allowing the Empire to access it. What’s happening today in Ukraine may be a first symptom of the impending loss of global control.

1. “Mining in the Later Roman Empire”, J.C Edmondson, The Journal of Roman Studies, 79, 1989, 84, http://www.jstor.org/stable/301182
2. Tainter, Joseph A (2003. First published 1988), The Collapse of Complex Societies, New York & Cambridge, UK: Cambridge University Press, ISBN 0-521-38673-X,
3. “The Roman Empire: Fall of the West; Survival of the East”, James F Morgan, Bloomington 2012

Clusterfuck Nation: “Commotion” by JH Kunstler

Off the keyboard of James Howard Kunstler

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Published on Clusterfuck Nation September 2013

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Commotion

September 16, 2013                                                                                                                                                 by James Howard Kunstler

    Now that Lawrence Summers has removed himself from consideration as Federal Reserve chairman, President Obama is free to launch him into Syria as the first human rehypothecation weapon of mass destruction, where he can sow enough confusion between Assad’s Alawites and the Qaeda opposition to collateralize both factions into contingent convertible capital instruments buried in the back pages of Goldman Sachs’s balance sheet so that the world will never hear of them again — and then the Toll Brothers can be brought in to develop Syria into a casino / assisted living complex that will bring hundreds of good jobs to US contractors in the region.

     No doubt the stock markets will fly like eagles today. Nobody knew what monkeyshines Mr. Summers might have pulled over at the Fed and it was making investors nervous, as well as the big banks who employed Mr. Summers occasionally as some kind of policy bagman. So a big sigh of relief blew over the Northeast Region of the nation like the gusts of autumn air that swept away a fetid hump of stale, wet tropical weather that ruined all the ladies’ party hair in the Hamptons this month.

     Now that Syria has been disposed of — that is, indefinitely consigned to failed state purgatory — the world can focus its remaining attention on the almighty taper. I’m with those who think we’ll get a taper test. That is, the Fed will cut back ten or fifteen percent on its treasury bond purchases to see what happens. What happens is perfectly predictable: interest rates shoot above 3 percent on the ten-year and holders of US paper all the world round fling them away like bales of smallpox blankets and… Houston, we’ve got a problem. After a month (or less) of havoc in the bond market, and the housing market, Mr. Bernanke will issue an advisory saying (in more words than these) “just kidding.” Then it will be back to business as usual, which is to say QE Forever, which might as well be saying “game over.”

     One must feel for poor Mr. Bernanke. He’s tried to run a long-distance foot-race against reality and now it’s breathing down his neck near finish line. The idea was to pump enough artificial “money” into the economy to give it the appearance of motion, but all he accomplished in the words of my recent podcast guest, Eric Zencey, was a commotion of money, and the commotion was pretty much limited to a few blocks of lower Manhattan, two ribbons of real estate running up the East Side and Central Park West, and a subsidiary disturbance out on the South Fork of Long Island. Everybody else in the country was left to stew in a tattoo-and-malt-liquor torpor at the SNAP Card application office.

      The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all.

     When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.

     By the way, for those of you still watching the charts, notice that gold and silver may bob up and down week-by-week, but the price of oil remains stubbornly above $105-a-barrel no matter what happens. That is the only number you need to know to predict the fate of industrial economies.

Trying to Stay Sane in an Insane World- At World’s End

Off the keyboard of Jim Quinn

Published on The Burning Platform on September 10, 2013

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In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, I made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment I’ll give my best estimate as to what happens next and it has a 100% probability of being wrong. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. There are a myriad of thugs, criminals, and autocrats in positions of power who are willing to exploit any means necessary to retain their wealth, power and control. The revelations of governmental malfeasance, un-Constitutional mass espionage of all citizens, and expansion of the Orwellian welfare/warfare surveillance state, from patriots like Julian Assange, Bradley Manning and Edward Snowden has proven beyond a doubt the corrupt establishment are zealously anxious to discard and stomp on the U.S. Constitution in their desire for authoritarian control over our society.

Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.

 

A moral society must be inhabited by an informed, educated, aware populace and   governed by honorable leaders who oversee based upon the nation’s founding principles of liberty, freedom and limited government of, by and for the people. A moral society requires trust, honor, property rights, simple just laws, and the freedom to succeed or fail on your own merits. There is one major problem in creating a true moral society where liberty, freedom, trust, honor and free markets are cherished – human beings. We are a deeply flawed species who are prone to falling prey to the depravities of lust, gluttony, greed, sloth, wrath, envy and pride. Men have always been captivated by the false idols of dominion, power and wealth. The foibles of human nature haven’t changed over the course of history. This is why we have 80 to 100 year cycles driven by the same human strengths and shortcomings revealed throughout recorded history.

Empires rise and fall due to the humanness of their leaders and citizens. The great American Empire is no different. It was created a mere 224 years ago by courageous patriots who risked their wealth and their lives to create a Republic founded upon the principles of freedom, liberty, and the pursuit of happiness; took a dreadful wrong turn in 1913 with the creation of a privately held central bank to control its currency and introduction of an income tax; devolved into an empire after World War II, setting it on a course towards bankruptcy; sealed its fate in 1971 by unleashing power hungry psychopathic elitists to manipulate the monetary and fiscal policies of the nation to enrich themselves; and has now entered the final frenzied phase of pillaging, currency debasement, war mongering, and ransacking of civil liberties. Despite the frantic efforts of the financial elite, their politician puppets, and their media propaganda outlets, collapse of this aristocracy of the moneyed is a mathematical certainty. Faith in the system is rapidly diminishing, as the issuance of debt to create the appearance of growth has reached the point of diminishing returns.

 

Increase in Real GDP per Dollar of Incremental Debt

“At the root of America’s economic crisis lies a moral crisis: the decline of civic virtue among America’s political and economic elite. A society of markets, laws, and elections is not enough if the rich and powerful fail to behave with respect, honesty, and compassion toward the rest of society and toward the world.”Jeffrey Sachs

Five Stages of Collapse

The day of reckoning for a century of putting our faith in the wrong people with wrong ideas and evil intentions is upon us. Dmitry Orlov provides a blueprint for the collapse in his book The Five Stages of Collapse – Survivors’ Toolkit:

Stage 1: Financial Collapse. Faith in “business as usual” is lost. The future is no longer assumed to resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings wiped out and access to capital is lost.

Stage 2: Commercial Collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down and widespread shortages of survival necessities become the norm.

Stage 3: Political Collapse. Faith that “the government will take care of you” is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social Collapse. Faith that “your people will take care of you” is lost, as social institutions, be they charities or other groups that rush to fill the power vacuum, run out of resources or fail through internal conflict.

Stage 5: Cultural Collapse. Faith in the goodness of humanity is lost. People lose their capacity for “kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity.” Families disband and compete as individuals for scarce resources. The new motto becomes “May you die today so that I can die tomorrow.”

The collapse is occurring in fits and starts. The stages of collapse do not necessarily have to occur in order.  You can recognize various elements of the first three stages in the United States today. Stage 1 commenced in September 2008 when this Crisis period was catalyzed by the disintegration of the worldwide financial system caused by Wall Street intentionally creating the largest control fraud in world history, with easy money provided by Greenspan/Bernanke, fraudulent mortgage products, fake appraisals, bribing rating agencies to provide AAA ratings to derivatives filled with feces, and having their puppets in the media and political arena provide the propaganda to herd the sheep into the slaughterhouse.

The American people neglected their civic duty to elect leaders who would tell them the truth and represent current and future generations equally. They have neglected the increasing lawlessness of Wall Street, K Street and the corporate suite. The American people have lived in denial about their responsibility for their own financial well-being, willingly delegating it to a government of math challenged politicians who promised trillions more than they could ever deliver. The American people have delayed tackling the dire issues confronting our nation, including: $200 trillion of unfunded liabilities, the military industrial complex creating wars across the globe, militarization of our local police forces, domestic spying on every citizen, allowing mega-corporations and the financial elite to turn our nation from savings based production to debt based consumption, and allowing corporations, the military industrial complex, Wall Street, and shadowy billionaires to pick and control our elected officials. The civic fabric of the country is being torn at the points of extreme vulnerability.

“At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where, during the Unraveling, America will have neglected, denied, or delayed needed action. Anger at “mistakes we made” will translate into calls for action, regardless of the heightened public risk. It is unlikely that the catalyst will worsen into a full-fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while. Yet even if dire consequences are temporarily averted, America will have entered the Fourth Turning.”  – The Fourth Turning – Strauss & Howe – 1997

Our Brave New World controllers (bankers, politicians, corporate titans, media moguls, shadowy billionaires) were able to avert a full-fledged catastrophe in the fall of 2008 and spring of 2009 which would have put an end to their reign of destruction. To accept the rightful consequences of their foul actions was intolerable to these obscenely wealthy, despicable men. Their loathsome and vile solutions to a crisis they created have done nothing to relieve the pain and suffering of the average person, while further enriching them, as they continue to gorge on the dying carcass of a once thriving nation. Despite overwhelming public outrage, Congress did as they were instructed by their Wall Street masters and handed over $700 billion of taxpayer funds into Wall Street vaults, under the false threat of systematic collapse. The $800 billion of pork stimulus was injected directly into the veins of corporate campaign contributors. The $3 billion Cash for Clunkers scheme resulted in pumping taxpayer dollars into the government owned union car companies, while driving up the prices of used cars and hurting lower income folks.

Ben Bernanke has peddled the false paradigm of quantitative easing (code for printing money and airlifting it to Wall Street) as benefitting Main Street. Nothing could be further from the truth. He bought $1.3 trillion of toxic mortgage backed securities from his Wall Street owners. He has pumped a total of $2.8 trillion into the hands of Wall Street since September 2008, and is singlehandedly generating $5 billion of risk free profits for these deadbeats by paying them .25% on their reserves. Drug dealer Ben continues to pump $2.8 billion per day into the veins of Wall Street addicts and any hint of tapering the heroin causes the addicts to flail about. Ben should be so proud. He should hang a Mission Accomplished banner whenever he gives a speech. Bank profits reached an all-time record in the 2nd quarter, at $42.2 billion, with 80% of those profits going to the 2% Too Big To Trust Wall Street Mega-Goliath Banks. It’s enough to make a soon to retire, and take a Wall Street job, central banker smile.

“The money rate can, indeed, be kept artificially low only by continuous new injections of currency or bank credit in place of real savings. This can create the illusion of more capital just as the addition of water can create the illusion of more milk. But it is a policy of continuous inflation. It is obviously a process involving cumulative danger. The money rate will rise and a crisis will develop if the inflation is reversed, or merely brought to a halt, or even continued at a diminished rate. Cheap money policies, in short, eventually bring about far more violent oscillations in business  than those they are designed to remedy or prevent.” Henry Hazlitt – 1946

Any serious minded person knew Wall Street had too much power, too much control, and too much influence in 2008 when they crashed our economic system. When something is too big to fail because it will create systematic collapse, you make it smaller. Instead we have allowed our sociopathic rulers to allow these parasitic institutions to get even larger. Just 12 mega-banks control 70% of all the banking assets in the country, with 90% controlled by the top 86 banks. There are approximately 8,000 financial institutions in this country. Wall Street will be congratulating themselves with record compensation of $127 billion and record bonuses of $23 billion for a job well done. It is dangerous work making journal entries relieving loan loss reserves, committing foreclosure fraud, marking your assets to unicorn, making deposits at the Fed, and counting on the Bernanke Put to keep stocks rising. During a supposed recovery from 2009 to 2011, average real income per household grew pitifully by 1.7%, but all the gains accrued to Bernanke’s minions. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Therefore, the top 1% captured 121% of the income gains in the first two years of the recovery. This warped trend has only accelerated since 2011.

The median household income has fallen by $2,400 to $52,100 since the government proclaimed the end of the recession in 2009. Real wages for real people continue to fall. A record 23.1 million households (20% of all households) are receiving food stamps. After four years of “recovery” propaganda, we are left with 2.2 million less people employed (5 million less full time jobs) and 22 million more people on SNAP and SSDI. A record 90.5 million working age Americans are not working, with labor participation at a 35 year low. Ben’s money has not trickled down, but his inflation has fallen like a load of bricks on the heads of the middle class. Bernanke’s QE to infinity constitutes a transfer of purchasing power away from the middle class to the bankers, mega-corporations and .1%. This Cantillon effect means that newly created money is neither distributed evenly nor simultaneously among the population. Some users of money profit from rising prices, and others suffer from them. This results in a transfer of wealth (a hidden tax) from later receivers to earlier receivers of new money. This is why the largest banks and largest corporations are generating the highest profits in history, while the average person sinks further into debt as their real income declines and real living expenses (energy, food, clothing, healthcare, tuition) rise.

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Ben works for your owners. Real GDP (using the fake government inflation adjustment) since July 2009 is up by a wretched 5.6%. Revenue growth of the biggest corporations in the world is up by a pathetic 12%. One might wonder how corporate profits could be at record levels with such doleful economic performance. One needs to look no further than Ben’s balance sheet, which has increased by 174%. There appears to be a slight correlation between Ben’s money printing and the 162% increase in the S&P 500 index. With the top 1% owning 42.1% of all financial assets (top .1% own most of this) and the bottom 80% owning only 4.7% of all financial assets, one can clearly see who benefits from QE to infinity.

The key take away from what the ruling class has done since 2008 is they have only temporarily delayed the endgame. Their self-serving exploits have guaranteed that round two of the financial collapse will be epic in proportion and intensity. This Fourth Turning Crisis is ongoing. The linear thinkers who control the levers of power keep promising a return to normalcy and resumption of growth. This is an impossibility – mathematically & socially. Fourth Turnings do not end without the existing social order being swept away in a tsunami of turmoil, violence, suffering and war. Orlov’s stages of collapse will likely occur during the remaining fifteen years of this Crisis. We are deep into Stage 1 as our national Detroitification progresses towards bankruptcy, with an added impetus from our trillion dollar wars of choice in the Middle East. Commercial collapse has begun, as faith in the fantasy of free market capitalism is waning. The race to the bottom with currency debasement around the globe is reaching a tipping point, and the true eternal currencies of gold and silver are being hoarded and shipped from the West to the Far East.

Monetary Base (billions of USD)

When the financial collapse reaches its crescendo, the just in time supply chain, that keeps cheese doodles and cheese whiz on your grocery store shelves, Chinese produced iGadgets in your local Wal-Mart Supercenter, and gasoline flowing out of gas station hoses into your leased Cadillac Escalade, will break down rapidly. The strain of $110 oil is already evident. The fireworks will really get going when ATM machines run dry and the EBT cards stop functioning. Within a week riots and panic will engulf the country.

“At some point we are bound to hear, from across two oceans, the shocking words “Your money is no good here.” Fast forward to a week later: banks are closed, ATMs are out of cash, supermarket shelves are bare and gas stations are starting to run out of fuel. And then something happens: the government announces they have formed a crisis task force, and will nationalize, recapitalize and reopen banks, restoring confidence. The banks reopen, under heavy guard, and thousands of people get arrested for attempting to withdraw their savings. Banks close, riots begin. Next, the government decides that, to jump-start commerce, it will honor deposit guarantees and simply hand out cash. They print and arrange for the cash to be handed out. Now everyone has plenty of cash, but there is still no food in the supermarkets or gasoline at the gas stations because by now the international supply chains have broken down and the delivery pipelines are empty.”  Dmitry Orlov – The Five Stages of Collapse

We are witnessing the beginning stages of political collapse. The government and its leaders are being discredited on a daily basis. The mismanagement of fiscal policy, foreign policy and domestic policy, along with the revelations of the NSA conducting mass surveillance against all Americans has led critical thinking Americans to question the legitimacy of the politicians running the show on behalf of the bankers, corporations and arms dealers. The Gestapo like tactics used by the government in Boston was an early warning sign of what is to come. Government entitlement promises will vaporize, as they did in Detroit, with pension promises worth only ten cents on the dollar. Total social and cultural collapse could resemble the chaotic civil war scenarios playing out in Libya and Syria. The best case scenario would be for a collapse similar to the Soviet Union’s relatively peaceful disintegration into impotent republics. I don’t believe we’ll be this fortunate. The most powerful military empire in world history will not fade away. It will go out in a blaze of glory with a currency collapse, hyper-inflation, and war on a grand scale.

“History offers even more sobering warnings: Armed confrontation usually occurs around the climax of Crisis. If there is confrontation, it is likely to lead to war. This could be any kind of war – class war, sectional war, war against global anarchists or terrorists, or superpower war. If there is war, it is likely to culminate in total war, fought until the losing side has been rendered nil – its will broken, territory taken, and leaders captured.”The Fourth Turning – Strauss & Howe – 1997

In Whom Do You Trust?

“Use of money concentrates trust in a single central authority – the central bank – and, over extended periods of time, central banks always tend to misbehave. Eventually the “print” button on the central banker’s emergency console becomes stuck in the depressed position, flooding the world with worthless notes. People trust that money will remain a store of value, and once the trust is violated a gigantic black hole appears at the very center of society, sucking in peoples’ savings and aspirations along with their sense of self-worth. When those who have become psychologically dependent on money as a yardstick, to be applied to everything and everyone, suddenly find themselves in a world where money means nothing, it is as if they have gone blind; they see shapes but can no longer resolve them into objects. The result is anomie – a sense of unreality – accompanied by deep depression. Money is an addiction – substance-less and unreal, and sets itself up for a severe and lengthy withdrawal.” Dmitry Orlov – The Five Stages of Collapse

Our modern world revolves around wealth, the appearance of wealth, the false creation of wealth through the issuance of debt, and trust in the bankers and politicians pulling the levers behind the curtain. The entire world economic system is dependent on trusting central bankers whose only response to any crisis is to create more debt. The death knell is ringing loud and clear, but people around the globe are desperately clinging to their normalcy biases and praying to the gods of cognitive dissonance. It seems the only things that matter to our controllers are stock market levels, the continued flow of debt to the plebs, continued doling out of hush money to those on the dole, and of course an endless supply of brown skinned enemies to attack. With every country in the world attempting to the same solution of debasing their currencies, we are rapidly approaching the tipping point. India is the canary in the coal mine.

Government, Household, Financial & Non-Financial Debt (% of GDP)

An exponential growth model built upon cheap plentiful energy and debt creation has its limits, and we’ve reached them. With the depletion of inexpensive, easily accessible energy resources, higher prices will continue to slow world economies. Demographics in the developed world are slowing the global economy as millions approach their old age with little savings due to over consuming during their peak earnings years. Bernanke has already quadrupled his balance sheet with no meaningful benefit to the economy or the financial well-being of the average middle class American. Financial manipulation that creates nothing has masked the rot consuming our economic system. The game has been rigged in favor of the owners, but even a rigged game eventually comes to an end. Americans and Europeans can no longer maintain a façade of wealth by buying knickknacks from China with money they don’t have. The US and Europe are finding that their credit is no longer good in the exporting Far East countries. This is a perilous development, as the West has depended upon foreigners to accommodate its never ending expansion of credit. Without that continual expansion of debt, the Ponzi scheme comes crashing down. As China, Japan and the rest of Asia have balked at buying U.S. Treasuries with negative real yields, the only recourse for Ben has been to monetize the debt through QE and inflation. The doubling of ten year Treasury rates in a matter of three months due to just talk of possibly slowing QE should send shivers down your spine.

We are supposedly five years past the great crisis. Magazine covers proclaimed Bernanke a hero. If we are well past the crisis, why are the extreme emergency measures still in effect? If the economy is growing and jobs are being created, why do we need $85 billion of government debt to be monetized each and every month? Why are the EU, Japan, and China printing even faster than the Fed? The answer is simple. If the debt was not being monetized, it would have to be purchased out in the free market. Purchasers would require an interest rate far above the 2.9% being paid today. The debt levels in the U.S., Europe and Japan are so large that a rise in interest rates of just a few points would explode budget deficits and lead to a worldwide financial collapse. This is why Bernanke and the rest of his central banker brethren are trapped by their own ideology of bubble production. Just the slowing of debt creation will lead to collapse. Bernanke needs a Syrian crisis to postpone the taper talk. Those in control need an endless number of real or false flag crises to provide cover for their printing presses to keep rolling.

There are a couple analogies that apply to our impending doom. The country is like a 224 year old oak tree that has been slowly rotting on the inside due to the insidious diseases of hubris, apathy, selfishness, dependence, delusion, and debasement. The old oak gives an outward appearance of health and stability. Winter has arrived and gale force winds are in the forecast. One gust of wind and the mighty aged oak will topple and come crashing to earth. I think an even more fitting analogy is the sandpile with grains of sand being added day after day. Seven out of ten Americans receive more in government benefits than they pay in taxes. Goliath corporations and the uber-wealthy use the tax code and legislation to syphon hundreds of billions from the national treasury every year. We spend $1 trillion per year on past, current and future wars of choice. Annual interest on the debt we’ve racked up in the last few decades already approaches $400 billion per year. The entire Federal budget totaled $400 billion in 1977. The sandpile grows ever higher, while its instability expands exponentially. One seemingly innocuous grain of sand will ultimately cause the pile to collapse catastrophically. Will it be an unintended consequence of a missile launch into Syria? Will it be a spike in oil prices? Will it be the collapse of one of the EU PIIGS? Will it be an assassination of a political figure or banker? No one knows. But that innocuous grain of sand will trigger the collapse of the entire pile.

Worried people are looking for solutions. They often get angry at me because they don’t think I provide answers to the issues I raise about our corrupt failing system. They want easy answers to intractable problems. Sadly, I’ve come to the conclusion that our system and majority of citizens are too corrupted to change our course through the ballot box or instituting policies along the lines of those proposed by Ron Paul and many other thoughtful liberty minded people. We are experiencing the downside of a representative democracy.  Once a person is democratically elected a gulf is created between the electors and the person they elected, as the representative becomes corrupted and bought by moneyed interests. Elected officials become a class unto themselves. The political class grows to be puppets that resemble human beings but are nothing but cogs in a vast corporate run machine, pawns in an enormous game of chess played by powerful vindictive immoral men.

There are no cures for our disease. It’s terminal. Anyone telling you they have the answers is either lying or trying to sell you something. More people and organizations are on the take than are playing by the rules. The producers are being overrun by the parasites. The barbarians are at the gate. An implosion of societal trust is underway. The next stage of this crisis, which I believe will materialize within the next twelve months will try the souls of the weary.

“As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on.”The Fourth Turning – Strauss & Howe – 1997

As a nation we have squandered our inheritance, born of the blood of patriots. A freedom loving, liberty minded, self-responsible, courageous people have allowed ourselves to fall prey to selfishness, apathy, complacency and dependency. Once we allowed our human appetites of greed, power seeking, and control to override the moral responsibility for our own lives and the lives of future unborn generations, collapse was inevitable. The danger now is what happens after the unavoidable collapse. Will the millions of dependency zombies beg for a strong dictator to protect them, provide for them and lead them into further bondage? Or will the spark of liberty and freedom reignite, allowing citizens to throw off the shackles of banker and corporate control? I believe most of the people in this country are good hearted. We are merely pawns in this game of Risk being played by those seeking power, wealth and world domination. We are all trapped in our own forms of normalcy bias. Have I cashed out my retirement funds, sold my suburban house and built a doomstead in the mountains? No I haven’t. Do I second guess myself sometimes? Yes I do. But even the aware have families to support, jobs to go to, bills to pay, laundry to do, lawns to mow, and lives to live. I can’t live in constant fear of what might happen. We only get 80 or so years on this earth, if we’re lucky. The best we can do is leave a positive legacy for our children and their children. A drastic change to our way of life is coming, but most of us are trapped in a cage of our own making.

Each living generation will need to do their part during this Crisis if we are to survive the coming storm. Since no one knows the nature of how the next fifteen years will unfold, it would be wise to at least make basic preparations for food, water, heat and protection. This is easier for some than others, but you don’t have to star on Doomsday Preppers in order to stock up on items that can be purchased at Wal-Mart today, but won’t be available when the global supply chain breaks down. Make sure you have neighbors and family you can rely upon. A small community of like-minded people with varied skills is more likely to succeed in our brave old world than rugged individualists. With no financial means to maintain our globalized world, living locally will take on a new meaning. After much turmoil, chaos, violence, and likely mass casualties the best outcome would be for the Great American Empire to break into regional republics, incapable of waging global war, led by law abiding moral liberty minded individuals, and willing to trade freely and honestly with their fellow republics. Daily life would revert back to a simpler Amish like time. Would that be so bad?

This Fourth Turning could end with a whimper or a bang. There are enough nuclear arms to obliterate the world ten times over. There are enough hubristic egomaniacal psychopathic men in power, that the use of those weapons has a high likelihood of happening. It will be up to the people to not allow this horrific result. I love my country and despise my government. The Declaration of Independence clearly states that when a long train of abuses and usurpations lead toward despotism, it is our right and duty to throw off that government and provide new guards of liberty. My family comes first with my country a close second. I will fight with whatever means necessary to protect my family and do what I can to influence the future course of our country. Time is running out. Will we have the courage, fortitude and wisdom to make the right decisions over the next fifteen years? Will we choose glory or destruction? The fate of our nation hangs in the balance. Are you prepared? Are you ready to fight for your family and your rights?

The Fourth Turning could spare modernity but mark the end of our nation. It could close the book on the political constitution, popular culture, and moral standing that the word America has come to signify. The nation has endured for three saecula; Rome lasted twelve, the Soviet Union only one. Fourth Turnings are critical thresholds for national survival. Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was regarded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.The Fourth Turning – Strauss & Howe – 1997

 

 IT’S OUR CHOICE.

Tapir Talk

Off the keyboard of Steve from Virginia

Published on Economic Undertow on June 20, 2013

wileycoyote1

Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

Take away moral hazard courtesy of the central bank and what do you have?

Reality bludgeoning the markets, that’s what, (Bloomberg):

 

Energy Commodity Futures

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 95.45 -2.79 -2.84% Jul 13
Crude Oil (Brent) USD/bbl. 102.88 -3.24 -3.05% Aug 13
RBOB Gasoline USd/gal. 279.98 -7.92 -2.75% Jul 13
NYMEX Natural Gas USD/MMBtu 3.88 -0.08 -2.07% Jul 13
NYMEX Heating Oil USd/gal. 288.63 -8.62 -2.90% Jul 13

 

Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,288.80 -85.20 -6.20% Aug 13
Gold Spot USD/t oz. 1,290.24 -61.07 -4.52% N/A
COMEX Silver USD/t oz. 19.75 -1.88 -8.69% Jul 13
COMEX Copper USd/lb. 306.70 -8.45 -2.68% Sep 13
Platinum Spot USD/t oz. 1,367.68 -47.43 -3.36% N/A

 

Crude oil, gold, silver … are crushed. So are stocks on all the major indices around the world. Wall Street banks and players can finance their own positions needing no help from the central bank; they do require reassurance that the Fed will direct public funds — borrowed from the same banks at interest — toward them if any of their bets go wrong.

 

Stocks Slammed, Bond Yields Surge After Bernanke’s Taper Talk Wall Street was a sea of red Thursday morning, on the heels of Federal Reserve Chairman Ben Bernanke’s signal that the central bank’s asset purchase program will slow down as soon as late 2013.

Bernanke was sure to qualify his remarks at Wednesday’s press conference, comparing a tapering of asset purchases to taking his foot off the accelerator, but the initial market reaction indicates traders view the Fed chief’s remarks as a warning that the brakes are coming.

The selloff, which began in the U.S. Wednesday afternoon before racing around the world, produced heavy losses in every asset class. Equities took a beating .Japan’s Nikkei dropped nearly 2% and the major European indexes fell even further, while the S&P 500 began the day with losses worse than 1%, falling 18 points to 1,611 in the first hour of trading.

Commodities took a beating, as crude oil dropped almost 3% to $95.75 a barrel and gold prices plunged nearly 5.5% to less than $1,300 an ounce.

The dollar was one of the few assets in positive territory, rising about 1% the euro and even more than that versus the Japanese yen.

 

Notice that the dollar worth increases relative to that of other assets. Notice also that Treasury bond yields have increased, this suggests there is more to the ‘crisis du jour’ than fiddling with interest rates. There is the dawning realization that central banks have exhausted themselves, that they have little in the way of policy instruments that would effect a major decline, that there are diminished returns to their reflation efforts.

Realization = decline. The markets are like a magical airplane that stays in the air only because all the passengers believe at once that the plane can fly. As soon as the marginal passenger doubts … the airplane falls … so do the markets.

Be sure that higher interest rates are on their way. The feedback loop that effects rates is within the foreign exchange or currency markets, NOT the bond markets. The currency markets are gigantic and outside the reach of central bankers … and their nonstop efforts at manipulation. There is a sorting out- or consolidation of currencies underway, particularly the euro and the Japanese yen: these are currencies that are overpriced leaving holders with massive risks that must somehow be offloaded onto hapless third parties; pensioners, school-children, farmers in third-world countries and the middle classes everywhere.

The euro is effectively worthless because of associated political and management failures within the European Union. Seeing the effects of currency policy on Spain, Greece, Cyprus and others, the euro is revealed as a poisonous liability for its holders, a derivative instrument for a cruel and unaccountable non-country. In a world guided by reason, the euro would be done away with, it would be worth exactly zero, yet it is not. The euro is exchangeable on demand for petroleum, this gives the euro worth.

The Japanese yen is also worth less as it is nothing but a proxy for Japan’s now-stranded automobile waste, both in- and outside that country. The currency exchanges cannot accurately measure the worth of these two currencies; at the same time holders have little choice but to shed their positions, to do otherwise is to caught out when the markets reset. Exiting a position is the repricing mechanism, the process feeds on itself. What is underway in the various sub- and derivative markets is the outcome of large currency position unwinds and the hunt for market fools large enough to relieve the Chinese’ and others’ currency risks.

Currency markets drive the national bond markets as holders of currencies do not hold paper money in vaults but debt instruments or IOUs of sovereign governments. Bonds must be swapped or sold first to gain the currency which is then swapped for the desired dollars. Mercantile exporters such as Japan have massive, illiquid holdings of their customers’ bonds; there is consequently a shortage of currency in circulation which is why the Shanghai Interbank Overnight Rate(s) are massively volatile as is the Japanese bond market.
Tapir 1
Figure 1: Tapir or Tapirus Indicus, hard to see how this harmless, pig-like creature could do so much damage to the finance industry. As mentioned previously, conventional analysis such as Forbes’ beating on the Tapir is misplaced. The focus should be on Japan’s trade deficit, China’s real estate- and debt excesses, Europe’s failed supra-national experiment and America’s creeping totalitarianism. Market repression has been able to keep the related costs from being priced into these countries’ securities but such efforts cannot succeed forever.

Hedge fund boss Kyle Bass does a good impersonation of Nicole Foss, leaving out her bits about farming and Peak Oil. Because Bass manages billions of dollars of other peoples’ money, he is free to speak by the necessities of his business regardless of consequences … and his argument is taken seriously.

In early-21st century America, as in other periods and other places, the content of an argument doesn’t matter so much as the size of the arguer’s bank account and whether the topic can hold the hope for some free money for suckers.

All the crises are interconnected and basically all about the same thing: fuel has become scarce, it has become costly, too costly for ‘others’ to subsidize, the managers desperately try to cheat and then fail, the failure is now becoming apparent and now the speculators are stumbling toward the exits so that they might keep what they can.

Foss offers suggestions to the non-investor on how to withdraw outside the line of financial fire, to exit the Titanic before it hits the ice. Bass looks to profit by the misery of others, to rent seats in the lifeboat; the seats gained from bankers and other finance riff-raff, in reality pensioners and institutional stand-ins for ordinary citizens — widows and orphans — will be the victims suckers as they have since the beginning of time.

Bass is trapped in his own paradigm: when Japan’s calamity occurs, one of the casualties will be Bass, himself. His firm is dependent upon counterparties being willing or able to make good losing wagers, for there to be anything left of the market fools … from which to collect.

It is hard to see those counterparties staying alive with fortunes intact when they themselves must collect from their own failed counterparties. Bass runs a hedge, his hedge is dependent upon all the hedges, all others are hedged against each other; in the very real sense nobody is hedged at all. Here is the reason for the frantic effort over the past five years to prop up every single ‘systemically significant’ finance player on Planet Earth: every one is a counterparty to all the others. The casino which makes up finance is nothing other than trillions of stupid bets, every one made for their own sake, none of which was ever intended to be collected. Because this is so, there is naught but fees demanded by the brokers putting the gamblers — like Bass and his counterparties — together.

The institutional bias fails Bass, what he does not- and cannot understand. The correct strategy is Nicole’s; to stand aside as far as possible from the fracas which is enveloping the entire developed world, to not bet on particular sides because all sides will fail. Bass succeeded in 2008 by taking the opposite side of clearly stupid trades by large banks. The banks sustained losses — which were gains for Bass and his clients — because they were backstopped by the taxpayers’ ability to borrow from the very same banks. The crisis in 2008 illuminated the incestuous circularity of both the lending process and the dependence of each borrower on all the others. When the system Bass depends upon falters, there is no other (ex-planetary) system to bail Bass out!

… or any of the rest of us.

Japan depends its non-Japanese overseas trading partners to subsidize the country’s resource waste by way of its trade surplus. That is, Japan gains more from the goods it sells overseas than what the customer gains from the use of the goods. At some point the customer is exhausted by its ‘Made in Japan’ goods and cannot afford to buy any more. Put another way, Japan has borrowed as much as it possibly can against the accounts of its customers by way of foreign exchange. The customers refuse or are unable to borrow, that strands Japan, (Bloomberg):

 

L.A. Breaks Driving Addiction as Bike-Train Commutes GrowJames Nash

Bikes, Buses Replacing Car Addiction in L.A.

Los Angeles embodied America’s love affair with the automobile in the last century. In this one it’s trying to kick the car to the curb.

The city that put drive-thru restaurants on the map has doubled its network of bike lanes to 292 miles (470 kilometers) and expanded light rail by 26 percent in the past eight years, with another 18 miles of track coming by 2015. Bus and train ridership is on the rise, while the total number of passenger cars registered has declined in Los Angeles County — evidence more commuters are breaking their dependence.

Shrinking Allegiance

“The next 10 years will be as important to the auto industry and transportation literally as the invention of the Model T,” Scott Griffith, former chief executive officer of Zipcar and a strategic adviser to the company, said at the Bloomberg Link Next Big Thing Summit in Half Moon Bay, California, on June 17. “We’re now on the edge of all these new business models coming along and the intersection of information and the car and transportation. If you look out 10 years, I think we’re going to see a huge change, particularly in cities.”

While the new-car market has rebounded from the recession, Los Angeles County had 28,000 fewer passenger cars registered in 2012 than five years earlier, according to California Department of Motor Vehicles data. Boardings on the Los Angeles County Metropolitan Transportation Authority’s buses and trains increased 4.7 percent to 41.3 million in May 2013, compared with May 2011.

 

It isn’t just California, car sales are declining along with stocks and commodities. Taking away the cars punishes Japan while adding more makes matters worse as the fuel burned in the new cars is lost forever. At the same time, the economies of the world are dependent upon more car sales. This is the dilemma that is being resolved right now, to car or not to car …

that is indeed the question.

History & Future of Coinage & Money

Off the keyboard of RE

Published on Reverse Engineering June 2009

http://thebelovedcity.files.wordpress.com/2012/11/poussin-the-adoration-of-the-golden-calf.jpg

Discuss this article at the Money Table inside the Diner

Note from RE:  Monsta and I have both been engaged lately in taking a deeper look at how Money works, particularly in the aftermath of the Gold Smackdown that went down in the paper/digital markets a short while back.

This is not a new topic of course, it’s an old one in the collapse blogosphere, particularly as it relates to the effects of Deflation & Hyperinflation, and I’ve hit on the topic numerous times in the past.  In the course of putting together the most recent series on Money, Monsta turned up the following articles originally published on Reverse Engineering.  Since they relate to my last Future of Money article, I’m republishing them now here on the Doomstead Diner.

RE

We all love to hate Fiat Money. I certainly write plenty of metaphors about “Printing” and “Burning Up the paper we use for currency (though less these days than the Digibits in your account, accessed with your Plastic Card and Password). As the digibits and the paper dissolve and burn up here however, recidivists of the PM variety pine longingly for the days of a Precious Metal Standard. Gold Sovereigns, the Pound Sterling, that sort of thing. I think many fantasize about their own little cask of Louis d’Or Gold coins buried in their backyard, and some may even have the equivalent of that in Gold Eagles or Kruggerands.

http://fc08.deviantart.net/fs71/i/2010/291/f/c/pieces_of_eight_by_werden-d311zw2.pngWhat I would like to discuss here is the limitations of PM Coins as a Currency, and why they in fact are much easier to counterfeit and debase than the paper stuff is.
First off, as you hopefully know, the total amount of gold and silver available for coinage is pretty limited. For Gold, it amounts to about .7 oz for each person on the earth. So, even if you made tiny gold goins of .1 oz each, distributing them out across the world each person could only have an average of 7 coins. One a day, that actually works out nice 🙂 Small though that number is, you still could imagine such a system working if in addition to the 7 Gold Coins you might earn each week, you also could exchange them for say 70 silver coins to use in actual commerce. You give say 20 Pieces of Eight to your landlord for rent, 30 pieces of eight to buy groceries, 10 pieces of eight to buy fuel to heat your house and cook your food, 5 pieces of eight to save for a Rainy Day and 5 pieces of eight paid in TAXES.

Seems like a fair system right? Now, I am not even going to get into how easy it is to counterfeit and debase PM coinage, but I am nevertheless going to demonstrate to you why even fairly applied; this currency system fails over time.

You always have some people who save, and some who spend. In a situation where nobody is ALLOWED to borrow or lend, nobody can spend more than they actually earn, and similarly nobody who earns more than they spend can make any money in interest payments. However, even in the absence of THAT, the system still fails, and the reason is the Savers or Hoarders if you prefer.

Say you start out your system with 100 people, 7 Gold coins to a person for 700 total Gold Coins in your community. To augment that, you have 7000 Pieces of Eight you use for daily commerce. Your entire economy is defined by 7000 POEs and 700 GCs.

Start out, Week 1. J6P Saver gets through the week saving his 5 POEs. So does another J6P Saver. Joe Spender cannot spend more than he earns, because he isn’t allowed to borrow. What happens in Week 2? Well, in Week 2, if you assume half the J6Ps are savers and half spenders, 50 of them will be hoarding 250 POEs. That means after that week, 3 POEs are out of circulation and in the Piggy Banks. In said scenario, with half the people saving about 8% of earnings and half spending and no borrowing or lending, it would only take about 28 weeks before ALL the POEs were out of circulation and sitting in Piggy Banks! You could exchange them all for the 70 GCs you have and get another 28 weeks out of it, but at the end all the money left is in the hands of the 50% of Savers, the other half of your Tribe has NOTHING. What do you DO with that half of the Tribe? Put them in Prison? They didn’t even go into DEBT! They just did not save while others did.

Well, we added on to this idea with interest and lending, and even more exotic financial instruments like CDS contracts, but the principle remained the same over the ages, and more and more of the money got centralized over time. The ONLY thing that ever really redistributed wealth of the monetary kind was war or revolution; Savers generally are not predisposed to GIVE their money away to spenders.

It’s not just Borrowing and Lending that wreak havoc on a monetary system; it’s the whole concept of SAVING. As soon as you have some Squirrels in a society who harbor a fixed amount of nuts, eventually the nuts run out for all the other squirrels. It doesn’t even matter if they did it fairly or by insidious theft (the latter being the leading cause since about 1600AD), you STILL get the effect of half your society as Haves and half as Have Not’s. Even THAT isn’t the real problem though, you could always just Exile the Have Not’s. The real problem is you dried up the liquidity in the money supply, which is fixed because it’s based on PMs. It gradually comes out of circulation as people save, or in more common circumstances as Goobermints tax it all away from you. Like a Vacuum Cleaner, eventually all the money ends up in ONE bank. Long as you accept what is IN that bank as money, there can be no more commerce past barter. That is the Restart that has happened over and over again through history. Monetary system crashes, Barter replaces it, monetary system reintroduced by hoarders of Gold.

Gold Bugs actually are the BIGGEST cause of Fiat Money. Because they accept Gold as Wealth, they lay the seeds for a Fiat Money system to follow it. What I am trying to drive home here is that a monetary system based on Precious Metals CANNOT work. It’s just a precursor to the Fiat system, which ALSO cannot work. The whole CONCEPT of Money is wrong. That is what is so hard to make people understand.

RE

http://heritageofjapan.files.wordpress.com/2008/09/nihonnoruutsu-yayoi-rice.jpg

Far as a sustainable Banking System, I have written about this a few times, and its my hypothesis we need a system based on Food Energy, the Calorie of the food kind which is related to the kilocalorie of the Joule kind which represents thermodynamic energy.

The closest historical model I am aware of is from Feudal Japan, where a “Koku” of Rice represented Wealth. However, as with all the other monetary systems this one also was open to abuse, as more Koku Notes were issued than rice actually existed, especially in times of famine.

The BIG problem you always have in a monetary system, whether it is Paper Money or PM Coins is making the Money Supply MATCH the absolute output of the society in terms of its food supply. Fossil Fuels THOROUGHLY disguised this problem with the Green Revolution, food became EXCEEDINGLY cheap, to the point it had to be GIVEN away in the form of Food Aid, which of course just exacerbated the Overshoot Problem we face now.

Retreating here now, REVERSE ENGINEERING our way back off this problem requires to things primarily. First it requires tying the currency we use to the ABSOLUTE amount of food produced in any year worldwide. Then it requires honest accounting to withdraw or add currency to circulation as the total amount of food calories rise or fall in a given year. ALMOST impossible to do of course, but not completely IMPOSSIBLE either.

http://images4.wikia.nocookie.net/__cb20130206182109/l5r/images/7/7a/One_Koku.jpgEssentially, you have to issue NEW Currency each year based on the total Harvest, and this also prevents you from SAVING any “money” from year to year. The only thing you could actually save is the REAL commodity it’s based on, if it was Koku its RICE. If in ADDITION to the Harvest, you ALSO had 5 Bushels of Rice in your Doomstead Larder, Koku Currency could be issued on that as well.

Max SAVINGS for any individual with such a system? Perhaps around 7 Years, the max you might keep bushels of rice stored in your grain cellar without it going bad or eaten by mice. Do I hear JOSEPH here? Do I hear the BIBLE? Hello, that shit was written with 5000 years of human experience gone before it, all that stuff about “Never a Borrower or Lender Be” and 7 years of Famine were written for a REASON. Why do you think they wrote all that shit about the Golden Calf? The Gold thing left them impoverished OVER AND OVER again! So eventually a bunch of them said to HELL with that, and made a new set of rules, which of course nobody really followed.

Economic systems and savings is all about consolidation of POWER. They became increasingly complex with time, but the fundamentals remain true. Because some peoples save and others spend, wealth consolidates over time as long as you define some object as the repository of wealth. That object historically was PMs, lately it has be US Treasuries, but in NEITHER case did these objects represent REAL wealth in absolute terms, they only represent it for so long as a particular monetary system holds up, which traditionally is no more than around 50 years. Thus the reason for that other tradition in Judaism, the Jubilee Year, were all debts are Forgiven.

I am not in favor of Jubilee Monetary system. I advocate for a yearly system based on the absolute number of food calories produced in that year. Clear Accounting of the production, and then a clear issuance of currency to match what was produced plus what was saved from prior years. That is correct accounting of the wealth, and trade can proceed from there in a Mark to Market fashion, NOT mark to Make Believe. There still will be winners and losers, there still will be savers and spenders. However, outrageous accumulations of wealth will not be possible, not past the 7 year lifespan of most food. I am OK with somebody being 7 times wealthier than me because they are a good saver. I am NOT OK with somebody being 7000 times wealthier than me because their ancestors took control of our monetary system. That is patently unfair, and needs to end here.  End it will, by default in both senses of the word.  A contracting economy can’t support a monetary system based on growth, and in the absence of copious amounts of Energy, our economy is destined for contraction for the forseeable future.

The Future of Money

Off the keyboard of RE

Published April-May, 2010 on Reverse Engineering

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Discuss this article at the Economics Table inside the Diner

Note from RE: File this article under “the more things change, the more they remain the same”.  What follows is an exchange I had with Toby Russell, a quite brilliant Brit 3 years ago on Reverse Engineering, pondering on the Economic Issues of the day and the Future of Money.  We rehearse these questions now on the pages of the Doomstead Diner for a somewhat larger audience, but in all honesty in 3 FUCKING YEARS, not a whole lot has changed here as of yet and the same questions remain to ponder on until they do.

Toby and I had many a great chat on the subject of money, and inside the Diner I will paste a few more of them.  With luck, Toby will find his way to the Diner as well, and we can renew, refresh and update the $64,000 Question on the Future of Money in the post-Industrial Economy.

RE

To begin, from my keyboard:

Who ARE the Bond Vigilantes?

Exactly how the monetary system will come apart remains an open question, but more and more each day you see a structure developing for the collapse.  It comes in the form of the internal battle between Nation States and those who have “invested” in Nation States in the Bond Market, which in Europe is currently in a Death Spiral that can only be slowed if the Sovereigns “guarantee” the bonds currently being repudiated by whoever it is who buys those bonds. The so-called “Bond Vigilantes”

So who really ARE the Bond Vigilantes, and WHO is the “market”?  Its not J6P for the most part, I mean who buys Greek Bonds with their spare change?  In aggregate J6P who actually HAS  401K might be buying some of this trash as part of his portfolio, but inr reality most of this trash is bought by the Big Banks as proxies for the Iluminati.  Once it starts to go BAD, they want to offload it all onto the balance sheet of J6P the taxpayer, that is what Bailouts amount to.

There is a BIG confusion in using the term “market” when it comes to the dealings of Big Capital.  Most people think of the market as the aggregate of what all the people in society are buying and selling, but that is not true at all with respect to sovereign debt.  The massive TRILLIONS in debt that are being issued these days by Sovereigns all over the globe cannot be absorbed by the savings of J6P, because the money didn’t exist before to buy it.  It really can only be bought by the Big Banks who can Borrow money from the Central Banks at close to Zero Interest.  The CB then writes the money into existence and loans it to them.

It’s all a big Circle Jerk, and the end result is it loads up all the bad debts on the balance sheet of the Taxpayer, which the taxpayer cannot actually pay because he is Unemployed and no longer pays taxes, so the Bond Vigilantes/Big Banks drive the interest rate up still higher for borrowing.

The problem is coming to a head now, and it pits varying Pigmen and various arms of Da Goobermint against each other.  Neil Barofsky has a plethora of litigation ready to undertake here that will make the little SEC lawsuit against the Squid look like child’s play.  T will be undertaken also, because the Political Survival of most of the apparatchiks depend on finding Scapegoats.  Besides that, you have lawsuits that will be filed on behalf of States that got fucked by the Banksters along the road as well.  Pigman vs.Pigman, the battle begins.

Greece is and remains Small Potatoes in this battle, but what is done here to Bail them out only sets up bigger bailouts for the other Hostages to the Banksters, the rest of the PIIGS.  Because their debt is “risky” now, the “Bond Vigilantes” are driving up the debt costs for the other nations also.  Which means they also must seek a Bailout. Some pundits think when this hits Spain the market will choke on it, maybe so maybe not.  However, its also going to eventually hit the FSofA market after all the weaker chickens have been slaughtered here.  Nobody is out there to Bailout the FSofA sovereign, not even the Chinese, because they hold the debt already, into the Trillions.  That is their “savings”. No reason to buy MORE worthless toilet paper for the Chinese.

So, the only “out” here is for the FSofA to buy its own debt in perpetuity, issuing more and more paper.  Hyperinflation of the money supply, but not necessarily hyperinflation of prices until and unless those newly created dollars start filtering out of the system into the hands of J6P, which is nowhere on the horizon.

The reality here?  Goldman Sachs, JP Morgan Chase et al are now engaged in a circle jerk trading with themselves, they ARE the “market”. They can keep propping it up so long as the CBs keep issuing them Interest Free Money to speculate with.  Problem is of course, that is just driving the sovereigns into ever deeper bankruptcy.

Eventually one of these sovereigns will crash, and nobody will bail them out.  The CDS will trip, and then the House of Cards will crash here.  Still has a coupel of layers to go though.  They will print the money to Bailout Greece, and probably Portugal and Spain also.  When the Debt Tsunami hits the ISSUER of the Debt, the Federal Reserve Bank, then it will come to an end.  How long will that take?  Based on progress since Bear Stearns of upward Cascade Failure, my guess is 2 years.  In the meantime, Volatility is going to be WILD. Very hard to pinpoint what asset class or what Sovereign will be the next target of the Bond Vigilates. However, target them they will, because they have to make a PROFIT here.  The only way to do that is to turn the world into their Debt Slaves.

RE

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From Toby:

I’m getting very interested in MMT, as I have posted at my blog. What we are really saying when we argue there is too much debt (there is) and this sucker is going down, is that money is the most important thing there is, that nothing can be done about it, someone’s got to pay, and so on. But in reality of course money’s just so much numbers. Ecological issues aside, real wealth is not diminishing, only debt obligations are growing. What do we do about this? Drown in our idea of what money is, or redesign it?

MMT would embrace the printing of money, by spending it into the economy interest free, into education, infrastructure etc. Tax is seen as nothing more than a drain when things start to inflate, and the issuing of and buying back of gov debt is used to control money supply and interest rates. The chief difference in printing money for the economy at J6P level rather than for the bigbanks, is that the money actually gets to do something, instead of digging deeper debt holes as the pigmen sociopathically destroy the horse they rode in on, battling it for the “honour” of delivering the final blow.
MMT welcomes fiat, seeing it as the chance to free money creation from the private credit institutions, whose activities, in the absence of a gov spending money into existence, represent an institutional ponzi scheme, one that is dragging us all down as we speak. To separate gov from credit institutions would be also to remove them from lobby power and make taxing far more effective, which would stop the vast imbalances of wealth we currently see. Gov would not rely on the pigmen. Pigman loses his leverage, gov can start to function as it should. So the theory as I have been understanding it.
I’d be interested to hear what others see in this new take on how to do money in a modern economy. Bill Mitchell’s blog has masses of work to lay out the basics: http://bilbo.economicoutlook.net/blog/ And there are two posts on MMT at my blog: http://thdrussell.blogpost.com
Cheers
Toby
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From RE:
I read through some of Billy Mitchell’s Blog and through a couple of your posts
on MMT as well. Many of the concepts we have covered in the past seem to be a
part of this. You seem to favor these days offering up the whole panopoly of
currency forms here, from Demurrage money on the international level to a
variety of state and local currencies all operating at the same time.Clearly, if this was actually operating on the local level commerce would be
quite the bear for your local Convenience Store clerk. You show up at the store
with some of RE’s Moosechips, and the clerk has to check to see first if MCs are
on the list of currencies he is authorized to take. Then he has to check the
daily (hourly?) exchange rate for Moosechips to price out the merchandise
against whatever currency it usually is priced out in. Granted, the Computer he
uses probably could be programmed to do this all automatically and even monitor
exchange rates in nanosecond intervals, but its still going to mean a drawer
full of lots of different notes, and how do you make change?Next problem is exactly how do you save your money? Do you save it in
Moosechips? This is kind of like the problem people who worked for companies
that paid in their own Scrip faced. Its only good for buying stuff at the
Company Store, and when the Company goes outta biz, its worthless Toilet Paper.
Sort of like what will happen when the FsoA goes outta biz on the grand scale.
LOL.

Beyond this, I don’t see how having many forms of currency operating resolves
the Interest problem. People who Loan out money will still expect Interest on
it, elsewise there is no point in loaning it out. With many currencies
operating, the problems you have now of unscrupulous Banskters creating more
notes than they actually have assets to back them up would be even more
intractable than it is now.

Clearly on the International level the Top Level Demmurage Money has to be used
as a settlement form, and a 5% Demurrage is liking saying you have 5% Inflation
all the time. If you aren’t growing faster than that you are gonna be losing
money. Is there room for 5% Growth in our real economy? Considering the Energy
problems we have even BEFORE the Big Spill, I think we would be lucky to keep
the Shrinkage at 5%, which is a total 10% differential between the Demurrage and
the Negative Growth rate.

As bad as our Money problem is, the real problem here for the Industrial society
remains the Energy problem. For the Transportation portion of this economy, its
more than that, its Portable Energy as well. The society needs to be
restructured along lines which require less movement of goods and people around
and a slower pace of life all around. Unfortunately, all the infrastructure we
have built here is built around precisely the opposite concept, and REBUILDING
it now with substantially less Available Energy per capita will be quite
difficult, if not impossible. Of course, a 90% Die Off of the Human Population
would solve the per capita problem by lowering the denominator, but this is not
a concept most people consider a good solution.

My guess here remains that the current monetary system we are using is going to
continue onward here in Epic Fail mode for a while yet to come, exactly how long
I am not sure. Whether it reaches a Critical Point that results in a Sudden
Stop Event or whether it just continues to deteriorate and we all slowly Boil
like Frogs also is open for debate. If/When the Dollar fails completely,
likelihood would be states and local communities will substitute their own
currencies, but even if well managed and temporarily successful all will also
collapse due to the interest problem in a negative growth environment. It
doesn’t matter if you put a Demurrage on the Money of 5% or Inflate the currency
at 5%, it’s the same result in either case. In fact 5% is even more onerous
than the 2% or so Inflation the Fed sets as a Target Rate, so I expect you would
see a monetary collapse even faster than the typical 60 –80 year cycle we see
now.

So, is it all HOPELESS and we are just spinning our wheels here to no purpose?
Well, if the hole they poked in the crust of the Earth down in the GOM keeps
spilling out PUSS here, yes its quite hopeless and worrying about what kind of
money we are going to use in the future is a massive waste of the short time we
have left breathing the last Oxygen the phytoplankton produce for us. However,
on the slim chance that the Bozo Engineers who popped this pimple can plug it up
and we are not currently experiencing the beginning of a new Permian Extinction,
the exercise is worthwhile. Not so much for us in this generation, but for
those a few generations down the line AFTER the great Die Off is finished.
Perhaps we can leave a legacy for them of how they can build a Better Tommorow
and NOT make the same mistakes half a millennia of Capitalism led us into here.
Talk about EPIC FAILURE of an economic system, Capitalism is going out with a
mighty Big Bang here. Yeesh.

RE

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From Toby:
Local currencies are already in operation and work in the various ways
they work. It is not about some guys saying accept my MCs because I say
so, or the two of us agree so, but is more well thought out than that.
I’m not going to go into all the details, but there are variants out
there in operation and have been for a while. Time will kill off the
weak ones, and favour the strong, as it always does.As for the demurrage currency, that is global and for investment and
international trade purposes only, not for saving. The demurrage
inspires investment in projects which have long term value. See the
Bernard Lietaer talk: http://vimeo.com/6491175for more details.Interest/usury still acts as it does now on the natinoal currency, as a
kind of vacuum cleaner on fiat national currencies and spur to savings,
so people will get into debt and so on, as the prudent will be able to
save, though the kind of future the changes I hope for would initiate
would change plenty, perhaps even how saving and retirement works. But
when big problems through over indebtedness arise there won’t have to be
any bail outs. Those banks that got too greedy have no leverage on the
sovereign to save themselves with, because the sovereign controls money
supply with the tools laid out in MMT (existing tools actually like
taxation and bond issuance and purchase). Life would still have its
financial ups and downs, but they would not represent systemic threats.
The ride would be a bit smoother.All of this is moot in an energy crisis, as you say, but the viable and
working alternatives to oil are out there (unless that GOM spill undoes
everything — time will tell). Also an absolute necessity is the death
of our lust for eternal GDP-growth and a corresponding transition away
from consumerism. MMT offers an attitude to money which allows us,
culturally, to be more open minded about where value lies. To my mind
real value lies in healthy relationships: ecological, socioeconomic and
societal. Technological unemployment could be embraced too by a more MMT
way of thinking about the economy, which would help us review what we
are alive on this planet for, and the kinds of activities and behaviours
which really make life sustainable and enjoyable.So in the end this is going to be about striking the right balance
(isn’t it always?). It’s not just Joe’s currency versus Jack’s, versus
fiat versus the Terra (Lietaer’s suggestion for the global demurrage
currency), but other things too, outlined above. To me MMT is but one
important plank in all this, though perhaps the first that needs to be
laid down, because the way most people think of money and value, they
seem prepared to let the world go down for money’s sake. That’s plain
stupid, and I don’t want any part of it.Toby

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Theory of Everything: Part II

Discuss this article at the Economics Table of the Diner

Frostbite Falls Daily Rant- 4/27/2011

Posted originally on TBP on 27th April 2011 by Reverse Engineer  in Economy

Why is it that Sovereign Nations don’t issue their own non-Debt based money, instead of becoming a part of the massive International Banking system based on debt?  This is another one of those very tough questions to answer which I believe has its roots back at the very beginning of International banking in the Medici Era  (at least for a Modern Era analysis).  The goal here in Part II of this series is to make a plausible hypothesis for why this has not ben a viable solution over these centuries, if not all the millenia of the Money Game.

I will start here with a hypothetical country completely disconnected from the rest of the world.  Call it Hawaii before Cook arrived.  As the first Polynesian Navigator to guide my Catamaran rigged Canoes to the Big Island, I get great Respect from my People who trusted me to Guide them on the Voyage from the Marquesa Islands, and I am unanimously accepted as King on arrival. All those years studying the Stars and memorizing the Constellations and watching Wave patterns really paid off for me.  All of Hawaii is MINE!  I am SOVEREIGN!

My first act after being declared King by Acclimation is to take on Anna Paquin and Natalie Portman as Concubines, but AFTER that I have to figure out how to administer my new country and distribute out all the assets BESIDES Anna and Natalie.

 

So next thing I do is to hand off portions of the land to my best buddies to administer, and then after that I have to create some currency for people to use to trade with.  There isn’t much Gold or Silver around, but there are a limited number of Macadamia Nuts.  They are a good currency because they are small and portable and store well, and unlike Gold you CAN actually eat Macadamia Nuts.  However their value is not in the Calorie Content, but rather in their scarcity relative to everything else being produced in Hawaii. They aren’t a debt based instrument, they are based on production already done.  If at some point somebody found a way to grow a shitload of Macadamia Nuts the currency would be debased, but as long as the supply remains relatively limited they are a good currency.

Macadamia Nuts function as a great Currency for us in Hawaii until Cook arrives. At this point our Macadamia Nuts only will buy as much of the cool new Metal Knives the Traders on the Tall Ships will take for them.  If we want all the STUFF being produced elsewhere, we have to fork over all our Macadamia Nuts for that stuff.  Polynesians of the era actually called all the Stuff the traders brought “Cargo”, for obvious reasons.  (read Jared Diamond’s Germs, Guns and Steel) You could substitute Gold for the Macadamia Nuts, it does not matter what the commodity is here, the point is that in order to get access to the production of a more advanced society producing such things as Metal Knives, you have to give up your resources to do so.  We actually are pretty fortunate to be using Macadamia Nuts which do have some intrinsic value and not be using Cowrie Shells, because the Traders could pick tons of them up off beaches elsewhere.

As we progress along here, in return for our Macadamia Nuts, Pineaapples and anything else we produce in Hawaii, the traders give us in return their Notes, which we can then use to buy Cargo from them.  Since we are now exporting all our Macadamia Nuts we don’t have enough of them to use as currency anymore, so now our Goobermint creates its own Notes which are worth some fraction of the value of the Notes the traders give us in return for our produce.  We have now become intrinsically CONNECTED to the Global banking system using Notes as our Currency rather than any other abstract item.

Now, if your country happens to be well gifted with Natural Resources to trade for Cargo, the tendency is to basically live off those resources and not Industrialize.  A few people at the top of the Pyramid in Hawaii (my Heirs from Anna and Natalie) do very well, but the rest of the population mainly just gets a few Trinkets like Satellite Dishes to put up on their Grass Huts and otherwise lives dirt poor.  Read this virtually every Oil Producing nation in the M.E.

Now, if you want to start Industrializing yourself so you can make your own trinkets and start exporting them, you need LOTS of the Notes the traders use to buy the big machines that make trinkets, and they generally cost so much that even years of Macadamia Nut sales are not enough to by them.  However, if you have a large population of people willing to work for peanuts, Banksters with lots of Notes will loan them to you so you can build Trinket Factories.  They will disassemble complete factories running in Amerika and ship them over to you so you now are the Trinket builder.  You of course have to pay lots of Interest on those factories, so actually getting ahead in this game is pretty difficult, although it is accomplished briefly in some places.  Of course Hawaii never had a big enough population to make this kind of thing worthwhile, but places like Japan, Korea and China did.  This is why large population centers with few resources have evolved into manufacturing centers.  Amazingly simple isn’t it?  What seems to be a very complicated problem of trade laws and tariffs is not so complicated once you grasp the underlying forces of labor, resource and capital movement.  Its not a lot different or more complicated than Water running Downhill actually.  I only came to this epiphany very recently though, but to be sure it explains the general movement of Capital through the Capitalist era.  If I had figured this out when I was in my teens instead of chasing pussy, smoking dope and  doing blackboard contests in the basement of Havermeyer Hall, I’d probably be richer than Soros by now.  Water under the bridge though of course, and I ended up rich enough anyhow here from Grandpa the High Steel Walker turned Bootlegger, for as long as the flotsam and jetsam he accumulated retains some value anyhow. LOL.

To return to the topic at hand, over time here the entire world got captured up into this system of Notes run centrally from a few big Banking Houses and Trading companies like the British East India Company, House of Rothschild, JP Morgan et al.  Any Sovereign Nation wishing to participate in the Free Trade of Goods and Services had to have their Money tied into the system, valued at some relatively fixed rate against the major currencies the traders used, which after Bretton Woods was the Dollar.  Your money can float some on a day to day basis, but it has to hang within a fairly restricted range to remain functional.

At this point it becomes impossible for you to issue Non-Debt based money and use it for international trade, because as soon as you issue it without debt attached, it devalues.  So you also now start issuing Bonds at some rate of Interest in order to increase your currency supply, and if you offer a high enough Interest rate on those Bonds then you get George Soros, Jim Rogers, Bill Gross and the rest of the gang flocking to your doorstep to buy them with their Notes.  Of course, you better be damn industrious little Beavers to be able to pay off on the interest on those Bonds.

Over time this Web of Debt in Ellen Brown’s terminology has grown ever larger, like a massive Cancer spreading across the face of the earth.  In order to be part of the great global game of trading around the Trinkets and Raw Materials to make the Trinkets, you have to be using a Debt based currency the Illuminati can Invest in through your Bonds.  You go into Indentured Servitude to the Bond Holders, which is of course why they are called Bonds to begin with.

The Bond Holders of all worldwide debt are the Top of the Ponzi, and in any crash these are the folks that expect to be paid off FIRST.  If you have to sell off your Parks and Bridges, lay off all your Sanitation workers and Teachers whatever, you MUST pay the Bond Holders!  If you don’t pay off the Bond Holders, its ARMAGEDDON!!!!  The Fabulously Wealthy will be impoverished along with all the Pensioners invested with PIMPCO!  So everything possible is done to try to keep paying off on the Bonds, or rolling them over into new Bonds, whatever just do not ADMIT that the production is not there to ever pay off on those Bonds!

Now the question is, WTF did the top of the Ponzi Bondholders actually GET the money to loan to you?  At some point, it had to be Borrowed into existence with the Central Bank creating the currency. So if you are close enough connected to the center of this, you can Borrow money at very low interest directly from Da Fed to then go and loan at higher interest to somebody else and collect on the spread between those rates.  This is bad enough, but the evolution of Derivatives made it even worse, because lots of Banking Houses could create financial instruments like CDS and CDO without ever actually borrowing money from Da Fed to do it.  These instruments represent Trillions if not Quadrillions of Dollars of debt obligations that cannot be paid off unless Da Fed goes ahead on a Printing Spree that would make the current one look like a Sunday Picnic.

Needless to say, I don’t think the Political Will is there to do that kind of printing, it would totally destroy the currency and that is not in the interest of the people who hold all the Bonds.  The trick here is to keep the House of Cards standing so these instruments do not trip.  However, as the debt problem moves up the line to bigger and bigger Sovereigns (next up, Spain and CA), just the amounts necessary to make them nominally solvent is probably beyond the political will of the Banks, and most certainly against the political will of the populations that are forced into Austerity.  So at some point here the Ponzi will collapse.

Jesse over on Café Americain makes the Hypothesis that Da Fed is sufficiently in control of all of this that they can manage a controlled Stagflation, but to me this begs the question of what is going on all around the World all tied to the Dollar as World Reserve Currency.  While here in the FSofA we might be able to withstand a Slow Boiled Frog effect of say a 10% yearly Inflation of Prices while Wages Deflate at 10% and not run up into a Rock/Hard Place situation for 5 years, that is not the case for all the impoverished countries around the world where people live on $2/day and 90% of their income goes to just buying enough Rice to make it to tomorrow.  As long as Da Fed is “managing” a steady inflation, these folks are going to be quickly (if they are not already there) in a position where they simply cannot afford to buy enough food to eat.  If they are in a location where there is no Oil, it’s a Humanitarian Crisis but we don’t send in the Marines.  If it is a location where there IS Oil, we clearly DO send in the Marines to try to secure the Oil Fields.  We also have to send Food Aid to the faction that will line up with us for the moment, and arm them with AR-15s and RPGs at the very least to try to take back control.

The Financial House of Cards is clearly in a very delicate balance at the moment, and Da Fed has very little maneuvering room between the Hyperinflation/Deflation outcomes. Even small changes in the Interest rate or Money Supply can tip the balance now.  That problem is difficult enough by itself to manage, but on top of that you have all these Wars breaking out in marginal countries, and you also have your Natural Disasters like Tsunamis messing up Production out of Japan and Cyclones turning part of Australia into an Inland Sea and now apparently non-stop Tornadoes taking out Airports like Lambert in St Louis.

How many of you noted the story in the Newz that Shillary Clinton was in Japan promoting a “Private/Public” Partnership to help the Japanese rebuild?  She was joined by Chamber of Commerce Big Wigs from Nippon and the FSofA, basically BEGGING people not to Abandon Japan.  You have to KNOW they are doing this because companies are EVACUATING Tokyo in droves.  WTF is going to stay in Tokyo with an Office when they can move it over to Taiwan or Shanghai or Hong Kong or Singapore? The Nip Goobermint is now talking about a “6-9 Month” period to get some control over the reactors.  No actual plan here for doing so, but this is the spin.  Even if it was only 6-9 months, who would stay there while they figure it out?  How long would it take to replace the electrical power generation of those nuke plants?  Even a Coal fired plant takes years to build.

The issues Da Fed has to deal with in managing the currency are only a part of the Global issues here, and no matter what they do with the money supply, Da Fed cannot get more Oil flowing out of the M.E., nor can they repair Japanese Reactors and get BAU running in Japan either.  They do not seem predisposed to handing out much Free Money to J6P, just enough to feed him and keep him from rioting, and that does not an economy make, at least not the kind of economy we were used to.

The real question is not IF we will slide down Richard Duncan’s curve of per capita available energy, but how fast it will actually occur.  Because we are such profligate users of energy here in the FSofA, there is a lot of WASTE in the system that can be cut out before we completely power down, so I am at least hopeful that he is wrong and 2012 will not be the year the Lights Go Out.  However I did watch another video of his where he made a good point about Mexico, which is pretty much already a failed state.  Their electrical power grid is a joke, held together by duck tape and bailing wire. With their own Oil supply now dwindling, they are not going to be keeping that grid up and functional too much longer.  He makes the point that when the lights go out in Mexico Shity, 20M people will start streaming across the border in a Tsunami of refugees. Exactly how we will try to stop that remains to be seen.

To get back to our monetary system, it is far past repair at this point and will have to be replaced by an entirely new one.  Our New World Order Globalist Illuminati Masters of course want to run this show, but by no means is it clear they will be able to do so.  Over in Finland the True Finn Party has taken power with a No Bailout Policy, and the Euro consortium which is the CENTER of the Globalist movement is coming apart at the seams.  If they cannot hold Europe together, how could they hold the whole WORLD together under a single currency regime?

What is much more likely is a breakup Regionally here in the FSofA with first a Command Economy of Rationing and eventually some sort of Local Currencies evolving.  Both Food and Fuel will be very scarce, forcing nearly every able bodied person into some aspect of food production and distribution.  Regions will probably be governed by former units of the National Guard, the warehouses and silos will be put under guard and a replacement transportation system will develop.  I could see 6 guys all on Bicycles hitched to a Wagon pulling grain to silos from the fields, and small Steam Powered Locomotives built from old Boilers utilizing whatever they have available to burn to move the grain around the region on the rail lines.  At the other end of the line, more Teamsters on Bicycles pulling the grain into local communities.  This until we breed up enough draft animals to pull the wagons.

Is this Extinction Level?  No it is not, but it most certainly is Civilization Ending.  It doesn’t even take a Thermonuclear War to occur either, all it really takes is for the energy we accessed through the industrial era to become less and less available.  Which pretty much everyone here agrees is already occurring.  The likelihood of being able to substitute for this lost energy either with Nukes or Renewables in the next 50 years is pretty small.  The Energy necessary to build those things is going to disappear faster than we can build enough of them.  Its not even clear after Fuk-U-Shima that anyone is going to WANT to build a Nuke, although in some areas I am sure some will be built.  Not nearly enough though to substitute for the lost fossil fuel energy we have been accessing.

Accessing Nat Gas reserves and Conservation can and probably will draw this whole thing out some, so I don’t necessarily agree with Richard Duncan that by 2020 we will be Lights Out everywhere.  I do think though by 2020 that Poor Nations like Mexico will be Lights Out by that time. It really is remarkable just how FAST almost all the world got Wired up for Electricity, even towns in Afghanistan have it, although likely it is pretty intermittent there.  Problem being of course by wiring up EVERYWHERE, we used up the available energy to drive the system that much faster.  When we ran out of enough of it here on our own shores to drive our power systems, we had to start importing it from elsewhere, and this should have clued everyone in at the time that the writing was on the wall, but it did not generally do that.  Why?  Because everyone was sold on the idea that coming down the pipe at some time in the future was a replacement for it created by Human Ingenuity.  Fusion Power being the Holy Grail there, and BILLIONS were spent in pursuit of that technology, with the greatest Physicists and Engineers of the last 60 years all engaged in the project in one way or another.  We built Super Conducting Super Colliders, and individuals in labs messed with their ideas for Cold Fusion.  60 solid years of research in Nuclear Physics since the Manhattan Project, and NOBODY has been able to make this idea work at positive EROEI.

You have to wrap your mind around the concept that the energy we accessed to run the Civilization of Homo Industrialis is going Extinct, even if some of the people manage to survive that extinction.  We had a Century Long Party burning the candle very brightly in the Industrialized Nations, but now that Candle is running out of Wax.  We are halfway down the candle, but in the intervening time we bred up 6 times as many people as when the game started, so Per Capita energy available is much less than at the beginning of the game.  The fact it is skewed in distribution keeps the FSofA burning brightly right now, but once we cannot maintain sufficient military force to keep the Oil moving in this direction, we will quickly be in the same boat everyone else is in. Our standard of living will approach that of the current 3rd World.  This is inevitable now, its just a question of how long it will take to slide down and how the society will adjust to the new reality.

To look at this whole post from a Fourth Turning perspective, how does this Turning differ from the American Revolution, the Civil War, and the Great Depression?  In each of those prior Turnings our Society was accessing Greater Wealth and Power.  After the American Revolution, we were accessing the vast Wealth of the North American Continent and all its Resources.  After the Civil War, we were accessing the thermodynamic energy of Coal and beginning the Industrial Revolution.  After the Great Depression and WWII, we were accessing the thermodynamic energy of Oil and growing into the Information Age.  What is there left for us now to grow into after THIS Fourth Turning.  I put to you that we have nothing left to grow into now, and so we must as a species go into a period of shrinkage that we have not experienced since the Dark Ages and the Black Plaguei.  Like the original Dark Ages, I think this period will last near a Millenia, and who we are and how we come out of this at the end is anybody’s guess.  We may never come out of it and go the way of the Dinosaur, that remains a possibility, but one I hope does not come to pass.

For those of us who lived through the Age of Oil in the Industrialized Nations, even if you were relatively Poor you got quite a ride.  It was however a One Time ride that only a select portion of Humanity got to really enjoy, and it is now passing into History.  Those who follow us will curse us for our profligacy, at least for so long as they can remember it, which probably won’t be more than a couple of generations.  After that, there will only be the Ruins of what once was, and a Planet gradually healing itself of the scars left by Industrialization.  One can only hope that somewhere, somehow, some Tribe will make it through the Zero Point to rebuild a better society with better principles of existence.  We did it after Toba went Ballistic 70,000 years ago, we can do it again.  It will be a very long time from now before that comes to pass however.

See You on the Other Side

RE

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