Trade

Global Cooling Threatens Life on Earth

gc2smFrom the keyboard of Thomas Lewis

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Published on The Daily Impact on September 29, 2016

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I know. Not what you were expecting. (Photo by Serendigity/Flickr)

While the planet’s air, water and land are heating to dangerous levels because of human pollution, the world’s trade is cooling off, slowing down and coagulating in the deepening chill, threatening the well-being of every country and virtually every person. I remember very well in 2008 watching the most powerful members of Congress emerge from a come-to Jesus meeting conducted by the Treasury Secretary on what was about to happen to the world’s financial institutions and America’s economy. They had the pale faces and staring eyes of people who had just been introduced to the angel of death.

The world of trade and finance is confronting such a moment now, and is every bit as much in denial as it was in 2008. This time it’s not America’s Lehman Brothers tottering into an early grave and pulling half the world in with it; it’s Deutsche Bank.

Germany’s largest bank is not doing well. Its operating loss last year was almost seven  billion Euros; its share price has fallen almost 70% since April of 2015, and dropped over seven per cent in a single day this week, to just over 10 Euros. Go back to September of 2008 and read the news reports about Lehman, and feel the burn.

If Deutsche Bank’s share price drops another Euro, the total capitalization of the bank will be less than 14 billion Euros, which is the amount of a fine the U.S. Department of Justice has proposed to levy against the bank for its sins in handling subprime mortgage derivatives leading up to the deadly financial eruption of 2009. It’s not the only trouble the bank is in; it’s under investigation for transgression in currency trading, precious metals trading, and money laundering. It recently settled a massive case alleging manipulation of interest rates. (That’s it, I’m moving my money to Wells Fargo. Oh, wait….)

Masters of the Universe are talking openly about — and betting massively on —  a Deutsche Bank failure (yes, it’s another Big Short). The German government has vowed not to bail it out, but the bank’s assets, ravaged though they may be, represent nearly 60% of Germany’s gross domestic product. This is the very definition of too big to fail.

Meanwhile Germany’s second-largest bank, Commerzbank, which has lost nearly 40% of its market value this year, has just announced a desperate reorganization plan. It’s firing 10,000 people and downsizing operations in a manner that strikes some as more like butchery than surgery. Moreover, the seven Landesbanken are hemorrhaging capital because the global shipping industry, in which they are heavily invested, is imploding.  

Germany is hardly the only country whose banks are deeply troubled right now. This week the Organization for Economic Cooperation and Development — comprising 34 member democracies committed to improving world trade — issued a stern warning about pursuing toward the brink of disaster the policies that led to the crash of 2009. The warning was not only to Germany, but to Japan and the United States as well.

 “These developments [i.e. the awful performances of banks and corporations] exacerbate the challenges to improving well-being of people in both advanced and emerging economies.” The problem for the OECD is this: people are consumers, and if consumers don’t do well, they can’t consume enough, and in consumption-based economies, that’s a cardinal sin.”

The central banks, it seems to me, are trying to feed the wrong end of the horse; stuffing perfectly good hay in places where it doesn’t belong, while the animal starves. Making sure the banks and corporations have tons of money to play with, when they don’t use it to make products or hire people, helps no one but people who do not need help.

Of course, enormous forces are at work propping up these zombie banks and their pretensions, staving off any day of reckoning until the day after tomorrow, just as they were doing in 2008. How did that work out for them, anybody remember? But whatever they do, they cannot change the fact that out where stuff is manufactured, and shipped, and sold, the temperature is falling, the pipes are freezing up, and a new Ice Age has taken hold. Stop expecting us to congratulate you for giving away free ice cubes.

[Now, as the world churns, we return you to our regularly scheduled news programs, featuring Donald’s sniffles, Hillary’s emails and who’s running for president in 2020?]

SEE ALSO: “They’re Parking the Trains and the Ships and Planes…”
“World Trade is Coming to a Halt.”

They’re Parking the Trains. And the Ships and Planes and Trucks…

gc2smOff the keyboard of Thomas Lewis

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Published on The Daily Impact on May 10, 2016

(Image from Google Earth)

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It’s a picture that’s worth a thousand choruses of “Don’t Worry, Be Happy.” Here in the Seventh Straight Successful Year of the Recovery from the Great Recession, tucked into a corner of the Arizona Desert, is a line of parked Union Pacific locomotives. It was discovered on Google Earth, so it is, as they say, visible from space. There are 292 of them, baking in the sun like so many dinosaur skeletons, in a line stretching almost five miles. They, and the people who used to run them, are now “excess capacity” for one of the country’s largest freight haulers. In this, the Seventh Straight Successful Year of the Great Recovery.

No one should be surprised. But even when you know that trade — the buying and selling of stuff — has been slowing down all over the world for years, it is startling to see such stark, graphic evidence that we are all in deep trouble.

Only two people I know of seem to understand the root of this problem: Henry Ford and Howard Davidowitz. Ford, according to persistent legend, doubled his workers’ wages because he realized that if they weren’t making enough money to afford to buy one of his cars he would go out of business. (Never mind whether the story is true or not, it contains an important truth.) Davidowitz, a world class consultant to retail merchants, said upon analysis he found that the problem was that the consumers on whom everyone is relying to save the economy don’t have — and I’m quoting here — “any fucking money.”

Lord knows we’ve tried to help, mainly by allowing him to borrow more. We showed him how to use his house as an ATM cash dispenser until he was so far in debt and under water he tanked the economy of most of the civilized world. We raised the limits on his credit cards until they were all maxed out. We made financing a new car easier than buying a gun in Chicago, and that worked for a while.

But. Everything has to be paid for, eventually. Borrowed money has to be returned, eventually, along with the interest. That’s not just a theory, like evolution. It’s a fact, like gravity.

We and much of the rest of the world have turned ourselves into a consumer economy just when the world’s consumers, like the unfortunate pilot, ran out of airspeed, altitude and ideas. A nation of bartenders and short-order cooks is unable to support the shopping malls we have provided for them.

How did we ever convince ourselves that we could prosper by consuming, without making anything? Now that we know we can’t, what are we going to do? Elect Donald Trump?

Why Globalization Reaches Limits

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Published on the Our Finite World on March 1, 2016

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We have been living in a world of rapid globalization, but this is not a condition that we can expect to continue indefinitely.

Figure 1. Ratio of Imported Goods and Services to GDP. Based in FRED data for IMPGS.

 

 

 

Figure 1. Ratio of Imported Goods and Services to GDP. Based in FRED data for IMPGS.

 

 

 

Each time imported goods and services start to surge as a percentage of GDP, these imports seem to be cut back, generally in a recession. The rising cost of the imports seems to have an adverse impact on the economy. (The imports I am showing are gross imports, rather than imports net of exports. I am using gross imports, because US exports tend to be of a different nature than US imports. US imports include many labor-intensive products, while exports tend to be goods such as agricultural goods and movie films that do not require much US labor.)

Recently, US imports seem to be down. Part of this reflects the impact of surging US oil production, and because of this, a declining need for oil imports. Figure 2 shows the impact of removing oil imports from the amounts shown on Figure 1.

Figure 2. Total US Imports of Goods and Services, and this total excluding crude oil imports, both as a ratio to GDP. Crude oil imports from https://www.census.gov/foreign-trade/statistics/historical/petr.pdf

 

 

 

Figure 2. Total US Imports of Goods and Services, and this total excluding crude oil imports, both as a ratio to GDP. Crude oil imports from https://www.census.gov/foreign-trade/statistics/historical/petr.pdf

 

 

 

If we look at the years from 2008 to the present, there was clearly a big dip in imports at the time of the Great Recession. Apart from that dip, US imports have barely kept up with GDP growth since 2008.

Let’s think about the situation from the point of view of developing nations, wanting to increase the amount of goods they sell to the US. As long as US imports were growing rapidly, then the demand for the goods and services these developing nations were trying to sell would be growing rapidly. But once US imports flattened out as a percentage of GDP, then it became much harder for developing nations to “grow” their exports to the US.

I have not done an extensive analysis outside the US, but based on the recent slow economic growth patterns for Japan and Europe, I would expect that import growth for these areas to be slowing as well. In fact, data from the World Trade Organization for Japan, France, Italy, Sweden, Spain, and the United Kingdom seem to show a recent slowdown in imported goods for these countries as well.

If this lack of demand growth by a number of industrialized countries continues, it will tend to seriously slow export growth for developing countries.

Where Does Demand For Imports Come From?

Many of the goods and services we import have an adverse impact on US wages. For example, if we import clothing, toys, and furniture, these imports directly remove US jobs making similar goods here. Similarly, programming jobs and call center jobs outsourced to lower cost nations reduce the number of jobs available in the US. When US oil prices rose in the 1970s, we started importing compact cars from Japan. Substituting Japanese-made cars for American-made cars also led to a loss of US jobs.

Even if a job isn’t directly lost, the competition with low wage nations tends to hold down wages. Over time, US wages have tended to fall as a percentage of GDP.

Figure 3. Ratio of US Wages and Salaries to GDP, based on information of the US Bureau of Economic Analysis.

 

 

 

Figure 3. Ratio of US Wages and Salaries to GDP, based on information of the US Bureau of Economic Analysis.

 

 

 

Another phenomenon that has tended to occur is greater disparity of wages. Partly this disparity represents wage pressure on individuals doing jobs that could easily be outsourced to a lower-wage country. Also, executive salaries tend to rise, as companies become more international in scope. As a result, earnings for the top 10% have tended to increase since 1981, while wages for the bottom 90% have stagnated.

Figure 4. Chart by economist Emmanuel Saez based on an analysis IRS data, published in Forbes.

 

 

 

Figure 4. Chart by economist Emmanuel Saez based on an analysis IRS data, published in Forbes. “Real income” is inflation-adjusted income.

 

 

 

If wages of most workers are lagging behind, how is it possible to afford increased imports? I would argue that what has happened in practice is greater and greater use of debt. If wages of American workers had been rising rapidly, perhaps these higher wages could have enabled workers to afford the increased quantity of imported goods. With wages lagging behind, growing debt has been used as a way of affording imported goods and services.

Inasmuch as the US dollar was the world’s reserve currency, this increase in debt did not have a seriously adverse impact on the economy. In fact, back when oil prices were higher than they are today, petrodollar recycling helped maintain demand for US Treasuries as the US borrowed increasing amounts of money to purchase oil and other goods. This process helped keep borrowing costs low for the US.

Figure 5. US Increase in Debt as Ratio to GDP and US imports as Ratio to GDP. Both from FRED data: TSMDO and IMPGS.

 

 

 

Figure 5. US Increase in Debt as Ratio to GDP and US imports as Ratio to GDP. Both from FRED data: TSMDO and IMPGS.

 

 

 

The problem, however, is that at some point it becomes impossible to raise the debt level further. The ratio of debt to GDP becomes unmanageable. Consumers, because their wages have been held down by competition with wages around the world, cannot afford to keep adding more debt. Businesses find that slow wage growth in the US holds down demand. Because of this slow growth in the demand, businesses don’t need much additional debt to expand their businesses either.

Commodity Prices Are Extremely Sensitive to Lack of Demand

Commodities, by their nature, are things we use a lot of. It is usually difficult to store very much of these commodities. As a result, it is easy for supply and demand to get out of balance. Because of this, prices swing widely.

Demand is really a measure of affordability. If wages are lagging behind, then an increase in debt (for example, to buy a new house or a new car) can substitute for a lack of savings from wages. Unfortunately, such increases in debt have not been happening recently. We saw in Figure 5, above, that recent growth in US debt is lagging behind. If very many countries find themselves with wages rising slowly, and debt is not rising much either, then it is easy for commodity demand to fall behind supply. In such a case, prices of commodities will tend to fall behind the cost of production–exactly the problem the world has been experiencing recently. The problem started as early as 2012, but has been especially bad in the past year.

The way the governments of several countries have tried to fix stagnating economic growth is through a program called Quantitative Easing (QE). This program produces very low interest rates. Unfortunately, QE doesn’t really work as intended for commodities. QE tends to increase the supply of commodities, but it does not increase the demand for commodities.

The reason QE increases the supply of commodities is because yield-starved investors are willing to pour large amounts of capital into projects, in the hope that commodity prices will rise high enough that investments will be profitable–in other words, that investments in shares of stock will be profitable and also that debt can be repaid with interest. A major example of this push for production after QE started in 2008 is the rapid growth in US “liquids” production, thanks in large part to extraction from shale formations.

Figure 6. US oil and other liquids production, based on EIA data. Available data is through November, but amount shown is estimate of full year.

 

 

 

Figure 6. US oil and other liquids production, based on EIA data. Available data is through November, but amount shown is estimate of full year.

 

 

 

As we saw in Figure 5, the ultra-low interest rates have not been successful in encouraging new debt in general. These low rates also haven’t been successful in increasing US capital expenditures (Figure 7). In fact, even with all of the recent shale investment, capital investment remains low relative to what we would expect based on past investment patterns.

Figure 7. US Fixed Investment (Factories, Equipment, Schools, Roads) Excluding Consumer Durables as Ratio to GDP, based in US Bureau of Economic Analysis data.

 

 

 

Figure 7. US Fixed Investment (Factories, Equipment, Schools, Roads) Excluding Consumer Durables as Ratio to GDP, based in US Bureau of Economic Analysis data.

 

 

 

Instead, the low wages that result from globalization, without huge increases in debt, make it difficult to keep commodity prices up high enough. Workers, with low wages, delay starting their own households, so have no need for a separate apartment or house. They may also be able to share a vehicle with other family members. Because of the mismatch between supply and demand, commodity prices of many kinds have been falling. Oil prices, shown on Figure 9, have been down, but prices for coal, natural gas, and LNG are also down. Oil supply is up a little on a world basis, but not by an amount that would have been difficult to absorb in the 1960s and 1970s, when prices were much lower.

Figure 9. World oil production and price. Production is based on BP, plus author's estimate for 2016. Historical oil prices are calculated based on a higher than usual recent inflation rate, assuming Shadowstats' view of inflation is correct.

 

 

 

Figure 9. World oil production and price. Production is based on BP, plus author’s estimate for 2016. Historical oil prices are calculated based on a higher than usual recent inflation rate, assuming Shadowstats’ view of inflation is correct.

 

 

 

Developing Countries are Often Commodity Exporters 

Developing countries can be greatly affected if commodity prices are low, because they are often commodity exporters. One problem is obviously the cutback in wages, if it becomes necessary to reduce commodity production.  A second problem relates to the tax revenue that these exports generate. Without this revenue, it is often necessary to cut back funding for programs such as building roads and schools. This leads to even more job loss elsewhere in the economy. The combination of wage loss and tax loss may make it difficult to repay loans.

Obviously, if low commodity prices persist, this is another limit to globalization.

Conclusion

We have identified two different limits to globalization. One of them has to do with limits on the amount of goods and services that developed countries can absorb before those imports unduly disrupt local economies, either through job loss, or through more need for debt than the developed economies can handle. The other occurs because of the sensitivity of many developing nations have to low commodity prices, because they are exporters of these commodities.

Of course, there are other issues as well. China has discovered that if its coal is burned in great quantity, it is very polluting and a problem for this reason. China has begun to reduce its coal consumption, partly because of pollution issues.

Figure 10. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

 

 

 

Figure 10. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

 

 

 

There are many other limiting factors. Fresh water is a major problem, throughout much of the developing world. Adding more people and more industry makes the situation worse.

One problem with globalization is a long-term tendency to move manufacturing production to countries with ever-lower standards in many ways: ever-lower pollution controls, ever-lower safety standards for workers, and ever-lower wages and benefits for workers. This means that the world becomes an ever-worse place to work and live, and the workers in the system become less and less able to afford the output of the system. The lack of buyers for the output of the system makes it increasingly difficult to keep prices of commodities high enough to support their continued production.

The logical end point, even beyond globalization, is for automation and robots to perform nearly all production. Of course, if that happens, there will be no one to buy the output of the system. Won’t that be a problem?

Adequate wages are critical to making any system work. As the system has tended increasingly toward globalization, politicians have tended to focus more and more on the needs of businesses and governments, and less on the needs of workers. At some point, the lack of buyers for the output of the system will tend to bring the whole system down.

Thus, at some point, the trend toward globalization and automation must stop. We need buyers for the output from the system, and this is precisely the opposite of the direction in which the system is trending. If a way is not found to fix the system, it will ultimately collapse. At a minimum, the trend toward increasing imports will end–if it hasn’t already.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet of Fear

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Originally published in Information Clearing House on January 19, 2016

 


Facing the gleaming Doha skyline on a Persian Gulf winter carries the merit of a panoramic perspective. Most nations around it are going into melt down and the remaining ones – with the exception of Iran – exhibit neither the political leadership nor the economic and institutional infrastructure to do anything other than to meekly accept whatever tsunami hits their shores. They are nothing but scared spectators.

The Empire of Chaos has enough warmongering hardware pre-positioned within spitting distance to turn the whole of Southwest Asia into ashes – as a gaggle of usual suspects in the Beltway, neocon or neoliberalcon, still can’t find a cure to their itching to "really win the next war" in a sort of exponential Shock and Awe.

Fear reigns supreme. Jim Rickards, the author of Currency Wars, economist and CIA asset, has just released a new book, The Big Drop, with a pretty grim message. For his part Jim Rogers, a.k.a. the "Sage of Singapore", most of the time China-bound informing the Chinese elite where to place their investments, holds on to a nuanced perspective on the West blaming all the current global economy turmoil on China.

According to Rogers, "Yes, China is slowing. But mostly the world is doing so. Japan, one of China’s largest trading partners is officially in recession. Much of Europe is worse. The US stock market was down in 2015 while the Chinese stock market was one of the strongest in the world."

Rogers adds, "things are going to get worse worldwide so everyone will suffer and is to ‘blame’. The original source is the US Federal Reserve and its ludicrous, artificial interest rates caused by massive money printing which the world has copied. Throw in staggering debt increases by the US government [which the world has also copied] and there will soon be hell to pay."

So no wonder apocalyptic war rumors are the new normal – even as old timers boost their case for "only" a "good old-fashioned world war", as if nuclear exchanges wouldn’t be part of the equation. A few sound minds in the Atlanticist axis worry that if Il Duce Trump wins the next US presidential election, that translates into guaranteed bankruptcy for the US, and – what else – war if Il Trumpissimo implements half of what he’s boasting about.

Short all the oil you can

The Davos annual talkfest is about to begin; that’s one of those occasions when the Masters of the Universe – who usually decide everything behind closed doors – send their minions to "debate" the future of their holdings. The current debate centers on whether we are still in the midst of the Third – digitalized – Industrial Revolution and the Internet of Things or whether we’re already entering the Fourth.

In the real world though all the cackle is about the age of old-fashioned oil. Which brings us to the myriad effects of the cheap oil strategy deployed by the House of Saud under Washington’s command. 

Persian Gulf traders, off the record, are adamant that there is no longer any real global oil surplus of consequence as all shut-in oil has been dumped on the market based on that Washington command.

Petroleum Intelligence Weekly estimates the surplus is at a maximum 2.2 million a day, plus 600,000 barrels a day coming from Iran later this year. The US consumption of oil – at 19,840,000 barrels a day, 20% of world production – has not increased; it’s the other 80% that have been mostly absorbing the dumped oil.

Some key Persian Gulf traders are adamant that oil should be surging by the second half of 2016. That explains why Russia is not panicking with oil plunging towards $30 a barrel. Moscow is very much aware of the "partners" that are carrying oil market manipulation against Russia, and at the same time is anticipating this won’t last too long.

That explains why Russia's Deputy Finance Minister Maxim Oreshkin issued a sort of "keep calm and carry on" message; he expects oil prices to remain in the $40-60 range for at least the next seven years, and Russia can live with that.

The Masters of the Universe – just like the Russians – have realized their oil manipulation cannot last. Hysteria, predictably, took over. That’s why they ordered major Wall Street firms to short oil using cash settlement. Compliant US corporate media was ordered to spin the shortfalls will last forever. The target is to drive down the price of a barrel of oil to $7 if possible.

The original Masters of the Universe strategy would eventually lead to regime change in Russia and the usual oligarch suspects back in the saddle re-conducting the massive looting operation Russia suffered during the 1990s. 

A fearful House of Saud is a mere pawn in this strategy. Assuming the plan would work, the House of Saud under – virtually demented – King Salman, now confined to a room in his Riyadh palace, would also be regime-changed, via Saudi military officers trained in the West and recruited by Western agents. As a bonus, the Islamic Republic of Iran would also collapse, with "moderates" (rebels?) taking control.

So the Masters of the Universe strategy essentially boils down to regime-change in Russia, Iran and Saudi Arabia, leading to Exceptionalistan-friendly elites/vassals; in sum, the ultimate chapter in the global Resource Wars. Yet what this is yielding so far is the House of Saud having absolutely no clue of what may happen to them; Riyadh royals may think that they are undermining both Iran and Russia, but in the end they may be only accelerating their own demise.

Losing my religion

In Europe, it’s as if we’re back to 1977 when The Stranglers sang No More Heroes. Now, no more heroes and no more ideals. Even as some of European youth’s best and brightest have tried to fight the immense violence of neoliberalism, via alter-globalization, the poorest among the young are now mired in violence and suicidal nihilism – extreme Wahhabism which they've learned online. Yet this has nothing to do with Islam, and it’s not a war of religion, as myriad extreme-right parties across Europe routinely insist. 

All across the spectrum, driven by fear, the toxic mix of political and economic instability continues to spread, leading quite a few insiders to wonder whether both the Fed and the Politburo Standing Committee in Beijing don't really know what’s happening.

And that once again feeds the warmongering hordes, for which that "good old-fashioned world war" is the easiest ticket out. Cancel all the old debt; issue loads of new debt; turn ploughshares and iPhones into cannons. And after a little thermonuclear exchange, welcome to full employment and a new (waste)land of opportunity.

It’s in this context that, under the volcano, surfaces an essay by Guido Preparata, an Italian-American political economist now based as a scholar in the Vatican. In The Political Economy of Hyper-Modernity, soon to appear in an anthology published by Palgrave/Macmillan, Preparata offers an account of the last 70 years of US/international monetary dynamics/history by using a single indicator: the overall US balance of payments – which has not been released since 1975.

Yet the most important conclusion in the essay seems to be that "the neoliberal engine, which has had to run mostly on domestic fuel, has shown… appreciable resilience". The US Treasury and the Federal Reserve, "together" managed to erect a "wall of money".

And yet "US technocrats seem to have grown disillusioned with the neoliberal machine". So, "as a momentous alternative, the technocrats have called for some kind of ‘global rebalancing’". The US-led system "seems to be transitioning to a neo-mercantilist regime". And the answer is the TPP (The Trans-Pacific Partnership) and the TTIP (The Transatlantic Trade and Investment Partnership) trade agreements that, together, "will place the United States at the center of an open trade zone representing around two-thirds of global economic output".

This would imply, ultimately, a sort of Make Trade, Not War endgame. So why so much fear? That’s because in the internal battle raging among the Masters of the Universe, the freewheeling neoliberalcons have not yet imprinted the last word. So beware the Falcons of War.

© Strategic Culture Foundation

 

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

Discovery

Anthony-Freda-Illustrations-Politics1gc2smFrom the keyboard of James Howard Kunstler
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Originally Published on Clusterfuck Nation January 11, 2016
 


It looks like 2016 will be the year that humanfolk learn that the stuff they value was not worth as much as they thought it was. It will be a harrowing process because a great many humans are abandoning ownership of things that are rapidly losing value — e.g. stocks on the Shanghai exchange — and stuffing whatever “money” they can recover into the US dollar, the assets and usufructs of which are also going through a very painful reality value adjustment.

Of course this calls into question foremost exactly what money is, and the answer is: basically a narrative construct. In other words, a story explaining why we behave the way we do around certain things. Some parts of the story have a closer relationship with reality than other parts. The part about the US dollar has a rather weak connection.

When various authorities — the BLS, the Federal Reserve, The New York Times — state that the US economy is “strong,” we can translate that to mean giant companies listed on the stock exchanges are able to put up a Potemkin façade of soundness. For instance, Amazon.com. The company continues to seem like a good idea. And it reinforces that idea in the collective imagination by sending a lot of low-priced goods to your door, (all bought on credit cards), which rings your (nearly) instant gratification bell. This has prompted investors to gobble up Amazon stock.

It’s well-established by now that the “brick-and-mortar” retail operations are majorly sucking wind. Meaning, fewer people are driving to the Target store and venues like it to buy stuff. Supposedly, they are buying stuff at Amazon instead. What interests me in that story is the idea that every single object purchased these days has a UPS journey attached to it. Of course, people also drive to the Target store, though I doubt they leave the place with just one thing.

That dynamic ought to call into question just how people are living in the USA, and the answer to that is: spread out all over the place in a suburban sprawl living arrangement that has poor prospects for being reformed or mitigated. Either you drive yourself to the Target store for a slow-cooker and a few other things, or Amazon has to send the brown truck to each and every house. Either way includes an insane amount of transport, and sooner or later both the brick-and-mortar chain store model and the Amazon home delivery model will fail.

Now I don’t believe that will be the end of retail trade, but it will open the door for a painful transition to whatever the next iteration of retail trade will be. Probably much smaller and more local with less stuff. Unfortunately, it is difficult to imagine a resolution of that without also imagining a transition away from suburbia. The loss of faith in the suburban disposition of things will probably represent the greatest loss of perceived wealth in human history — which is how it should be, since it also happened to be the greatest misallocation of resources in human history. It seemed like a good idea at the time, and now its time has passed.

I suppose the loss of faith in value of all kinds will play out sequentially. It is starting in financial “assets” because so many of these are just faith-based stories, and in this quant-and-algo age it has gotten awfully hard to tell what is good story and what is just a swindle. One wonders, for example, how many well-dressed young people at the bond desks have been able to pawn off sub-prime car loans bundled into giant, tranched bonds with attractive yields to hapless counterparts at the asset allocation desks of the pension funds and insurance companies. My guess is the situation is at least just as bad as it was 2007.

The problem is that when this sucker goes down, to paraphrase the immortal words of George W. Bush, you have to wonder how much other stuff of everyday life for everyday people it will take down with it. The discovery phase of our predicament began ever so crisply in the very first business week of the new year. I’m going to hazard to predict that the damage halts briefly in mid-winter and then resumes with a vengeance in March. This may give thoughtful people a chance to rest and assess.

 

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Will Chess, Not Battleship, Be the Game of the Future in Eurasia?

battleshipgc2smOff the keyboard of Pepe Escobar
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Originally published in Tom Dispatch on November 22, 2015

Silk Roads, Night Trains, and the Third Industrial Revolution in China


The U.S. is transfixed by its multibillion-dollar electoral circus. The European Union is paralyzed by austerity, fear of refugees, and now all-out jihad in the streets of Paris. So the West might be excused if it’s barely caught the echoes of a Chinese version of Roy Orbison’s “All I Have to Do Is Dream.” And that new Chinese dream even comes with a road map.

The crooner is President Xi Jinping and that road map is the ambitious, recently unveiled 13th Five-Year-Plan, or in the pop-video version, the Shisanwu. After years of explosive economic expansion, it sanctifies the country’s lower “new normal” gross domestic product growth rate of 6.5% a year through at least 2020.

It also sanctifies an updated economic formula for the country: out with a model based on low-wage manufacturing of export goods and in with the shock of the new, namely, a Chinese version of the third industrial revolution. And while China’s leadership is focused on creating a middle-class future powered by a consumer economy, its president is telling whoever is willing to listen that, despite the fears of the Obama administration and of some of the country’s neighbors, there’s no reason for war ever to be on the agenda for the U.S. and China.

Given the alarm in Washington about what is touted as a Beijing quietly pursuing expansionism in the South China Sea, Xi has been remarkably blunt on the subject of late. Neither Beijing nor Washington, he insists, should be caught in the Thucydides trap, the belief that a rising power and the ruling imperial power of the planet are condemned to go to war with each other sooner or later.

It was only two months ago in Seattle that Xi told a group of digital economy heavyweights, “There is no such thing as the so-called Thucydides trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.”

A case can be made — and Xi’s ready to make it — that Washington, which, from Afghanistan to Iraq, Libya to Syria, has gained something of a reputation for “strategic miscalculation” in the twenty-first century, might be doing it again.  After all, U.S. military strategy documents and top Pentagon figures have quite publicly started to label China (like Russia) as an official “threat.”

To grasp why Washington is starting to think of China that way, however, you need to take your eyes off the South China Sea for a moment, turn off Donald Trump, Ben Carson, and the rest of the posse, and consider the real game-changer — or “threat” — that’s rattling Beltway nerves in Washington when it comes to the new Great Game in Eurasia.

Xi’s Bedside Reading

Swarms of Chinese tourists iPhoning away and buying everything in sight in major Western capitals already prefigure a Eurasian future closely tied to and anchored by a Chinese economy turbo-charging toward that third industrial revolution. If all goes according to plan, it will harness everything from total connectivity and efficient high-tech infrastructure to the expansion of green, clean energy hubs. Solar plants in the Gobi desert, anyone?

Yes, Xi is a reader of economic and social theorist Jeremy Rifkin, who first conceived of a possible third industrial revolution powered by both the Internet and renewable energy sources.

It turns out that the Chinese leadership has no problem with the idea of harnessing cutting-edge Western soft power for its own purposes. In fact, they seem convinced that no possible tool should be overlooked when it comes to moving the country on to the next stage in the process that China’s Little Helmsman, former leader Deng Xiaoping, decades ago designated as the era in which “to get rich is glorious."

It helps when you have $4 trillion in foreign currency reserves and massive surpluses of steel and cement.  That’s the sort of thing that allows you to go “nation-building” on a pan-Eurasian scale. Hence, Xi’s idea of creating the kind of infrastructure that could, in the end, connect China to Central Asia, the Middle East, and Western Europe.  It’s what the Chinese call “One Belt, One Road”; that is, the junction of the Silk Road Economic Belt and the Twenty-First Century Maritime Silk Road.

Since Xi announced his One Belt, One Road policy in Kazakhstan in 2013, PricewaterhouseCoopers in Hong Kong estimates that the state has ploughed more than $250 billion into Silk Road-oriented projects ranging from railways to power plants. Meanwhile, every significant Chinese business player is on board, from telecom equipment giant Huawei to e-commerce monster Alibaba (fresh from its Singles Day online blockbuster). The Bank of China has already provided a $50 billion credit line for myriad Silk Road-related projects. China’s top cement-maker Anhui Conch is building at least six monster cement plants in Indonesia, Vietnam, and Laos. Work aimed at tying the Asian part of Eurasia together is proceeding at a striking pace.  For instance, the China-Laos, China-Thailand, and Jakarta-Bandung railways — contracts worth over $20 billion — are to be completed by Chinese companies before 2020.

With business booming, right now the third industrial revolution in China looks ever more like a mad scramble toward a new form of modernity.

A Eurasian “War on Terror”

The One Belt, One Road plan for Eurasia reaches far beyond the Rudyard Kipling-coined nineteenth century phrase “the Great Game,” which in its day was meant to describe the British-Russian tournament of shadows for the control of Central Asia. At the heart of the twenty-first century’s Great Game lies China’s currency, the yuan, which may, by November 30th, join the International Monetary Fund’s Special Drawing Rights reserve-currency basket. If so, this will in practice mean the total integration of the yuan, and so of Beijing, into global financial markets, as an extra basket of countries will add it to their foreign exchange holdings and subsequent currency shifts may amount to the equivalent of trillions of U.S. dollars.

Couple the One Belt, One Road project with the recently founded, China-ledAsian Infrastructure Investment Bank and Beijing’s Silk Road Infrastructure Fund ($40 billion committed to it so far).  Mix in an internationalized yuan and you have the groundwork for Chinese companies to turbo-charge their way into a pan-Eurasian (and even African) building spree of roads, high-speed rail lines, fiber-optic networks, ports, pipelines, and power grids.

According to the Washington-dominated Asian Development Bank (ADB), there is, at present, a monstrous gap of $800 billion in the funding of Asian infrastructure development to 2020 and it’s yearning to be filled. Beijing is now stepping right into what promises to be a paradigm-breaking binge of economic development.

And don’t forget about the bonuses that could conceivably follow such developments. After all, in China’s stunningly ambitious plans at least, its Eurasian project will end up covering no less than 65 countries on three continents, potentially affecting 4.4 billion people.  If it succeeds even in part, it could take the gloss off al-Qaeda- and ISIS-style Wahhabi-influenced jihadism not only in China’s Xinjiang Province, but also in Pakistan, Afghanistan, and Central Asia. Imagine it as a new kind of Eurasian war on terror whose “weapons” would be trade and development. After all, Beijing’s planners expect the country’s annual trade volume with belt-and-road partners to surpass $2.5 trillion by 2025.

At the same time, another kind of binding geography — what I’ve long called Pipelineistan, the vast network of energy pipelines crisscrossing the region, bringing its oil and natural gas supplies to China — is coming into being.  It’s already spreading across Pakistan and Myanmar, and China is planning to double down on this attempt to reinforce its escape-from-the-Straits-of-Malacca strategy. (That bottleneck is still a transit point for 75% of Chinese oil imports.) Beijing prefers a world in which most of those energy imports are not water-borne and so at the mercy of the U.S. Navy. More than 50% of China’s natural gas already comes overland from two Central Asian "stans" (Kazakhstan and Turkmenistan) and that percentage will only increase once pipelines to bring Siberian natural gas to China come online before the end of the decade.

Of course, the concept behind all this, which might be sloganized as “to go west (and south) is glorious” could induce a tectonic shift in Eurasian relations at every level, but that depends on how it comes to be viewed by the nations involved and by Washington.

Leaving economics aside for a moment, the success of the whole enterprise will require superhuman PR skills from Beijing, something not always in evidence. And there are many other problems to face (or duck): these include Beijing’s Han superiority complex, not always exactly a hit among either minority ethnic groups or neighboring states, as well as an economic push that is often seen by China’s ethnic minorities as benefiting only the Han Chinese. Mix in a rising tide of nationalist feeling, the expansion of the Chinese military (including its navy), conflict in its southern seas, and a growing security obsession in Beijing. Add to that a foreign policy minefield, which will work against maintaining a carefully calibrated respect for the sovereignty of neighbors. Throw in the Obama administration’s “pivot” to Asia and its urge both to form anti-Chinese alliances of “containment” and to beef up its own naval and air power in waters close to China.  And finally don’t forget red tape and bureaucracy, a Central Asian staple. All of this adds up to a formidable package of obstacles to Xi’s Chinese dream and a new Eurasia.

All Aboard the Night Train

The Silk Road revival started out as a modest idea floated in China’s Ministry of Commerce. The initial goal was nothing more than getting extra “contracts for Chinese construction companies overseas.” How far the country has traveled since then.  Starting from zero in 2003, China has ended up building no less than 16,000 kilometers of high-speed rail tracks in these years — more than the rest of the planet combined.

And that’s just the beginning. Beijing is now negotiating with 30 countries to build another 5,000 kilometers of high-speed rail at a total investment of $157 billion. Cost is, of course, king; a made-in-China high-speed network (top speed: 350 kilometers an hour) costs around $17 million to $21 million per kilometer. Comparable European costs: $25 million to $39 million per kilometer. So no wonder the Chinese are bidding for an $18 billion project linking London with northern England, and another linking Los Angeles to Las Vegas, while outbidding German companies to lay tracks in Russia.

On another front, even though it’s not directly part of China’s new Silk Road planning, don’t forget about the Iran-India-Afghanistan Agreement on Transit and International Transportation Cooperation. This India-Iran project to develop roads, railways, and ports is particularly focused on the Iranian port of Chabahar, which is to be linked by new roads and railways to the Afghan capital Kabul and then to parts of Central Asia.

Why Chabahar? Because this is India’s preferred transit corridor to Central Asia and Russia, as the Khyber Pass in the Afghan-Pakistani borderlands, the country’s traditional linking point for this, remains too volatile. Built by Iran, the transit corridor from Chabahar to Milak on the Iran-Afghanistan border is now ready. By rail, Chabahar will then be connected to the Uzbek border at Termez, which translates into Indian products reaching Central Asia and Russia.

Think of this as the Southern Silk Road, linking South Asia with Central Asia, and in the end, if all goes according to plan, West Asia with China. It is part of a wildly ambitious plan for a North-South Transport Corridor, an India-Iran-Russia joint project launched in 2002 and focused on the development of inter-Asian trade. 

Of course, you won’t be surprised to know that, even here, China is deeply involved. Chinese companies have already built a high-speed rail line from the Iranian capital Tehran to Mashhad, near the Afghan border. China also financed a metro rail line from Imam Khomeini Airport to downtown Tehran. And it wants to use Chabahar as part of the so-called Iron Silk Road that is someday slated to cross Iran and extend all the way to Turkey. To top it off, China is already investing in the upgrading of Turkish ports.

Who Lost Eurasia?

For Chinese leaders, the One Belt, One Road plan — an “economic partnership map with multiple rings interconnected with one another” — is seen as an escape route from the Washington Consensus and the dollar-centered global financial system that goes with it. And while “guns” are being drawn, the “battlefield” of the future, as the Chinese see it, is essentially a global economic one.

On one side are the mega-economic pacts being touted by Washington — the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership — that would split Eurasia in two. On the other, there is the urge for a new pan-Eurasian integration program that would be focused on China, and feature Russia, Kazakhstan, Iran, and India as major players. Last May, Russia and China closed a deal to coordinate the Russian-led Eurasian Economic Union (EEU) with new Silk Road projects. As part of their developing strategic partnership, Russia is already China’s number one oil supplier.

With Ukraine’s fate still in the balance, there is, at present, little room for the sort of serious business dialogue between the European Union (EU) and the EEU that might someday fuse Europe and Russia into the Chinese vision of full-scale, continent-wide Eurasian integration. And yet German business types, in particular, remain focused on and fascinated by the limitless possibilities of the New Silk Road concept and the way it might profitably link the continent.

If you’re looking for a future first sign of détente on this score, keep an eye on any EU moves to engage economically with the Shanghai Cooperation Organization.  Its membership at present: China, Russia, and four "stans" (Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan). India and Pakistan are to become members in 2016, and Iran once U.N. sanctions are completely lifted. A monster second step (no time soon) would be for this dialogue to become the springboard for the building of a trans-European “one-belt” zone.  That could only happen after there was a genuine settlement in Ukraine and EU sanctions on Russia had been lifted. Think of it as the long and winding road towards what Russian President Vladimir Putin tried to sell the Germans in 2010: a Eurasian free-trade zone extending from Vladivostok to Lisbon.

Any such moves will, of course, only happen over Washington’s dead body.  At the moment, inside the Beltway, sentiment ranges from gloating over the economic “death” of the BRICS nations (Brazil, Russia, India, China, and South Africa), most of which are facing daunting economic dislocations even as their political, diplomatic, and strategic integration proceeds apace, to fear or even downright anticipation of World War III and the Russian “threat.”

No one in Washington wants to “lose” Eurasia to China and its new Silk Roads. On what former National Security Adviser Zbigniew Brzezinski calls “the grand chessboard,” Beltway elites and the punditocracy that follows them will never resign themselves to seeing the U.S. relegated to the role of “offshore balancer,” while China dominates an integrating Eurasia.  Hence, those two trade pacts and that “pivot,” the heightened U.S. naval presence in Asian waters, the new urge to “contain” China, and the demonization of both Putin’s Russia and the Chinese military threat.

Thucydides, Eat Your Heart Out

Which brings us full circle to Xi’s crush on Jeremy Rifkin. Make no mistake about it: whatever Washington may want, China is indeed the rising power in Eurasia and a larger-than-life economic magnet. From London to Berlin, there are signs in the EU that, despite so many decades of trans-Atlantic allegiance, there is also something too attractive to ignore about what China has to offer. There is already a push towards the configuration of a European-wide digital economy closely linked with China. The aim would be a Rifkin-esque digitally integrated economic space spanning Eurasia, which in turn would be an essential building block for that post-carbon third industrial revolution.

The G-20 this year was in Antalya, Turkey, and it was a fractious affair dominated by Islamic State jihadism in the streets of Paris. The G-20 in 2016 will be in Hangzhou, China, which also happens to be the hometown of Jack Ma and the headquarters for Alibaba. You can’t get more third industrial revolution than that. 

One year is an eternity in geopolitics. But what if, in 2016, Hangzhou did indeed offer a vision of the future, of silk roads galore and night trains from Central Asia to Duisburg, Germany, a future arguably dominated by Xi’s vision.  He is, at least, keen on enshrining the G-20 as a multipolar global mechanism for coordinating a common development framework. Within it, Washington and Beijing might sometimes actually work together in a world in which chess, not Battleship, would be the game of the century.

Thucydides, eat your heart out.


PepePepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

Baltic Dry Index hits All-Time Low

container_ship_topplinggc2reddit-logoOff the keyboard of Michael Snyder

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Publishes on The Economic Collapse on November 19, 2015

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I was absolutely stunned to learn that the Baltic Dry Shipping Index had plummeted to a new all-time record low of 504 at one point on Thursday.  I have written a number of articles lately about the dramatic slowdown in global trade, but I didn’t realize that things had gotten quite this bad already.  Not even during the darkest moments of the last financial crisis did the Baltic Dry Shipping Index drop this low.  Something doesn’t seem to be adding up, because the mainstream media keeps telling us that the global economy is doing just fine.  In fact, the Federal Reserve is so confident in our “economic recovery” that they are getting ready to raise interest rates.  Of course the truth is that there is no “economic recovery” on the horizon.  In fact, as I wrote about yesterday, there are signs all around us that are indicating that we are heading directly into another major economic crisis.  This staggering decline of the Baltic Dry Shipping Index is just another confirmation of what is directly ahead of us.

Overall, the Baltic Dry Index is down more than 60 percent over the past 12 months.  Global demand for shipping is absolutely collapsing, and yet very few “experts” seem alarmed by this.  If you are not familiar with the Baltic Dry Shipping Index, the following is a pretty good definition from Investopedia

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed).

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.

It is also known as the “Dry Bulk Index”.

Much of the decline of the Baltic Dry Shipping Index is being blamed on China.  The following comes from a Bloomberg report that was posted on Thursday…

The cost of shipping commodities fell to a record, amid signs that Chinese demand growth for iron ore and coal is slowing, hurting the industry’s biggest source of cargoes.

The Baltic Dry Index, a measure of shipping rates for everything from coal to ore to grains, fell to 504 points on Thursday, the lowest data from the London-based Baltic Exchange going back to 1985. Among the causes of shipowners’ pain is slowing economic growth in China, which is translating into weakening demand for imported iron ore that’s used to make the steel.

So many of the exact same patterns that we witnessed back in 2008 are playing out once again in front of our very eyes.  Below, I have shared a chart that was posted by Zero Hedge, and it shows how the Baltic Dry Shipping Index absolutely collapsed in 2008 as we headed into a major financial crisis.  Well, now the Index is collapsing again, and it is already lower than it was at any point back in 2008…

Baltic Dry Index - Zero Hedge

The evidence continues to mount that we are steamrolling toward a deflationary economic slowdown that is worldwide in scope.

Just look at the price of U.S. oil.  It just keeps on falling, and as I write this article it is sitting at $40.40.

The price of oil collapsed just before the financial crisis of 2008, and the same pattern is happening again.

And look at what is happening to commodities. The Thomson Reuters/CoreCommodity CRB Commodity Index has plummeted to the lowest level that we have seen since the last recession. It is now down more than 30 percent over the past 12 months, and it continues to fall.

So don’t be fooled by the temporary “stock market recovery” that we have witnessed.  The underlying economic fundamentals continue to decline.  We are entering a global deflationary recession, and the stock market will get the memo at some point just like we saw in 2008.

At this moment, global financial markets are teetering on the brink, and all it is going to take is some kind of major trigger event to send them tumbling over the edge.

And such an event may be coming sooner than you may think.

We live at a time when global terrorism is surging, relationships between nations are deteriorating and our planet is shaking in wild and unpredictable ways.

It wouldn’t take much to push the financial world into full-blown panic mode.  A major regional war in the Middle East, a terror attack that kills thousands, or an earthquake or volcanic eruption that affects a large U.S. city are all potential examples of “black swan events” which could fit the bill.

The global financial system has never been more primed for another 2008-style crisis.  Thanks to the fragility of the system, it could literally happen any day now.

So keep your eyes open – within weeks our world could be completely and totally different.

Global Recession Accelerating toward Depression

storm-cloudsgc2smOff the keyboard of Thomas Lewis

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The weather forecast says sunny and mild. Let’s go shopping. (Wikipedia Photo)

Published on The Daily Impact on October 21, 2015


With the mainstream media devoting 80% of their time covering the contest to see what color uniform the captain of the USS Titanic will be wearing in 2017; with the Tea Party Taliban — 40 fundamentalist members of the House of Representatives — bringing the federal government to its knees; the storm clouds of a great global depression are building into our skies from all directions, largely unacknowledged even as they begin to blot out the sun.

Any economy is a pyramid whose broad base is comprised of the middle class — people who have enough money to provide a decent life for themselves. They do this by spending their money on the necessities of life, thus giving life to businesses organized to provide them with those necessities. This activity is called trade, and where there is no trade, there is no economic life.

Even as recession looms there is plenty of trade going on. But it’s not so much trade in the necessities of life, but gambles on the future value of necessities, on short positions and leveraged positions and junk debt and derivatives and indexes, indulged in by riverboat gamblers throwing around other peoples’ money. The one percent of the world’s population who own 50% of the world’s wealth are having a wonderful time at the casino, they’re getting richer by the minute and will tell you that everything is wonderful.

But the trade in the necessities of life, the trade that sustains economies instead of blowing them up, as the gamblers always do, is in desperate trouble, for one overwhelming reason. In most of the world today, the people who must buy the necessities of life don’t have the money to do so. Or to put it another way, the broad foundation of the pyramid is collapsing.

According to one of the world’s largest banks, Britain’s HSBC, global trade volume was down 8.4% in the first half of this year (the latest numbers are for June). That means, sayeth the bankers, that we — all of us, the whole world — are already in a dollar recession.

For decades, the driver of the world economy has been China, as it flooded the world with cheap exports and feverishly imported oil, coal, concrete, steel and dollars.  Now the driver is coasting, rapidly losing power: imports to China were down 20% in September (year-to-year) and exports were off 3.7%. The China Containerized Freight Index, which has been tracking shipping volumes for 17 years, has been dropping precipitously for over a year and has just hit an all time low.

The Masters of the Universe (irony alert: this is the term of art used here to denote the class of hedge fund, equity management shadow bankers who routinely blow up the world for profit) who saw the Chinese decline coming assumed that the world’s other emerging markets, such as Brazil, Turkey, India, Russia and the like, would pick up the slack. Indeed, the Masters turned firehoses of capital on the emerging markets for the past several years, inflating bubble after bubble after bubble in their frantic rush to realize the returns on investment of their dreams.

The dreams have turned to nightmares. The collapse in commodity prices (a consequence of the slowing of the developed economies), among other things, has wrecked the frail emerging markets, and the firehoses of capital are pointing the other way. The International Monetary Fundand the Bank of England, among many others, are warning that the billions of dollars of investment capital now being sucked out of the emerging economies, and trillions of dollars in loans that can never be repaid, pose an existential threat to the economies of the world.

If you think the U.S. is immune from these raging financial fires, think again. Debt, like dry tinder, is everywhere and the hot winds are spreading and fanning embers everywhere:

  • American retail giants that once dominated the world — McDonald’s, Walmart, Sears, Microsoft, Hewlett-Packard, even Facebook and Twitter — are sick and dying, their revenue, profit and stock vital signs weak and thready, as they say in the ICU. The surgeons are hacking off limbs — closing stores and firing people — as fast as they can, trying to save the organism.
  • The shipping of goods within the U.S. — the bedrock measure of buying and selling, has declined every month (year-to-year) since February, and that includes September, the peak month for shipping holiday merchandise to stores for selling in the season in which many stores make their profit for the year.
  • A report from CNBC showing both retail sales and wages flatlining was headlined: “Consumers shutting down as US economy deflates.”

It’s happening all over the world.

This has been a bulletin from The Daily Impact. We now return you to our regular programs: financial advice from Don “I’m really, really rich” Trump and self-defense classes from Dr. Ben “shoot that guy behind the counter” Carson.


Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

Merry Doomy Christmas

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Published on the Doomstead Diner on December 25, 2014

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http://wearethepractitioners.com/images/david%27s-collection/lump-of-coal.jpgDoom may not seem very Christmas-y as a concept, but in the spirit of Gifting, as I often like to say, Doom is the Gift that Keeps on Giving.

The old saw has it that if you were Naughty, Santa would leave you a lump of coal in your stocking instead of an Iphone.  As we move along the Collapse Highway though, we turn more of the coal into Iphones, leaving fewer lumps of coal for stockings, and more Iphones.  At a certain point, only the Nice children will see a lump of coal in their stocking at Christmas.  At least you can use a lump of Coal to burn in the fireplace and stay warm on a chilly winter night, the Iphone will not do you much good when the electrical grid goes down.

Most people don’t ever think that will come to pass, and most of the small minority of people who think it might come to pass think this outcome is still far into the future.  How far away is it, how much time do we have here left to live in the comfort of brightly lit McMansions, driving the Cars to Walmart and stopping at Starbucks for a cup of overpriced Coffee?

For the most part, this all remains dependent on the continuing functionality of the Global Monetary System, which as we close out 2014 and move into 2015 shows ever increasing signs of extreme distress.  The most clear signs are in the FOREX, or foreign exchange trading markets, where numerous countries have seen the value of the money they use in their location drop by anywhere from 20-50% in the last few months.

Most prevalent in the newz on this subject of late has been the Russian Ruble, which has collapsed in value along with the price of Oil.  However the Japanese Yen has also been collapsing in value,  same with the Brazilian Real, the Indian Rupee, and even to a lesser extent the multi-national Euro, and the Chinese Yuan also.  What are all these currencies losing value in relation to on the FOREX market?  The Dollar of course, still the World Reserve Toilet Paper and the currency in which the vast preponderance of international loans and interbank finance is denominated.

Damaged 100 yuan banknotes are seen on a table at a branch of China Bank in Foshan

As should be obvious, in any currency pair trading, if one currency is Inflating, the other is Deflating.  The people holding the currency that is inflating, say the Ruble, want to trade it as fast as they can for the deflating currency, in this case the Dollar.  This leads to a shortage of Dollars in the local market that can be purchased with Rubles, which exacerbates the problem and makes the street value for the Ruble even less than the official exchange rate, which is the panic stage and is what drives an inflationary event into a Hyperinflationary one.  So far that does not appear to have occurred in Russia itself, but does already appear to be occuring in one of the satellite countries of the former Soviet Union, Belarus.

To try to put a lid on a problem like this, the local Goobermints try all sorts of things, Capital Controls, large penalties for currency exchanges and so forth, but once the confidence has been lost in the local currency, there is very little that can be done to fix the problem, until and unless you get some folks from the Western Banking Cartel who step in to take control of the local money and start issuing out some new money with some arbitrary peg against the dollar.  This has occurred repeatedly over the years in Brasil, which used Cruzeiros when I lived there in the 60s, switched to Cruzados by lopping off some zeros from Hyperinflating Cruzeiros, and today uses Reals, which are no more REAL than Cruzeiros or Cruzados, but did manage to last a bit longer as a viable currency there.

http://i.cbc.ca/1.2831230.1415722704!/fileImage/httpImage/image.jpg_gen/derivatives/16x9_620/russian-ruble.jpg

To the resident of the FSoA watching as the Federal Deficit skyrockets now to $18T, it’s kind of hard to imagine why Dollars hold more value than Rubles, but there are many reasons for this in play, some psychological, some financial and some physical.

The psychological one begins with the fact that coming out of WWII, the FSoA was the last country standing in a world of ruin, both in Asia and Europe.  The Dollar became World Reserve Currency, and the entire rebuild done in the aftermath of that was done with Dollars loaned out by the FSoA, through the Marshall Plan.  While Deutchmarks bought just about nothing in Germany directly after WWII, if you had a few Dollars, you could buy ANYTHING, and cheap too.  Who had access to borrow said Dollars?  The same people who had access to credit before, the Rothschilds, the Warburgs, the Kuhns, et al.  They build a new and bigger edifice based on debt once again here, and now they have the all the Oil under the ground in MENA to issue that debt on.  So since then, not one but really several generations have all grown up with the BELIEF in the Dollar as a valid currency, and since it has generally worked to buy the stuff you need to live with only a few periods of relatively minor disruption, the belief is quite powerful that it will last in perpetuity.  The strong belief in the Dollar is the reason it is always the preferred currency that other smaller nations and their populations run to when they have a local currency crisis.  In Argentina during the currency crisis in 2001-2, as Ferfal chronicled, if you had Dollars in an overseas account you could access, you could do OK, although it was still a wicked dangerous place even if you did have some.

The Financial reasons become ever more obvious when you watch the manipulation and how easy it is for the Westerm Banksters to put the Thumbscrews down on a country even as large and well gifted with resources as Mother Russia is.  Since Oil is priced in Dollars, most International trade is done in Dollars and the Western Banking Cartel has control over all the computer systems which handle global trade, anytime they wanna cut you off from access to international credit they can, no matter how big you are or how much Oil you have left in the ground.

The physical reason should be obvious, the Dollar maintains some value because ineffectual as it is, the Big Ass Military still holds the threat of bombing your country back to the Stone Age if you don’t buy in Dollars.

Taken altogether, this makes the Dollar look like the best Dogshit in the Pound out there, it still buys stuff at the supermarket and so when your local currency gets hit, this is the preferred “safe haven” to run to. Despite all the jawboning about bilateral tade agreements, currency swaps and a Sino-Russian Yuan-Ruble currency regime taking over from the collapsing Dollar, at least so far the opposite appears true, which is that the Dollar appears to be collapsing Yuan and Ruble.  Not so fast with the Yuan, but the signs in China aren’t too good these days for the big Growth numbers they need and the exploding internal demand from middle class Chinese

In any event, either way whether the Dollar or or Yuable ends up as the last one standing, everybody has run to the winner, THEN WHAT?  It’s really only at this point you get to see what paper claims denominated in the Winning currency actually represent any real value and which do not.  Mostly, they are quite worthless.

http://siliconangle.com/files/2012/12/jolly_santa_saying_ho_ho_ho_0521-1012-0313-4538_SMU-300x264.jpgThe other possibility here is that as soon as one of the 1st Tier currencies like Sterling, Yen or the Euro starts Hyperinflating, there will be a terminal liquidity lockup and then everyone goes down together simultaneously, rather than a cascade of weaker currencies over time.  If that occurs, things will spin out of control REALLY fast.

Either way, 2015 looks to be a Watershed year for us Kollapsniks, as many of the issues we have discussed finally become obvious to all as the Tide Runs Out here.  I can only hope the Internet is still up next Christmas so we can look at all the Doom Gifts in Santa’s Bag for 2015.

HO, HO, HO.

Santa RE

Go west, young Han

Off the keyboard of Pepe Escobar
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THE ROVING EYE

chinarailway

Originally published in Asia Times on December 17, 2014
Discuss this article here in the Diner Forum.

November 18, 2014: it’s a day that should live forever in history. On that day, in the city of Yiwu in China’s Zhejiang province, 300 kilometers south of Shanghai, the first train carrying 82 containers of export goods weighing more than 1,000 tons left a massive warehouse complex heading for Madrid. It arrived on December 9.

Welcome to the new trans-Eurasia choo-choo train. At over 13,000 kilometers, it will regularly traverse the longest freight train route in the world, 40% farther than the legendary Trans-Siberian Railway. Its cargo will cross China from East to West, then Kazakhstan, Russia, Belarus, Poland, Germany, France, and finally Spain.

You may not have the faintest idea where Yiwu is, but businessmen plying their trades across Eurasia, especially from the Arab world, are already hooked on the city “where amazing happens!” We’re talking about the largest wholesale center for small-sized consumer goods – from clothes to toys – possibly anywhere on Earth.

The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It’s already a graphic example of Eurasian integration on the go. And most of all, it’s the first building block on China’s “New Silk Road”, conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade.

Go west, young Han. One day, if everything happens according to plan (and according to the dreams of China’s leaders), all this will be yours – via high-speed rail, no less. The trip from China to Europe will be a two-day affair, not the 21 days of the present moment. In fact, as that freight train left Yiwu, the D8602 bullet train was leaving Urumqi in Xinjiang Province, heading for Hami in China’s far west. That’s the first high-speed railway built in Xinjiang, and more like it will be coming soon across China at what is likely to prove dizzying speed.

Today, 90% of the global container trade still travels by ocean, and that’s what Beijing plans to change. Its embryonic, still relatively slow New Silk Road represents its first breakthrough in what is bound to be an overland trans-continental container trade revolution.

And with it will go a basket of future “win-win” deals, including lower transportation costs, the expansion of Chinese construction companies ever further into the Central Asian “stans”, as well as into Europe, an easier and faster way to move uranium and rare metals from Central Asia elsewhere, and the opening of myriad new markets harboring hundreds of millions of people.

So if Washington is intent on “pivoting to Asia,” China has its own plan in mind. Think of it as a pirouette to Europe across Eurasia.

Defecting to the East?
The speed with which all of this is happening is staggering. Chinese President Xi Jinping launched the New Silk Road Economic Belt in Astana, Kazakhstan, in September 2013. One month later, while in Indonesia’s capital, Jakarta, he announced a 21st-century Maritime Silk Road. Beijing defines the overall concept behind its planning as “one road and one belt”, when what it’s actually thinking about is a boggling maze of prospective roads, rail lines, sea lanes, and belts.

We’re talking about a national strategy that aims to draw on the historical aura of the ancient Silk Road, which bridged and connected civilizations, east and west, while creating the basis for a vast set of interlocked pan-Eurasian economic cooperation zones. Already the Chinese leadership has green-lighted a $40 billion infrastructure fund, overseen by the China Development Bank, to build roads, high-speed rail lines, and energy pipelines in assorted Chinese provinces. The fund will sooner or later expand to cover projects in South Asia, Southeast Asia, the Middle East, and parts of Europe. But Central Asia is the key immediate target.

Chinese companies will be investing in, and bidding for contracts in, dozens of countries along those planned silk roads. After three decades of development while sucking up foreign investment at breakneck speed, China’s strategy is now to let its own capital flow to its neighbors. It’s already clinched $30 billion in contracts with Kazakhstan and $15 billion with Uzbekistan. It has provided Turkmenistan with $8 billion in loans and a billion more has gone to Tajikistan.

In 2013, relations with Kyrgyzstan were upgraded to what the Chinese term “strategic level.” China is already the largest trading partner for all of them except Uzbekistan and, though the former Central Asian socialist republics of the Soviet Union are still tied to Russia’s network of energy pipelines, China is at work there, too, creating its own version of Pipelineistan, including a new gas pipeline to Turkmenistan, with more to come.

The competition among Chinese provinces for much of this business and the infrastructure that goes with it will be fierce. Xinjiang is already being reconfigured by Beijing as a key hub in its new Eurasian network. In early November 2014, Guangdong – the “factory of the world” – hosted the first international expo for the country’s Maritime Silk Road and representatives of no less than 42 countries attended the party.

President Xi himself is now enthusiastically selling his home province, Shaanxi, which once harbored the start of the historic Silk Road in Xian, as a twenty-first-century transportation hub. He’s made his New Silk Road pitch for it to, among others, Tajikistan, the Maldives, Sri Lanka, India, and Afghanistan.

Just like the historic Silk Road, the new one has to be thought of in the plural. Imagine it as a future branching maze of roads, rail lines, and pipelines. A key stretch is going to run through Central Asia, Iran, and Turkey, with Istanbul as a crossroads site. Iran and Central Asia are already actively promoting their own connections to it.

Another key stretch will follow the Trans-Siberian Railway with Moscow as a key node. Once that trans-Siberian high-speed rail remix is completed, travel time between Beijing and Moscow will plunge from the current six and a half days to only 33 hours. In the end, Rotterdam, Duisburg, and Berlin could all be nodes on this future “highway” and German business execs are enthusiastic about the prospect.

The Maritime Silk Road will start in Guangdong province en route to the Malacca Strait, the Indian Ocean, the Horn of Africa, the Red Sea and the Mediterranean, ending essentially in Venice, which would be poetic justice indeed. Think of it as Marco Polo in reverse.

All of this is slated to be completed by 2025, providing China with the kind of future “soft power” that it now sorely lacks. When President Xi hails the push to “break the connectivity bottleneck” across Asia, he’s also promising Chinese credit to a wide range of countries.

Now, mix the Silk Road strategy with heightened cooperation among the BRICS countries (Brazil, Russia, India, China, and South Africa), with accelerated cooperation among the members of the Shanghai Cooperation Organization (SCO), with a more influential Chinese role over the 120-member Non-Aligned Movement (NAM) – no wonder there’s the perception across the Global South that, while the US remains embroiled in its endless wars, the world is defecting to the East.

New banks and new dreams
The recent Asia-Pacific Economic Cooperation (APEC) summit in Beijing was certainly a Chinese success story, but the bigger APEC story went virtually unreported in the United States. Twenty-two Asian countries approved the creation of an Asian Infrastructure Investment Bank (AIIB) only one year after Xi initially proposed it. This is to be yet another bank, like the BRICS Development Bank, that will help finance projects in energy, telecommunications, and transportation. Its initial capital will be $50 billion and China and India will be its main shareholders.

Consider its establishment a Sino-Indian response to the Asian Development Bank (ADB), founded in 1966 under the aegis of the World Bank and considered by most of the world as a stalking horse for the Washington consensus. When China and India insist that the new bank’s loans will be made on the basis of “justice, equity, and transparency”, they mean that to be in stark contrast to the ADB (which remains a US-Japan affair with those two countries contributing 31% of its capital and holding 25% of its voting power) – and a sign of a coming new order in Asia. In addition, at a purely practical level, the ADB won’t finance the real needs of the Asian infrastructure push that the Chinese leadership is dreaming about, which is why the AIIB is going to come in so handy.

Keep in mind that China is already the top trading partner for India, Pakistan, and Bangladesh. It’s in second place when it comes to Sri Lanka and Nepal. It’s number one again when it comes to virtually all the members of the Association of Southeast Asian Nations (ASEAN), despite China’s recent well-publicized conflicts over who controls waters rich in energy deposits in the region. We’re talking here about the compelling dream of a convergence of 600 million people in Southeast Asia, 1.3 billion in China, and 1.5 billion on the Indian subcontinent.

Only three APEC members – apart from the US – did not vote to approve the new bank: Japan, South Korea, and Australia, all under immense pressure from the Obama administration. (Indonesia signed on a few days late.) And Australia is finding it increasingly difficult to resist the lure of what, these days, is being called “yuan diplomacy”.

In fact, whatever the overwhelming majority of Asian nations may think about China’s self-described “peaceful rise”, most are already shying away from or turning their backs on a Washington-and-NATO-dominated trade and commercial world and the set of pacts – from the Transatlantic Trade and Investment Partnership (TTIP) for Europe to the Trans-Pacific Partnership (TPP) for Asia – that would go with it.

When dragon embraces bear
Russian President Vladimir Putin had a fabulous APEC. After his country and China clinched a massive $400 billion natural gas deal in May – around the Power of Siberia pipeline, whose construction began this year – they added a second agreement worth $325 billion around the Altai pipeline originating in western Siberia.

These two mega-energy deals don’t mean that Beijing will become Moscow-dependent when it comes to energy, though it’s estimated that they will provide 17% of China’s natural gas needs by 2020. (Gas, however, makes up only 10% per cent of China’s energy mix at present.) But these deals signal where the wind is blowing in the heart of Eurasia. Though Chinese banks can’t replace those affected by Washington and EU sanctions against Russia, they are offering a Moscow battered by recent plummeting oil prices some relief in the form of access to Chinese credit.

On the military front, Russia and China are now committed to large-scale joint military exercises, while Russia’s advanced S-400 air defense missile system will soon enough be heading for Beijing. In addition, for the first time in the post-Cold War era, Putin recently raised the old Soviet-era doctrine of “collective security” in Asia as a possible pillar for a new Sino-Russian strategic partnership.

Chinese President Xi has taken to calling all this the “evergreen tree of Chinese-Russian friendship” – or you could think of it as Putin’s strategic “pivot” to China. In either case, Washington is not exactly thrilled to see Russia and China beginning to mesh their strengths: Russian excellence in aerospace, defense technology, and heavy equipment manufacturing matching Chinese excellence in agriculture, light industry, and information technology.

It’s also been clear for years that, across Eurasia, Russian, not Western, pipelines are likely to prevail. The latest spectacular Pipelineistan opera – Gazprom’s cancellation of the prospective South Stream pipeline that was to bring yet more Russian natural gas to Europe – will, in the end, only guarantee an even greater energy integration of both Turkey and Russia into the new Eurasia.

So long to the unipolar moment
All these interlocked developments suggest a geopolitical tectonic shift in Eurasia that the American media simply hasn’t begun to grasp. Which doesn’t mean that no one notices anything. You can smell the incipient panic in the air in the Washington establishment. The Council on Foreign Relations is already publishing laments about the possibility that the former sole superpower’s exceptionalist moment is “unraveling”. The US-China Economic and Security Review Commission can only blame the Chinese leadership for being “disloyal”, adverse to “reform”, and an enemy of the “liberalization” of their own economy.

The usual suspects carp that upstart China is upsetting the “international order”, will doom “peace and prosperity” in Asia for all eternity, and may be creating a “new kind of Cold War” in the region. From Washington’s perspective, a rising China, of course, remains the major “threat” in Asia, if not the world, even as the Pentagon spends gigantic sums to keep its sprawling global empire of bases intact. Those Washington-based stories about the new China threat in the Pacific and Southeast Asia, however, never mention that China remains encircled by US bases, while lacking a base of its own outside its territory.

Of course, China does face titanic problems, including the pressures being applied by the globe’s “sole superpower”. Among other things, Beijing fears threats to the security of its sea-borne energy supply from abroad, which helps explain its massive investment in helping create a welcoming Eurasian Pipelineistan from Central Asia to Siberia. Fears for its energy future also explain its urge to “escape from Malacca” by reaching for energy supplies in Africa and South America, and its much-discussed offensive to claim energy-rich areas of the East and South China seas, which Beijing is betting could become a “second Persian Gulf”, ultimately yielding 130 billion barrels of oil.

On the internal front, President Xi has outlined in detail his vision of a “results-oriented” path for his country over the next decade. As road maps go, China’s “must-do” list of reforms is nothing short of impressive. And worrying about keeping China’s economy, already the world’s number one by size, rolling along at a feverish pitch, Xi is also turbo-charging the fight against corruption, graft, and waste, especially within the Communist Party itself.

Economic efficiency is another crucial problem. Chinese state-owned enterprises are now investing a staggering $2.3 trillion a year – 43% of the country’s total investment – in infrastructure. Yet studies at Tsinghua University’s School of Management have shown that an array of investments in facilities ranging from steel mills to cement factories have only added to overcapacity and so actually undercut China’s productivity.

Xiaolu Wang and Yixiao Zhou, authors of the academic paper “Deepening Reform for China’s Long-term Growth and Development”, contend that it will be difficult for China to jump from middle-income to high-income status – a key requirement for a truly global power. For this, an avalanche of extra government funds would have to go into areas like social security/unemployment benefits and healthcare, which take up at present 9.8% and 15.1% of the 2014 budget – high for some Western countries but not high enough for China’s needs.

Still, anyone who has closely followed what China has accomplished over these past three decades knows that, whatever its problems, whatever the threats, it won’t fall apart. As a measure of the country’s ambitions for economically reconfiguring the commercial and power maps of the world, China’s leaders are also thinking about how, in the near future, relations with Europe, too, could be reshaped in ways that would be historic.

What about that “harmonious community”?

At the same moment that China is proposing a new Eurasian integration, Washington has opted for an “empire of chaos”, a dysfunctional global system now breeding mayhem and blowback across the Greater Middle East into Africa and even to the peripheries of Europe.

In this context, a “new Cold War” paranoia is on the rise in the US, Europe, and Russia. Former Soviet leader Mikhail Gorbachev, who knows a thing or two about Cold Wars (having ended one), couldn’t be more alarmed. Washington’s agenda of “isolating” and arguably crippling Russia is ultimately dangerous, even if in the long run it may also be doomed to failure.

At the moment, whatever its weaknesses, Moscow remains the only power capable of negotiating a global strategic balance with Washington and putting some limits on its empire of chaos. NATO nations still follow meekly in Washington’s wake and China as yet lacks the strategic clout.

Russia, like China, is betting on Eurasian integration. No one, of course, knows how all this will end. Only four years ago, Vladimir Putin was proposing “a harmonious economic community stretching from Lisbon to Vladivostok”, involving a trans-Eurasian free trade agreement. Yet today, with the US, NATO, and Russia locked in a Cold War-like battle in the shadows over Ukraine, and with the European Union incapable of disentangling itself from NATO, the most immediate new paradigm seems to be less total integration than war hysteria and fear of future chaos spreading to other parts of Eurasia.

Don’t rule out a change in the dynamics of the situation, however. In the long run, it seems to be in the cards. One day, Germany may lead parts of Europe away from NATO’s “logic”, since German business leaders and industrialists have an eye on their potentially lucrative commercial future in a new Eurasia. Strange as it might seem amid today’s war of words over Ukraine, the endgame could still prove to involve a Berlin-Moscow-Beijing alliance.

At present, the choice between the two available models on the planet seems stark indeed: Eurasian integration or a spreading empire of chaos. China and Russia know what they want, and so, it seems, does Washington. The question is: What will the other moving parts of Eurasia choose to do?

Pepe Escobar‘s latest book is Empire of Chaos (Nimble Books). Follow him on Facebook.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

Trans-Pacific Partnership: The Secret Treaty

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on November 12, 2014

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Obama’s Secret Treaty Would Be The Most Important Step Toward A One World Economic System

Barack Obama behind Resolute Desk in the Oval Office - Public DomainBarack Obama is secretly negotiating the largest international trade agreement in history, and the mainstream media in the United States is almost completely ignoring it.  If this treaty is adopted, it will be the most important step toward a one world economic system that we have ever seen.  The name of this treaty is “the Trans-Pacific Partnership”, and the text of the treaty is so closely guarded that not even members of Congress know what is in it.  Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy.  And it is hoped that the EU, China and India will eventually join as well.  This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.

Even though Congress is not being allowed to see what is in the treaty, Barack Obama wants Congress to give him fast track negotiating authority.  What that means is that Congress would essentially trust Obama to negotiate a good treaty for us.  Congress could vote the treaty up or down, but would not be able to amend or filibuster it.

Of course now the Republicans control both houses of Congress.  If they are foolish enough to blindly give Barack Obama so much power, they should all immediately resign.

And it is critical that people understand that this is not just an economic treaty.  It is basically a gigantic end run around Congress.  Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty.  If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more.  This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all “Buy American” laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.

In other words, it is the treaty from hell.

In addition to imposing Obama’s vision for the world on 40 percent of the global population, it is also being described as a “Christmas wish-list for major corporations”.  Of the 29 chapters in the treaty, only five of them actually deal with economic issues.  The rest of the treaty deals with a whole host of other issues of great importance to the global elite.

The following list of issues addressed by this treaty is from a Malaysian news source

• domestic court decisions and international legal standards (e.g., overriding domestic laws on both trade and nontrade matters, foreign investors’ right to sue governments in international tribunals that would overrule the national sovereignty)

• environmental regulations (e.g., nuclear energy, pollution, sustainability)

• financial deregulation (e.g., more power and privileges to the bankers and financiers)

• food safety (e.g., lowering food self-sufficiency, prohibition of mandatory labeling of genetically modified products, or bovine spongiform encephalopathy (BSE) or mad cow disease)

• Government procurement (e.g., no more buy locally produced/grown)

• Internet freedom (e.g., monitoring and policing user activity)

• labour (e.g., welfare regulation, workplace safety, relocating domestic jobs abroad)

• patent protection, copyrights (e.g., decrease access to affordable medicine)

• public access to essential services may be restricted due to investment rules (e.g., water, electricity, and gas)

Why can’t we get this type of reporting in the United States?

And if this treaty is ultimately approved by Congress, we will essentially be stuck with it forever.

This treaty is written in such a way that the United States will be permanently bound by all of the provisions and will never be able to alter them unless all of the other countries agree.

Are you starting to understand why this treaty is so dangerous?

This treaty is the key to Obama’s “legacy”.  He wants to impose his will upon 40 percent of the global population in a way that will never be able to be overturned.

Of course Obama is touting this treaty as the path to economic recovery.  He promises that it will greatly increase global trade, decrease tariffs and create more jobs for American workers.

But instead, it would be a major step toward destroying what is left of the U.S. economy.

Over the past several decades, every time a major trade agreement has been signed we have seen even more good jobs leave the United States.

And it doesn’t take a genius to figure out why this is happening.  If corporations can move jobs to the other side of the planet to nations where it is legal to pay slave labor wages, they will make larger profits.

Just think about it.  If you were running a corporation and you had the choice of paying workers ten dollars an hour or one dollar an hour, which would you choose?

Plus there are so many other costs, taxes and paperwork hassles when you deal with American workers.  For example, big corporations will not have to provide Obamacare for their foreign workers.  That alone will represent a huge savings.

Any basic course in economics will teach you that labor flows from markets where labor costs are high to markets where labor costs are lower.  And at this point it costs less to make almost everything overseas.  As a result, we have already lost millions upon millions of good jobs, and countless small and mid-size U.S. companies have been forced to shut down because they cannot compete with foreign manufacturers.

Later this month, consumers will flock to retail stores for “Black Friday” deals.  But if you look carefully at those products, you will find that almost all of them are made overseas.  We buy far, far more from the rest of the world than they buy from us, and that is a recipe for national economic suicide.

We consume far more wealth that we produce, and anyone with half a brain can see that is not sustainable in the long run.  The only way that we have been able to maintain our high standard of living is by going into insane amounts of debt.  We are currently living in the largest debt bubble in the history of the planet, and at some point the party is going to end.

Please share this article with as many people as you can.  We need to inform people about what Obama is trying to do.

If Obama is successful in ramming this secret treaty through, it is going to do incalculable damage to what is left of the once great U.S. economy.

ANTI-DOLLARS!

Off the microphone of RE

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Aired on the Doomstead Diner on July 25, 2014

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Discuss this Rant at the Podcast Table inside the Diner

Snippet:

…The downing of Flight 17 has now receeded slightly into the background as the FSoA backed off on directly pegging the blame on Vlad the Impaler, and now are running the narrative instead that it was probably a “mistake” by the Novorossiyan Separatists.

One of the Diners, JD came up with a Plausible Scenario that could explain the events as they transpired, at least from what is sort of known about them:

1. Kiev ATC sends Malaysian jet into war zone.
2. Kiev fighter flies low along path.
3. Separatists spot fighter.
4. Separatists have BUK antiaircraft missile but not fancy radar, so they have to fire it in chase mode.
5. Fighter climbs to intercept path of jet liner.
6. Missile finds easier heat signature of civilian jet and destroys it.
7. Separatists report destroying Ukrainian fighter.

Of course, this doesn’t explain why Kiev sent the Malasian Jet into the War Zone in the first place, or why they sent the Fighter Jet in either, though this could have been a lure to get the Novorossiyans to fire off their Buk Missile, if they actually had control of one.

For the rest, LISTEN TO THE RANT!

Also, don’t miss also today’s Analysis of the Context & Causes of the Downing of Malaysian Airlines Flight 17 by former Air Traffic Controller and Intelligence Operations Specialist Agelbert up on the Diner Blog!  Included in the analysis is detailed Flight Simulation from Agelbert.

Snippet from Agelbert:

…10) CAS is Collision Avoidance Radar. All airliners have it.  Also all air traffic control systems have a program called Conflict Alert. It blinks the data blocks of two targets that will have less than minimum separation standards with AMPLE TIME (a few minutes or so) for the air traffic controller to warn at least one of the aircraft. On board the aircraft CAS goes off and collision avoidance instructions are shouted at the crew. BUT, an airliner cannot escape a missile. The aircraft has just nose radar BUT it has a data link to atc radar and CAN receive conflict alert data to activate CAS (aircraft overtaking or in conflict  due to projected crossing trajectories by heading or altitude).

11) Missile targeting: There are several ways to do this. When a missile is released, it mostly does its own thing BECAUSE it flies so fast that the delay in reaction from an RC signal could cause a flight path error resulting in a miss.

12) The heat seeking capability (a no brainer for a HUGE IR signal like Airliner engines) is NOT exclusive in flight path targeting. An on board computer also has trajectory computation of the target. The target is LOCKED or it isn’t. If it’s NOT LOCKED, the missile does not explode. Yes, they have proximity destruction mechanisms that explode the missile before it hits. The reason for that is that missiles are delicate devices and they might NOT explode if the hit the target before they explode.

The downing of the airliner was NO MISTAKE….

Read the rest on the Diner!

RE

 

The Week That Was in Doom June 1, 2014

That-Was-The-Week-That-W-That-Was-The-Week-473964Off the keyboard of Surly1

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Originally published on the Doomstead Diner on June 1, 2014
Discuss this article here in the Diner Forum.

 

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“The real owners are the big wealthy business interests that control things and make all the important decisions. Forget the politicians, they’re an irrelevancy. The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. …  They’ve got you by the balls. They spend billions of dollars every year lobbying ­ lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. 

“You know what they want? Obedient workers ­ people who are just smart enough to run the machines and do the paperwork but just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. And, now, they’re coming for your Social Security. They want your fucking retirement money. They want it back, so they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it all… It’s a big club, and you ain’t in it.”

― George Carlin

 

It has been a week less potent with news events than with movements and shifts with long term consequences. Not sure than anyone outside the Beltway has begun to wrap their minds around the consequences of the Russia-China energy and trade deal. Besides having a trillion dollars of planned trade not settled in petrodollars, what do you suppose having China as a trading partner is going to do the bite of sanctions? And how will the EU feel when they are shivering in the dark, waiting for the endless flow of fracked hydrocarbons from Saudi America? Mammon remains hungry, as a mounting toll of senseless and preventable deaths reflects our appetite for weapons and lack of common sense. And the Bildaboogers were at it again, enjoying a gathering you weren’t invited to, not that you’re bitter. You’re not in the club. Welcome to “The Week That Was in Doom-” a fascinating week, so let’s go right to the videotape.

Last week, we wrote about Fukushima, and the environmental catastrophe unfolding on the Pacific Rim. All of which will, in the fullness of time, be playing At a Theater Near You. More recent news from the Far East: China and Russia inked a little deal that some say herald the beginning of a new “Eurasian century.”

“Geopolitical Earthquake” That Is Historic China Russia Agreement Not Appreciated

The agreement between Putin and Jinpeng last week is historic, not only because trade between the two economic superpowers will not be carried out in dollars, but also because locking in China as a customer for all of those Russian hydrocarbons throws a trump on NATO’s plan to use sanctions to punish the Russians for what they are doing (or thinking about doing) in Ukraine.

The deal goes beyond just hydrocarbons. The two countries are considering joint construction of power plants in Russia, including nuclear power plants. Yes, in Russia. What could possibly go wrong? The Chinese are also making suggestions to the Germans that they use existing rail lines to decrease cargo travel time from eastern China to Europe.

And what potential quid for the pro quo might China exact? You might recall China flexing its  muscles lately with Japan in the Diaoyu/Senkaku Islands, and this past week with Vietnam in the Paracels (see below). A little Russian help with the Security Council vis-à-vis Japan couldn’t hurt. From the Russian perspective, having another friendly face (and vote) at the UN in re Ukraine, Syria, and Iran might prove useful in further negotiations with Western neocon – controlled regimes.

According to a report in Goldcore, Russia will sail $1 trillion worth of natural gas to China, all of which will be settled in rubles and yuan. If you are scoring at home, you might remember that in July, the BRICS Development Bank was announced as an alternative to the IMF for the developing world. None of which is good news for the petrodollar. If you read the Goldcore article, these guys positively are giddy about the prospects for gold, what with Ukraine simmering and the usual unrest in the usual sewers in the Middle East. Not to mention the potential flight into safety of American wealth as the rentier class wakes up to what the rest of the world is acting like it already knows. Given the state of what passes for media in this country, that won’t be happening anytime soon.

 

Situation in Paracels- China Attacks, Sinks Vietnamese Fishing Vessel

On Tuesday, as China pressed oil drilling claims in the South China Sea off the Paracel Islands (waters which Vietnam also claims). China had amassed a virtual armada of over 70 vessels around the Paracels around its oil rig. Yahoo Japan reported that “a Vietnamese fishing vessel is sunk after being rammed by a Chinese vessel and the 10 fishermen have been rescued.” Stern communiqués ensued. Here’s Vietnam’s:

According to new information received, at 16 am on 26/5, the Chinese fishing boat collided number 11209 90 152 DNA sinking fishing boats of fishermen in South southwest of Da Nang, Hai Duong rig – rig by 981 and 17 nm , is a traditional fishing grounds, under the exclusive economic zone and continental shelf of Vietnam.

In 10/10 fishermen on board the ship Da Nang we picked and safe rescue.

At the time of the incident, there are 40 Chinese fishing boats surrounded unruly group of our vessels.

ZeroHedge reported the “verbal grenades” tossed by both sides of the dispute:

Vietnam’s Foreign Ministry held a press conference on Friday when officials stressed the country’s historical claim to the Paracels.

“Historical and legal evidence shows that Vietnam has absolute sovereignty in the Paracel and Spratly archipelagos,” said Tran Duy Hai, deputy head of Vietnam’s National Border Committee.

Chinese Foreign Ministry spokesman Qin Gang disagreed.

“Seeing that the Vietnamese Foreign Ministry held a press conference last Friday on the subject, I felt it was extremely ridiculous,” he said at a briefing on Monday. “The Paracels are the indisputable territory of the Chinese people.”

At other times, a face-off between fleets of fishing vessels might seem to be a fit subject for musical comedy. But things are a bit antsier today. Think ahead to the end game: the prospect of the United States intervening to help Vietnam assert territorial claims vis-à-vis mainland China? View that through the lens of someone whose friends and relatives served in the war in Vietnam, and get back to me.

Gunz

The post-Sandy Hook toll of gun violence continues without respite here in the FSoA, where any suggestion of common sense or political will to curtail the availability of automatic weapons and other mass killing devices is met with the snarling fury of the National Rifle Association, lobbyist for the weapons manufacturers. Any attempt to limit the availability of such weapons is met with righteous indignation as curtailing “our freedom.”  Your scribe looks on wistfully, wishing that the ardor brought in defense of the Second Amendment might have been utilized in defense of the First, Fourth, Fifth and Eighth. Just sayin’.

Even before Elliot Rodger went on a shooting spree in Isla Vista California, there were at least 80 gun related deaths across the country, according to Huffington Post.

That these shootings failed to garner the national attention that the one in Isla Vista did shouldn’t shock anyone who has followed the gun control debate. High-profile instances of gun violence are more likely to grab the spotlight than the everyday scourge of gun-related killings. And certainly, the shooting of three (and stabbing of three others) by the 22-year-old son of a Hollywood director who happened to leave a dark, depressing trail of self-made YouTube videos qualifies as high-profile.

But instances such as the one at UC Santa Barbara are rare in respect to gun-related homicides. In fact, FBI data shows that there were 900 people who died in mass shootings from 2006 through 2012. By contrast, firearms were used in 11,078 homicides in 2010 alone, according to the U.S. Centers for Disease Control and Prevention.

The Huffpo article notes that many of the shootings failed to garner press attention outside of their own localities. Perhaps we have become as inured to them as acceptable “background noise” for our insane culture as we have to “greed is good.” Both violence and greed are BAU in the FSA.

No need for an alternative blog to mention the work of The Grey Lady, but the New York Times’ Joe Nocera has been publishing “The Gun Report.” It is poignant to read for the matter of factness of it all; pulled from local news reports, the blog recounts in declarative journalistic style the people, many of them children, killed and injured by gun violence the past week. It concludes: 

According to the Gun Violence Archive, 7,650 people have been injured by gun violence in America and 4,358 have been killed since Jan. 1, 2014. That number includes 15 police officers killed, 475 children injured or killed and 355 instances of defensive gun use.

To which I’ll add this local item that I came across this morning:

James Andrew Brown II, of Norfolk, Va. was previously charged with assaulting an officer and carrying a loaded weapon, but but he got the charged reduced to a misdemeanor, so that he could exercise his Second Amendment rights, and continue to “open carry”. He was known around his neighborhood as “Wyatt Earp” because he always carried a gun on his hip. Friday May 30 Mr. Brown randomly killed a 17-yr old high school junior and an on-duty police officer, wounded a second police officer, before a third officer killed Brown. Everybody thought he was just another “good guy with a gun”. 

Res ipsa loquitur.

 

 

Bilderberg

The Bilderburgers were it again this week, with all the hue and cry, hand wringing and consternation that their meeting generates. There are those who insist that this notoriously secretive gathering of the world’s most powerful bankers, politicians and business people meet behind closed doors to create a new world government. For its part, the official Bilderberg website is as mild as mother’s milk:

Bilderberg is an annual conference designed to foster dialogue between Europe and North America.
Every year, between 120-150 political leaders and experts from industry, finance, academia and the media are invited to take part in the conference. About two thirds of the participants come from Europe and the rest from North America; one third from politics and government and the rest from other fields.
The conference is a forum for informal discussions about megatrends and major issues facing the world. The meetings are held under the Chatham House Rule, which states that participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s) nor of any other participant may be revealed.
There is no detailed agenda, no resolutions are proposed, no votes are taken, and no policy statements are issued.

Much was made on RT and some other sites about the so-called “secret agenda” leaked. If you really want to know here it is:

1. Nuclear diplomacy and the deal with Iran currently in the making.
2. Gas deal between Russia and China.
3. Rise of nationalist moods in Europe.
4. EU internet privacy regulations.
5. Cyberwarfare and its potential effect on internet freedoms.
6. From Ukraine to Syria, Barack Obama’s foreign policy.
7. Climate change.
8. The new architecture of the Middle East
9. Ukraine
10. The future of democracy and the middle class trap

Read RT’s reporting here, and The Guardian’s snark at not being able to get inside here. The Bilderberg Group has been at this for six decades, and any gaggle of the world’s most influential individuals, politicians, officials, businessmen, academics and European royalty (dare we say Illuminati?) who regularly gather to discuss global policy issues is going to attract critics. And there is little doubt that these days this group is under far more scrutiny than before. Some see them as acting as a shadow unelected government, de facto rulers of the world, making decisions affecting billions him behind closed doors, with little regard for the needs or wishes of mere proles. What is ironic is that, of the subjects listed on the so-called “secret agenda,” most have been addressed in this space over the past weeks. But then ironies abound.

 

And in closing–

Real Life Mosquito Tornado Is Far More Terrifying Than Sharknado

Photo credit: Ana Filipa Scarpa

Damn…  and from io9, this:

While visiting Leziria Grande at Vila Franca de Xira in Portugal recently, photographer Ana Filipa Scarpa noticed something off in the distance that resembled a funnel cloud. But it wasn’t a tornado, or even a funnel for that matter. Rather, it was something… alive.

What you’re seeing here is an insect swarm. A swarm of mosquitoes, to be exact.

“It was a very high funnel swinging to the left and to the right. I pointed my camera and began shooting before it hit me. But the funnel did not move toward me — and I thought it was so strange — so I got into my car and started to drive towards it, and that’s when I realized it was a mosquito twister.”

As she drove nearer, the mosquitoes actually started entering into her car.

Leziria Grande de Vila Franca de Xira is a highly fertile breeding ground for mosquitoes, Scarpa told me, because there are many water branches to assure water to animals and harvests.

Scarpa says the swarm extended about 1,000 feet high and was nearly a quarter mile (300 meters) from her position.

 

And if the rest of this week’s analysis is not left your skin crawling, this last item certainly will.
***

Surly1 is an administrator and contributing author to Doomstead Diner. He is the author of numerous rants, articles and spittle-flecked invective on this site, and has been active in the Occupy movement. He shares a home in Southeastern Virginia with Contrary and a shifting menagerie of women both young and young at heart.

 

Drowning in the Sea of Liquidity…

Off the keyboard of Steve from Virginia

Published on Economic Undertow on June 30, 2013

liquidity

Discuss this article at the Epicurean Delights Smorgasbord inside the Diner

Remember all the liquidity we were supposed to have? Back in the ‘Good Old Days’ of 2010-2011? Bankscorporationshedge funds … were gorged with central bank cash.

Fast forward to 2013, where has it all gone?

… To the Sea of Liquidity … it is on the Moon … close to the Sea of Tranquility … there is a Moon-base nearby … Let us all fly to the Sea of Liquidity, where we can drink ourselves into a stupor!
Moon Landing 1
“No liquidity here, Boss”: ‘Astronaut John Young on the Moon, Apollo 16 Mission’, by Charles Duke Jr. (NASA). Like all Americans everywhere, the Moon-crew leaves its junk behind for others to clean up. When will this occur? When Mexicans fly to the Moon.

The Sea of Liquidity is on the minds of investors riverboat gamblers who are now wondering if the Establishment(s) have their backs after all.

The Wall Street Examiner by way of Wolf Richter):

 

The Big Four Central Banks Muddy The Same Sea Of Liquidity, And Then There’s China

Shortly after I completed this post (sez Wolf), the BoE announced a 200 billion yuan ($32.6 billion) swap line with the PBoC, according to the Financial Times. This is the first time a G7 country has taken a step to provide funding for the PBoC, although Japan already has such a line, according to the FT. Might not the Fed be far behind? What a firestorm that would ignite. The headline, “Bernanke bails out China?” I can’t see it but it would certainly make things interesting if they did.

The world’s major central banks are now working at cross purposes, creating massive crosscurrents that are making life extremely difficult for investors. This isn’t likely to end soon. In fact, conditions should get worse.

 

There’s that word, ‘investors’ again …

 

The four big central banks in the world are the Fed, ECB (European Central Bank), BoJ (Bank of Japan), and PBoC (Peoples Bank of China). The BoE, (Bank of England) is far smaller but important from a policy signaling perspective and because of who its counterparties are. They include not only the three mammoth British (commercial) banks that are US primary dealers but all the other major players in world markets, who all have big operations in London.The Fed, ECB, BoJ, and BoE all deal with the same banks and the securities dealers’ affiliates of those banks. For example, of the Fed’s twenty-one Primary Dealers who are the Fed’s sole counterparties, only seven are US domiciled. Three are Canadian banks. Eight are European, including three British banks, and three are Japanese. All of these banks are also major players in Europe and Japan.

These banks are all playing in the same sea of liquidity. When one central bank pumps, that action may impact not only the central bank’s home market, but any or all of the world’s markets. When central banks buy securities, those purchases cash out the counterparty banks and dealers, who then use the cash and the leverage it creates to buy other securities and push asset prices higher. What they buy is up to them. They deploy the funds where their money gets the love. Over the past 7 months, until last week, that was mostly US equities.

 

Adler makes a common error of dumping all forms of funds into one pot … er, sea. There really is no sea. There is no liquidity, either. It was all a lie that we all bought into because acknowledging otherwise would have been the end of our precious waste-based economy. We can’t possibly have that!

He makes another common error of accusing the central banks of creating ‘cash’ or ‘printing money’. He also makes the writer’s error of using the word ‘cross’ twice in the same sentence. The teeth grind …

 

While the PBoC doesn’t play directly in the world liquidity sea, it has dammed a major tributary and has inserted massive reverse flow pumps into the pool. As a result, the players along that tributary have not only stopped the flow of liquidity into the world sea, but in order to replenish their own liquidity which has run dry, they are pulling cash out of world markets that they had previously pumped in. These institutions are largely insolvent. The reverse flows going back into China aren’t likely to turn back toward the rest of the world again anytime soon unless the PBoC relents and prints money.

 

Central bankers are accused of so many crimes people are always shocked when it emerges that the banks are ineffective and that bankers are buffoonish witch doctors. The accusation is that “central banks print money … ”

Where Is All The F*&king Printed Money?

Analysts everywhere are desperate to make this idea stick because the same analysts are desperate to pull the plug on any government policy that does not put nearly-free gasoline in the tanks of America’s bloated Lunar Rovers. Central banks printing free money is ‘BAD’! The misguided, central planning fools in the Wiemar Republic and Zimbabwe printed money which is what Bernanke and Company are doing right now! The bankers must be stopped and the banks eliminated before there is hyperinflation! Even without the hyper- part, the printing mad central banks have “devalued the dollar”, they are the enemies of ‘honest money’, holy money, the most sacred of all things.

Analysts ache for the gas-guzzling purchasing power of the early 1900s … when one dollar was real money … and a day’s wage. Imagine how much gasoline the typical American on Social Security Disability in 2013 could buy if the price for it was adjusted to the 1910 level by way of reclaimed dollar purchasing power?

Of course, this sort of repricing cannot occur. When gasoline prices decline to World War One- levels, the citizens’ earning- or cadging power will decline further. Ordinary citizens are always behind the 8-Ball, they are the fools in the market and there are too many of them. For citizens’ purchasing power to increase would require much more than a change in banking rules of the execution of a few hapless central bankers, it would require a suspension of common sense and the laws of physics. Any purchasing power increase requires the diminution of funds in the aggregate which in turn leads to the absolute absence of fuel, which requires an increase of funds in the aggregate. There can be more- or less funds but never both at the same time!

An illusion related to the ‘money printing’ concept is that one country’s central bank will bail out other countries’ commercial lenders. According to this theory, once the printing party begins there is no ending to it.

The liquidity crowd veers into silliness: central banks offer credit in their native currencies only. The Federal Reserve can make dollar loans — only.

Dollars can afterward be swapped in various currency/derivatives markets for other currencies, provided the other currencies are available and that the the entire collateralizing-lending-swapping process offers a return. The US cannot bail out other counties either with swaps or without because it cannot create foreign currencies. If the currency isn’t available there is nothing to swap, if the other countries can create enough ‘printed’ currencies there is paradoxically no need for a swap! One either prints or not prints, lends or not lends; if there is a need for swaps it is because the world’s economies are humming along and there are good loans to be made across national boundaries … that being the reason for swaps in the first place.

The US can lend any RMB it possesses but cannot create them any more than China can lend dollars into existence. Whatever dollars China would lend — or has lent to us in the past — have been gained by way of trade or stolen elsewhere. Ditto, yen, sterling, euros, etc. America — Wall Street — supplies China with dollar credit it then lends at interest back to the US government.

Chinese use dollars and other foreign exchange as collateral for RMB issuance, as they have been doing since their capitalist experiment began. They can then spend the dollars on petroleum and while keeping the new RMB to build new gigantic empty office- and apartment towers. This is the virtuous (fraudulent) aspect of mercantilism, the exporter can double his fortune by issuing his own currency (lending) against foreign exchange held as collateral. This is how foreign exchange is the means to increase credit. Once the currency is lent, the collateral can be spent.

There are limits: altering the rate of exchange over time is fraught with peril; the outcome is almost always high rates of inflation or stranded finance assets and deleveraging; one or the other. This is being seen in both Japan and China as exchange rates fluctuate in official and unofficial marketplaces. Furthermore, everything under this regime depends on a continuing inflow of overseas funds; that is, trade surpluses. Countries like China or Germany can leverage against their flow of dollars, countries like the US must leverage against businessman’s lies and capital destruction … the old fashioned way.

What has been creating whirlpools in the finance oceans has been decreased flows of foreign exchange into mercantile economies. The outcome of this in turn is less lending in local currencies leading to cash squeezes. Exporter countries are as dependent on foreign exchange as Greeks or Italians; when Yanks aren’t buying poison dog food and wealth-destroying automobiles the world’s exporters discover how broke they really are.

Carry Trade Unwind

A primary instrument of currency exchange is the carry trade, there are many, the dollar carry trade centers on the Eurodollar market. What is a Eurodollar? (Minyanville):

 

Bernanke’s Misfired Shot Heard ‘Round the WorldWhen considering both the global economy and the US economy, take into account Eurodollars

By Vince Young

When Chairman Bernanke took the podium on Wednesday to deliver the FOMC’s policy initiative, he probably didn’t think he would blow up the most liquid and most important market in the world, but that’s exactly what happened. I’m not talking about the Treasury market; I’m talking about the Eurodollar market. Eurodollars are USD 3-month LIBOR futures contracts and are used to price dollar-denominated credit across the global banking system.

On Wednesday, aggregate volume totaled 5 million contracts, equaling a notional value of $5 trillion. When prices settled, implied yields in the 2016 and 2017 strip rose by over 30bps. This was a massive move, with big money moving a giant market. The carnage continued on Thursday with volume trading 5.3 million contracts that saw another 13-15bps rise in the strip. On Friday, volume subsided a bit, trading only 3.5 million contracts with yields rising 10bps in the 2016 and 2017 strip. To close the week, the June 2017 Eurodollar contract’s implied LIBOR rose by an astounding 88bps to settle at an implied yield of 2.975%.

The initial reaction to the magnitude of the move in the front of the curve was that the market had misinterpreted Bernanke’s forecast for tightening. In an article floated late Friday, the Wall Street Journal’s Fed reporter Jon Hilsenrath wrote in Fed Toils In Vain to Calm Markets:

Many investors appear to have missed Mr. Bernanke’s signals that the Fed might wait longer than expected before raising short-term rates. He said on Wednesday that the 6.5% unemployment rate threshold might be too high and that the Fed might decide to keep rates low for long after the rate drops below that level, especially if inflation remains low.

According to projections released after the meeting, only four Fed officials saw short-term interest rates rising before 2015, while 15 saw rates remaining near zero until 2015 or 2016.

In theory, that should reassure investors that borrowing costs are going to stay relatively low for years.

Then why are Eurodollar futures markets pricing in a 3.0% LIBOR by June 2017?

Last week in The QE Carry Trade is Imploding Right Under Everyone’s Noses, my theory was predicated on two assumptions: one, that the tapering was a renege of the Fed’s open-ended inflation target after it got the market levered long the trade and two, that it was the bond market’s discount for the inflation premium embedded in real interest rates and not the flow of purchases that was responsible for market pricing. Both of these assumptions came to a head on April 10 when the Fed released the minutes from the March FOMC meeting’s QE III cost/benefit analysis signaling a reduction in stimulus was forthcoming.

 

The QE trade was predicated on permanent easing, that is, easing would continue until there are Iranians on the Moon … until unemployment declined to a ‘reasonable’ 6.5% (later 7%) unemployment rate. Prior rounds of easing were given fixed time periods: with little chance of full employment any time soon, the Fed was offering permanent easing. When Bernanke hinted an end to the easing it was the end of ‘permanent’ at the same time … and the end of the Eurodollar carry in its ‘permanent’ form.

An implication is deflation far into the foreseeable future with the Federal Reserve unable to effect it. Deflation indicates a demand for circulating currency instead of debt, this unmans the Fed which can only offer more debt. Increased demand for currency makes it worth more. This increase in turn unravels the carry trades that depend on ‘cheap’ currencies. There is less available funding, in this case in the form of Eurodollars.

Deflation is dangerous because the increase of currency worth renders outstanding debts more costly to repay. Deflation is the result of deleveraging, that is, the retirement of loans or default, over time the process feeds on itself. The danger here is that deleveraging occurs while the central banks are doing everything they can to prevent it; this is the Fed and the rest of the central buffoons ‘losing control’.

Monetary risk emerges from duration mismatches. Lenders ‘borrow short and lend long’: they obtain loans at usually very low cost in overnight- and other short-term lending markets. These funds are then re-lent for longer time periods. The danger is the unpredictability of risk over the longer term. By pressing yields downward the central banks misprice repayment risks; low yields are insufficient not compensate lenders for the increased hazards they take on. At the same time, increasing yields to more appropriate levels is a risk by itself: the higher interest cost strands borrowers. The stranding process sets off a desperate scramble for any funds available regardless of cost; short-term rates balloon as in China:

 

Date O/N 1W 2W 1M 3M 6M 9M 1Y
2013-06-28 4.9410 6.1630 6.3310 7.3500 5.4390 4.2412 4.2863 4.4148
2013-06-27 5.5610 6.6840 6.6680 8.3840 5.5390 4.2425 4.2898 4.4198
2013-06-26 5.5530 7.2010 7.1030 8.5450 5.5820 4.2444 4.2933 4.4215
2013-06-25 5.7360 7.6440 6.7730 8.4180 5.6410 4.2551 4.3025 4.4295
2013-06-24 6.4890 7.3110 7.0890 7.3550 5.7240 4.2450 4.2856 4.4210
2013-06-21 8.4920 8.5430 8.5660 9.6980 5.7900 4.2591 4.2844 4.4156
2013-06-20 13.4440 11.0040 7.5940 9.3990 5.8030 4.2425 4.2674 4.4005
2013-06-19 7.6600 8.0750 7.8390 7.6150 5.4080 4.1032 4.2611 4.4000
2013-06-18 5.5960 6.7030 5.7100 7.1780 5.3290 4.1026 4.2610 4.4000
2013-06-17 4.8130 6.8480 5.9440 7.2820 5.3190 4.1000 4.2600 4.4000

 

No liquidity here, boss! Data table from Shibor.org. Note the very high overnight rate as borrowers bid desperately for cash from a rapidly shrinking pool. More loans made = the need for even more loans with the passage of every day, the world’s finance establishment is propped up on a crumbling pyramid of short-term loans.

The central banks are in a corner, they cannot eliminate risk only shuffle it around. The temporary success of various easing programs have shifted risk to the degree that additional easing offers diminished- or negative returns. Risk-increase strips away returns from the monetary system, the absence of return unravels the central banks. The more the banks ease, the more diminished they become, if they fail to ease the system — dependent on cheap credit to get to the end of each day — falls apart.

The Fed cannot win: more easing increases risks on the long end of the yield curve, less easing increases risk on the short end. There is nowhere for the Fed to go; Bernanke slinks off the public stage as a failure by his own hand. Left behinds are shiny new credit bubbles in stocks, bonds and US real estate … along with diminished ability of speculators to repay.

Falling apart under everyone’s nose is the conceit that central bankers can effect anything outside the color of the drapes inside their offices. They cannot print anything much less the needed -$20/barrel crude oil needed in starship quantities to expand our institutionalized wastefulness to the point of ‘sustainable growth’. They cannot fix anything and they haven’t, this includes the price of money, which is set by tens of millions of drivers every single day at millions of gas stations around the world, where dollars, yen, euros and other currencies are exchanged on demand for a valuable physical good. The dynamic of capital destruction — the availability of fuel, the size and mileage of the auto fleet and the length of its daily average trip — this and nothing else determines the worth of currencies. Central bankers are irrelevant, their credibility is kaput along with that of the finance system they are supposed to manage.

Citizens confront government meanness and ineptitude, boundless tycoon- and corporate greed and heedlessness, willful ignorance on the part of the public, hyper-partisanship and cranky ideology that sanctifies free lunches … now, the central banks’ ongoing failure … Credibility = drowned in a sea of phantom liquidity.

The Concepts of Money and Capital: The Debate Continues

 

 

 

Below follows an exchange that davefairtex and I are pursuing in The Concepts of Money and Capital thread on TAE.  The debate centers on concepts of Value as it translates to Money and Assets.

RE

Discuss this ongoing debate at the Economics Table of the Diner

 

In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation.  But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money.

Likewise, FOFOA also points out that there is a overabundance of dollars in circulation outside the US especially on CB balance sheets, and a collapse of confidence in the dollar would lead to a hyperinflationary rush out of the many forms of the buck into “real things”, of which gold is favored because it is something that’s had long historical significance as a store of value, and it stores better in vaults than Rembrants or barrels of oil.

Each party tries to put forth evidence to support their concept – newly popular “end the fed” campaigns, reading the tea leaves on various Bernanke speeches trying to assess his willingness to print, fading trade surpluses and falling purchases of treasurys by China, and so on.

But at the end of the day, it all boils down to guessing what the Fed (and/or the ECB) will actually be able to do when the debt default crisis arrives.  And that seems to ride on one thing: do the banks still have enough political power to make this happen the way they did in 2008?  If they do, then we could well have a confidence collapse in the currency.  If not, then we get a deflationary depression.  No doubt the Fed would try to thread the needle and print just enough to restore the system, but not so much so as to cause a collapse of confidence.

So which is it?  Its an interesting question, and not one I have the answer to.  And perhaps the answer changes over time.  Perhaps the answer is “no” today, but maybe “yes” next week, depending on how events unfold in the world – Greece, Spain, Italy, Japan, etc.  If Greek society ends up exploding on TV after a debt default, the Fed and indeed the ECB might well get permission to do practically anything…

 

Re: FPC: The Concepts of Money and Capital 23 hours, 30 minutes ago #3184

davefairtex wrote:

In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation.  But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money.

What the CBs DO, how they react and what is Politically Possible for them to do at any given time varies, but it is still just a part of the equation.

The CBs can provide virtually endless liquidity and also buy assets at par value, regardless of what the actual worth of said asset is.  What they cannot do at this point is force the retail banks to make any of the money they create available to the real economy.

If the TBTF Banks who are the recipients of the new Cash for Trash don’t then go ahead and make NEW LOANS into the retail economy, the new Sea of TP just sloshes around in their reserves and/or is “invested” in IPOs like Facepalm where it burns up rapidly.  A few new Billionaries are made, but otherwise much more is accumulated on the liability side of this balance sheet.

At some point in the future, the postulate here is that the Trillions created here are going to exit Bankster Reserves and Sovereign holdings and simply flood the market with Dollars.  Except, waht will they BUY with these Dollars?  More Facepalms?  More Copper they can’t sell because new Mcmansions aren’t being built fast enough and don;t need wiring and plumbing?  More Gold that will just sit like a big Paperweight in the Basement Safe of the PBoC?

What the CBs cannot do is make the Dollars CIRCULATE in any meaningful fashion. Dumping them makes no sense if there is nothing really worthwhile to BUY anymore if you are Prepped Up.  How many more Copper Mines do the Chinese NEED to buy anyhow?  They can’t unload the Coper they have stacked up in the Warehouse ALREADY!

Euros are another story entirely.  In this case, the Eurotrash already see the Writing on the Wall, the currency is collapsing and they will RUN, but not into Gold for the most part.  They will RUN to the Dollar.  Why?  Because the Dollar is the Currency of the Big Ass Military.  The SAFEST guy to bet on here is the guy with the Biggest Gun.

RE

Re: FPC: The Concepts of Money and Capital 15 hours, 35 minutes ago #3187

RE –

Perhaps the CBs will monetize sovereign debt, which will be deficit-spent directly into the economy by the government via social security, medicare, medicaid, defense spending, AFDC, SNAP, and the like.

As long as the banks don’t end up going under and presenting FDIC with a massive resolution bill, cash for trash is a success.

Limping along collecting your salary & bonus beats the hell out of a deflationary depression – especially if you’re a banker with a big house in the hamptons.

.

Re: FPC: The Concepts of Money and Capital 14 hours, 32 minutes ago #3189

davefairtex wrote:

RE –
Perhaps the CBs will monetize sovereign debt, which will be deficit-spent directly into the economy by the government via social security, medicare, medicaid, defense spending, AFDC, SNAP, and the like.As long as the banks don’t end up going under and presenting FDIC with a massive resolution bill, cash for trash is a success.Limping along collecting your salary & bonus beats the hell out of a deflationary depression – especially if you’re a banker with a big house in the hamptons.

Perhaps they will continue to monetize Sovereign Debt and continue to dribble out money in the form of various social welfare systems like Social Security and the SNAP Cards, but they are not pouring out GUSHERS of money this way to J6P.
If you take what is happenning in Greece as a Model, Pensions are being cut and Wages are being Cut and Goobermint Jobs are being eliminated.  So you are not seeing Funny Money moved into the Main Street Economy this way there at this time.

I have said many times before that as soon as Da Goobermint starts pushing money out directly to the population, either by Make Work WPA projects or by expanded Social Welfare payments, THEN you WILL get serious inflation, though still probably not HI until all faith is lost in the currency.

At the moment here in the FSofA, public jobs are being cut while the SNAP card program expands.  A portion of the population is being forced into a more meager existence this way.  It’s stil not a Tidal Wave though here yet, it’s a more gradual process.

There is no indication at the Top that a massive WPA will be undertaken or that massive Free Money such as a National Subsistence Wage will be issued out.  J6P is being gradually Squeezed out here in the deflation, and will continue to be squeezed until a breaking point is reached and there is a Revolt.

An HI can only happen here if the flood of liquidity hits the real economy, and this can’t come from J6P, he generally speaking has no savings to unload.  It can only come from the notional dollars held by the Chinese and others overseas, but they cannot dump them without screwing their own pooch.

The status quo of a Boiling Frog is what TPTB hope to continue with.  Unfortunately, people are not Frogs and there will come a social breaking point.  Greece is at it.  So will we be soon enough.
Coming Soon to a Theatre Near You.

RE

Re: FPC: The Concepts of Money and Capital 12 hours, 11 minutes ago #3191

RE –
I don’t take what’s happening in Greece as a model.  Greece cannot monetize its own debt, and the US can – and did up until last year.  State & Local jobs are being cut here, but Federal jobs are expanding.  I’d guess net-net it has resulted in job cuts overall, but our monetized deficit spending (10% of GDP each year) has kept the economy above stall speed to date.HI happens when a flood of money hits the real economy, just as you say.  There are lots of ways for that to happen – including government dropping actual cash via jobs programs.  Whether you think those ways are likely, or unlikely, depends on your own personal assessment.At FOFOA they note there is a wall of USD-denominated bonds sitting offshore on reserve at a bunch of central banks.  The number of claims on real wealth vastly outweighs the actual real wealth out there – that’s what I learn from reading Stoneleigh.

So my follow-on to that is, if the US Fed stops deflation from happening by buying up all the trash and pretending there’s nothing wrong, all it takes for HI to take effect is for some subset of paper wealth holders to decide they want to convert their claims into real wealth before its too late, and then the game is up.

Once again, what triggers this move out of paper wealth?  What triggers a bank run?  Same sort of question – its some straw breaking the back of the camel of confidence.  The potential for it is there.  The only question is, do the banks (and the Fed, their servant) have the political ability to monetize in order to stave off deflation when push comes to shove?  If not, we get a deflationary depression.  If they can monetize, then we get moderate inflation (through government deficit spending) until a trigger event is reached and a wall of money hits the real economy.

I believe that the more unrest we seen in europe and the more “austerity” turns into a highly-visible death trap, the more support there will be for Fed money printing as our way out.  Whether that’s enough – I don’t know.  I think it could go either way.

Re: FPC: The Concepts of Money and Capital 10 hours, 39 minutes ago #3192

davefairtex wrote:

So my follow-on to that is, if the US Fed stops deflation from happening by buying up all the trash and pretending there’s nothing wrong, all it takes for HI to take effect is for some subset of paper wealth holders to decide they want to convert their claims into real wealth before its too late, and then the game is up.

See there is the rub here.  CONVERTING paper claims into “Real Wealth”.

At the small scale, you can see how this can be done, sorta.  For instance, I “own” many USTs.  I could liquidate them and buy with the proceeds a decent part of Alaska at current valuations on the land here. However, this purchase is more a liability for me than an asset if I made that trade. I cannot control such a large swath of Real Estate, and I sure would not want to pay the Taxes on it since I only would be using a tiny part of it for myself.

On a much larger scale, the Chinese face much the same problem.  They COULD in theory liquidate their holding of USTs not just to buy a piece of Alaska, but the whole fucking STATE.  REAL WEALTH there, right?  Except problem is, what would they DO with Alaska once they bought it?  They can’t organize up and run their own patch of the earth in China all that well, do they really need a Headache of ANOTHER patch of land to run here?

I’ll make the analogy to a small Biz I worked for a few years back.  The Biz I worked for had one location, run sorta well, and they bought up a competing Biz run in another part of town.  Problem was, it stretched all the anagement out too much, and trying to keep the Sattelite running was a money loser.  Closed up the shop after a couple of years.
Everybody is working on a BAD paradigm here, and further EXPANSION of a bad pardigm does not make it better, it makes it WORSE.

There is NOTHING the Chinese can spend their dollars on here now, they canot even buy Alaska without incurring more liability, and Alaska is a relatively GOOD purchase here all considered.  Certainly better than Facepalm anyhow.
A flood of dollars has to come form somewhere from somebody who wants to try to liqudiate those dollars for something ELSE they think is a worthwhile purchase.  On the GRAND scale here, not even fucking ALASKA is a great deal.  Liquidity Lock Up.  Nothing worthwhile to buy or sell.  That is the problem.

RE

Re: FPC: The Concepts of Money and Capital 8 hours ago #3193

RE –
Hmm, ok that’s convincing.  You’re probably right about the Chinese, and likely the Japanese as well.  Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.But I’m not so sure about the actions of a bunch of rich people.  They are seemingly better placed to individually make semi-smart decisions on buying stuff.  They have big stashes of treasuries (like you do) and are wondering where they might put them.  I wonder that about my small pile of bank deposits!We are allegedly seeing this in London.  Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London.  It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy.  But try this thought experiment.  If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?”  Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world?  Who knows.  I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen.  It just reminds me too much of Marx’s assurance that the state would simply wither away.   But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression.  If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.”  Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

Re: FPC: The Concepts of Money and Capital 0 minutes ago #3199

davefairtex wrote:

RE –
Hmm, ok that’s convincing.  You’re probably right about the Chinese, and likely the Japanese as well.  Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.But I’m not so sure about the actions of a bunch of rich people.  They are seemingly better placed to individually make semi-smart decisions on buying stuff.  They have big stashes of treasuries (like you do) and are wondering where they might put them.  I wonder that about my small pile of bank deposits!We are allegedly seeing this in London.  Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London.  It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy.  But try this thought experiment.  If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?”  Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world?  Who knows.  I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen.  It just reminds me too much of Marx’s assurance that the state would simply wither away.   But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression.  If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.”  Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

There are other problems the Chinese have besides the actual worth of whatever they might buy is concerned.  If they try to dump treasuries, the value of those treasuries will drop faster than they can find buyers for them.  Only Da Fed could buy them by printing, and why would they do that?  Force the Chinese to hold them to maturity at low to nonexistent interest rates instead.

Far as non-Sovereign holders of this debt is concerned, like me the question is what is a better bet here?  The Greeks buying London flats is the Real Estate equivalent of buying Facepalm Stock.  That RE has nowhere to go but down, WAY DOWN.
To a lesser extent, the same is true for Alaska RE.  I don’t know which will devalue quicker, USTs or a Farm in Palmer.  You know, there is a very decent likelihood in about 4 years when the Pipeline has to shut down for lack of enough Oil to pump through it that the entire economy of Alaska will completely TANK, and 99% of the population will move out.  Why BUY the farm if that is the case?  I could simply walk in and squat it, along with numerous properties up here ALREADY vacant.
I really do not have anything worthwhile to BUY anymore other than Food really and Gas for the Bugout Machines while it remains available.  Some folks keep Day Trading around their assets trying to make a Killing here or there, certainly shorting Faceplant is a decent way to make some Toilet Paper these days.  I don’t bother with that though because it really doesn’t matter.  In the end, just about all these “assets” are going to drop to near ZERO in value, and holding onto Real Property is going to take your own Army.  Farms and just about everything else will likely be Nationalized under either a Fascist or Communist regime.

Up at the top, games are being played with comparative currency devaluations, I wrote about that over on the Diner.  Overall, the Dollar is the best looking Dog in the Kennel for the next couple of years anyhow I think.  Somewhere along the line we may reach a Tipping Point and hit a Sudden Stop event, or the Boiling Frog effect may continue through to the end of my lifespan, but either way there still really is not anything worthwhile for me to buy, I am as Prepped as anybody reasonably can be IMHO.  You cannot truly “own” anything you cannot carry with you or anything you cannot Protect and Defend.  You cannot count on the “Law” to protect you, as evidenced by today’s article from Surly on the Diner.

It remains to  be seen what the Big Boys do as far as shifting assets go to try to protect and defend their own “Wealth” is concerned.  I am reasonably certain though at this point that the final Battlefield for this will not be on the Economic Front.  War is coming now, to be sure.  Whether this will be an International War or Civil Wars on a Global Scale occuring simultaneously I do not know for sure, but one way or the other, a lot of BLOOD will be spilled to try to wash away this debt, that truly can never be repaid at all.  Mother Earth herself has been scarred badly, and we all will pay the price for that.

RE

 

The Dollar-Oil Nexus

Commentary below from Steve from Virginia from the Economic Undertow and RE  of the Doomstead Diner on the Dollar-Oil Nexus thread posted on The Automatic Earth by Ashvin Pandurangi.

Re: FPC: The Dollar-Oil Nexus 4 hours, 48 minutes ago #3186

After being confronted with that critique, a few of the Freegold people implied that they agreed with most of what Keen/Minsky have to say, but thought the debt deflation theory was incomplete, in terms of how central authorities can make sure the Mother of All Deflations never really takes off.

First of all, Fisher implies the (offhand) reflation strategy without going further. Leijonhufvud doesn’t offer any strategies at all! (Why should he?) However, (Free)gold folks’ awareness of nuanced (sensible) economic arguments never seems to emerge from their arguments. It seems to me that the monetary gold arguments were all made — and settled — by Wicksell and Bagehot a hundred and ten or so years ago.

Part of the problem is the absence of conventional ‘solutions’. Our dilemma lies within the inter-temporal balance sheet beyond the reach of monetary policy.

Almost no (as in zero) conventional economist makes reference to energy or resource inputs. Herman Daly equates money capital with resources (and Charlie Hall and Robert Costanza) but equilibrium economics is built around unlimited substitution. This is a dead end.

A conceptual problem is that we are at the beginning of post-industrialism. Nobody can figure out what ‘Post Industrial Society’ is going to look like or how it will function. Some think virtual reality (Kurzweil), others think ‘hunter-gatherer’ (J. Hansen) and still others a steam-punk version of modern Detroit (Greer). Human extinction is not out of the question: how does modern industrial economics factor all of these different possibilities and others beside?

Brand X economist: “Don’t blame me!”

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.

What does come next? Hard to say but the constant will be ‘less.

Re: FPC: The Dollar-Oil Nexus 1 hour, 28 minutes ago #3188

steve from virginia wrote:

In this context, the gold-money argument presumes a specific post-modern industrial economic society that functions/trades a specific way … a society that has conveniently forgotten Bagehot (and have never bothered to look up Wicksell). This is argument in a vacuum: not a real argument at all.
What does come next? Hard to say but the constant will be ‘less’.

Well stated Steve.

Overall, it is a conceptual problem.  The tendency is to accept axiomatically that even though the Fiat will crash, Homo Sapiens will continue to hold the same things valued and pursue “trade” in more or less the same manner.
This may however be one of those Roads that is a One Way Street, or even a Dead End One Way Street.

On the assumption (hope) it is not DEOWS, where will we go from here?  What happens once we reach the end of this road?
It’s all speculation, because insofar as we know (unless Atlantis really had an industrial culture before) we are breaking new ground here.  Nobody knows what a Post-Industrial world will look like.  Though of course there is no shortage of speculative Imagery out there from Mad Max to the Children of Men.

Personally, I think there will be a “Scavenger” period during which the flotsam and jetsam of the Age of Oil gets repurposed to keep stuff like the Railroads still operational for a while.  I don’t see a great future for money during this period, though if Goobermints of some sort hold together you may have some for a while.  You definitely cannot have functioning “Money” without functioning Goobermint.  After that it’s just barter, even Gold Coins are just Barter Items.  To make them “Money”, you need a Stamped Value placed on them so they are always worth the same thing inside a given trading system.

Money requires a SHARED AGREEMENT system between all in the society on the relative values of things.  When that breaks down, when some people no longer value a McMansion at all and others place preposterous Numerical Values on them, you have Mark to Make Believe  which no longer makes any sense at all.  That really is the problem here now, relative valuations based on the monetary system are not reflecting reality.  In fact, McMansions are WORTHLESS, and so are the Carz.  Helicopter Ben cannot MAKE a McMansion worth anything, he can only print Bills.  Even if he gave you a Billion of those Bills, there still would be no reason to trade them for the McMansion.

Our Value System is changing, MUST change because the Oil which powered this value system just isn’t there in quantity enough to keep the engine running, not on a Global basis anyhow.  Now we have to figure out how to value everything we still do have in the ABSENCE of Oil.  That is quite a challenge.

RE

Hyperinflation vs Deflation: Rebutting FOFOA

Discuss this article at the Economics Table of the Diner 

 

One of the first Economic/Monetary threads begun when we openned the Doomstead Diner for Bizness a few months ago was a Hyperinflation vs Deflation thread.  As often as this debate has been engaged in all across the internet, it still remains one of the most vehemently argued topics from both sides, and no clear “Winner” in this has emerged as of yet.

The arguments surrounding HI & DF crossover into arguments about the worth of Precious Metals and their possible value in resolving the monetary crisis we have confronting us now.  Particularly lively arguments come off the keyboard of a Blogger who goes by the Nom de Plume of FOFOA, or “Friend of a Friend of Another”.  Apparently, all Austrian School Gold Bugs are very Friendly people, at least with each other. LOL.

Anyhow, I got into discussing the HI vs DF questions with Ashvin Pandurangi of The Automatic Earth a while after trolling and plugging the new DD Blog and Forum on TAE. Ashvin has now decided to resurrect his analysis of FOFOA’s “Freegold” Theory, and is also soliciting other critiques, so I’ll pitch in my 2 Gold Eagles on this subject now.  I’ve been over the fallacies in the thought process of what conventional economists of both the Austrian and Keynesian variety come up with many times already, but I haven’t really addressed specifically the work of FOFOA.  So I will do that here and now.

Like Ashvin, I will also make my disclaimer.  I don’t profess a complete knowledge of WTF the Freegold advocates are talking about, and frankly I have a whole lot of issues as far as wading through the stilted prose style FOFOA writes.  I am just going to look at some underlying assumptions made in this most recent justification for Freegold and for a likely Hyperinflation of the Dollar in the near term, though FOFOA refuses to make any real timeline predictions.

Let us begin here first with a major fallacy underpinning FOFOA’s entire Worldview as far as Money is concerned:

The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.

Emphasis there is mine of course.  Primeval?  It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory.  He is cock sure that money in some form is an essential ingredient to the primeval Homo Sapiens mindset, but this is so untrue as to be completely laughable.  It’s pretty clear that money only evolved around the time Agriculture did, and that is only around maybe 10,000 years old.  This does not qualify as “Primeval” by any stretch of the imagination.  There is a good 60,000 years here between the time Toba erupted and the beginnings of Ag and Money, and Homo Sapiens appears to have been quite successful through that whole period.

Moreover, its not some mythical Xanadu or Utopia in which large cultures flourished without the use of money, really only once the Europeans arrived on the West Coast of the Amerikas was any Money introduced to a very large culture of First Nations people who used a Potlatch or “Gift” Economy.  FOFOA sweeps all that stuff under the rug, because it doesn’t fit the construct he wants to make regarding Money, and then more specifically Gold as Money.

Here you get into a real problem with the “Primeval” argument, since metal working, even in Gold and Silver which is a bit easier than Iron working is a VERY late coming technology here overall, and again doesn’t fit the description of “Primeval”.

Now, FOFOA does get some of the early history right in the use of PMs in barter, but he never does cover the Coinage issue here.  Metals in early tech worked very well to form difficult to counterfeit Tokens to represent stored wealth in a Warehouse.  Because of their scarcity, a token could be made with an ascribed VALUE to it representing a certain amount of grain held in a warehouse.  The Coin doesn’t have INTRINSIC value, the value gets Stamped on the coin by Da Goobermint.

Using Gold and Silver worked OK for a while, but suffered problems all along the way.  First off, Hoarding is a problem, Savers will hoard the metals and take them out of circulation.  This runs you into Money Supply problems for commerce purposes.  Worse still, in periods of famine either nature caused or induced by Human Greed, the actual amount of Food or other necessities can decrease, and then when saved Gold comes back out to buy now scarce items, there isn’t enough of the stuff to go round  to redeem with the Gold.  So the Gold value isn’t really Steady, its only relatively steady during periods of surplus.

The next problem is Increasing Population size.  If the amount of Gold is relatively fixed, but the Population is growing rapidly, in each generation there is less Gold to go round per capita than the last generation.  Today, with 7B people on the Earth, there is less than 1 ounce of the stuff for each person walking the Earth at any given time.  If Gold is the ONLY money around, then as the population grows larger the Gold becomes increasingly more scarce and valuable, so its value is NOT steady.  Its ALWAYS going to increase in value in this situation.  Increased productivity can keep prices more or less stable, but at the point at which real productivity does not match the population increase, a fixed quantity money supply will skyrocket upward in value.  It doesn’t work the same way as fiat, but it is still not truly a stable form of currency when you have a fixed supply working against a population that is growing rapidly.

We still have not worked our way into the biggest problem with PMs though, which is that of consolidation over millenia.  FOFOA himself describes the “Big Players”, long term consolidators of the Gold resource who have sequestered away MOST of the Gold ever mined up here.

Modern bullion banking is a carryover from this past. When Nixon abruptly took the dollar off the gold standard in 1971, the billions of ounces in private ownership didn’t just disappear. They weren’t cast into the streets in disgust. And these giants with 100,000 ounces or more didn’t take those tonnes home to the basement. No, they stayed right there in the bank vaults and literally JUMPED in value.

FOFOA goes on to register his complaints with the Gold ETF market (“Paper Gold”), and the fact that there is fractional lending of this through the Bullion banks just as there is Fractional Lending of Fiat (and no doubt a good deal of Rehypothecation going on with that asset as well!)

MANY claimants to this Gold now, but who REALLY gts to claim it in the end?  Generally speaking it is whoever owns the Keys to the Bank Vault.  The LAST person in the line responsible for making exchanges keeps the Asset, like MF Global whisking away depositors accounts into their own account, which then gets shifted to JP Morgan accounts.  How does Gold as a currency backer stop this from happening?  It doesn’t, and in fact probably makes it easier to accomplish.

Anyhow, with so much of what is admittedly already a pretty limited supply of Gold for 7B people on the Earth already sequestered, its pretty clear that only a very small subset of that population has sufficiently high claim and control to actually take possession of it at some point.  The amount leftover from this for people to actually do some commerce with is exceedingly small, far less than the sub 1 oz in theory available to each person based on what has been mined throughout history.  How do you De-consolidate Gold already Owned and Sequestered away by powerful people and families and then use it once again as a currency medium?  You can’t do it, and so you are left with the creation of Notes or Digibits created to represent Gold, but not Gold which ever is really available for most people to redeem.

In reality, the best arguments for how money works come from the world of Thermodynamics and Heat Flow across gradients.  In order for any Work to be done Heat has to flow from a Hot reserve to a Cold one.

PMs in their Consolidation phase measured the amount of work being done as the PMs were mined and collected up.  The energy was used to reverse the Entropy process of dispersal and consolidate the piles of metal.  During this time, the metals flowed through the economy and could be used as money.  They represented the work being done.  However, all along the way there was a lot of waste Heat expended, and you are not going to get the same amount of work done by taking the piles of Gold and sending them back the other way.

This brings us to FOFOA’s arguments regarding what “Capital” is.

I’m not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term “capital” can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man’s intellect were the capital of the time.

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That’s the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.

The modern analogy to FOFOA’s Stone and Mud Huts and Horse Carts in the Ancient World are today’s McMansions and Carz.  In his version of Capital destruction it takes an Earthquake or Volcano to destroy this “Capital”, but he doesn’t address the fact that Capital of this kind can become worthless even if it is still standing.  The McMansions and the Carz are losing Value because the Energy is no longer there to use them.  The “Capital” that was expended to build said infrastructure was the Oil burned, which now exists only as molecules of CO2 in the atmosphere.  What “Capital Destruction” has been going on for the Age of Oil came in the form of the burning of that Oil.  The OIL was the Capital here, not the stuff that was built with it.

Finally, WRT arguments about Hyperinflation and the relative worth of Gold in a monetary system collapse such as the one we are undergoing now is concerned, most of the perceived value of the Industrial Era has been “accounted” for by using the Dollar as a measure of the relative worth of goods and services through the era.  In order to try and keep nominal values from collapsing even though the real value of assets is decreasing, more dollar liquidity is being pushed into the center of the system at the TBTF Bank level.  However, said liquidity is not escaping into the real economy as of yet, and until there are some signficant Policy shifts, it is not likely to escape either, except into the pockets of a few well connected thieves.

Shifting onto Gold at this point in the Game would be outrageously Deflationary, which I think the Austrians overall view as a Good Thing as the Credit Cycle gets a Reboot that way, but in practical terms it would pretty much halt all trade since most of the Gold in the world is sequestered in the vaults of only a few people and Sovereign holdings, to which there is also likely Private Claim on.  Such a shift to Gold WOULD of course be Hyperinflationary for the Dollar, so for Gold Bugs that is a self-fulfilling prophesy.  In essence, the constant propaganda being written by Gold Bug websites for people to take their Dollars and convert to Gold is meant to increase the perceived value of Gold and in turn force a hyperinflation of the Dollar.  This is proving a bit harder to accomplish IRL than in the mind of the Gold Bug.

Because the Fiat structure is so large and complex, the value system of all assets including the PMs are being subjected to tidal forces as it implodes on itself, resultant from the fact the Capital underpinnning of Oil is becoming more scarce. Oil however isn’t disappearing overnight, and the overall game is being balanced out some by Demand Destruction.  The Dollar’s preemminence as World Reserve Currency isn’t yet being challenged effectively, despite Chinese claims that Renminby will soon be the World Reserve Currency, or Gold Bugs claims that it will soon be Gold.  This is not to say the Dollar will not eventually collapse in its value, it most certainly will.  However, many more parts of the peripheral economies and other currencies will get hit on here first, and during that period the Dollar is likely to remain perceived as the Safest Haven in a War Zone.

In the deleveraging that must occur by any economic argument, all asset classes are going to come under pressure, that includes Gold and it includes Oil too.  The CBs may work in concert to try and maintain nominal values, but this will simply turn their own balance sheets into TOAST as well. The Market in turn will react to that, and eventually you do get your currency collapse of the Dollar as well.  Whether Gold is turned to as an alternate Currency Medium in this phase remains an Open Question.  I do not think so based on my thermodynamic arguments or in sheer practicality terms, but I wouldn’t rule it out.

Far as FOFOA, FOA and A are concerend, they are all just shills for a very old concept of money, and who all also likely have skin in the game for making their prophesies come true.  Anyone who does hold a lot of Gold in the Basement safe clearly would be ecstatic if it rocketed up in value to $10K/oz or more.  I will be very surprised if that occurs, I think the whole trading system would collapse if PMs took on those kind of valuations, but only time will tell on that one.  In the medium term here though, an HI of the Dollar seems unlikely to begin inside the next couple of years anyhow.  The Euro definitely has to collapse first, and that will take some time yet to play out.

RE

 

Knarf plays the Doomer Blues

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Can a long-dead left come back to life?REhttps://www.thedailybeast.com/democratic-socialists-gain-momentum-and-lose-their-way?ref=scroll[cente...

Quote from: Golden Oxen on Today at 05:18:32 AMSome awful nice people still left in the world.        [img width=400]https://s4.reutersmedia.net/resources/r/?m=02&d=20180720&t=2&i=1285324394&w=780&fh=&fw=&ll=&pl=&sq=&r=...

Quote from: Golden Oxen on Today at 06:21:42 AMAssange being thrown to the lions after all of this is truly disheartening. It's a fucking disgrace actually. Shame on all you no good rotten fucks for what you have done t...

[img]https://scontent.forf1-2.fna.fbcdn.net/v/t1.0-9/37584922_10212484124242226_1325511690200023040_n.jpg?_nc_cat=0&_nc_eui2=AeEe6LnoDtmKQkm5CPCfUJQFENr_Idw9XzoIDBvzrd-_RZ3giCv4TaiKSj4PEXYXUD2QaSSjz32uNcDt3xIX2A7tqIrfUNNjpq3M-CMgMr41gg&oh=ad59011a7e5a6...

Quote from: Surly1 on Today at 05:05:27 AMNice to see you back dipping your oar back in the waters of comment!I guess you got my Flower Real Estate Redlining metaphor.  I thought I was being abstract.  RE

Diner Twitter feed

Knarf’s Knewz

Quote from: Eddie on March 13, 2018, 05:21:10 PMAl [...]

Quote from: knarf on March 13, 2018, 03:33:01 PMAU [...]

Quote from: knarf on March 13, 2018, 03:25:04 PM [...]

A new study found that the Great Recession correla [...]

From 2003 to 2005, Gina Haspel was a senior offici [...]

Diner Newz Feeds

  • Surly
  • Agelbert
  • Knarf
  • Golden Oxen
  • Frostbite Falls

Here we advocate for Prepping Up as best you can f [...]

Quote from: azozeo on Today at 10:12:07 AMI just d [...]

I just don't know what to believe any more wi [...]

It's all right here.WHEN THE END OF HUMAN CIV [...]

Quote from: Eddie on March 13, 2018, 05:21:10 PMAl [...]

Quote from: knarf on March 13, 2018, 03:33:01 PMAU [...]

Quote from: knarf on March 13, 2018, 03:25:04 PM [...]

A new study found that the Great Recession correla [...]

From 2003 to 2005, Gina Haspel was a senior offici [...]

Quote from: RE on Today at 03:04:30 AM[embed=960,5 [...]

According to professional Gold Bugs...http://survi [...]

Quote from: Golden Oxen on July 21, 2018, 07:09:03 [...]

Quote from: Eddie on July 21, 2018, 02:15:26 PMEve [...]

A tragic domestic situation that lead to mayhem an [...]

Whatever weather Mother Nature gives us, it'l [...]

Quote from: Surly1 on Today at 05:05:27 AMNice to [...]

Nice to see you back dipping your oar back in the [...]

Collapse is in full swing. Don't worry. We [...]

Alternate Perspectives

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

A Near Death Experience: Back from the Brink By Cognitive Dissonance   In an odd sort of way I am fa [...]

Bob By Cognitive Dissonance     Mrs. Cog has an ironclad rule honed and confirmed by decades of expe [...]

Some Thoughts from the Front Lines By Casey Stengel Editor - One of the ways we avoid catastrophe fa [...]

It Takes a Village… By Cognitive Dissonance     Mrs. Cog and I live at the end of a dead end private [...]

Shadows by Cognitive Dissonance   Elevation changes the way the sun and atmosphere interact. In the [...]

Event Update For 2018-07-20http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-07-19http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-07-18http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-07-17http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2018-07-16http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

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

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

You know things have taken a turn for the desperate when women have started to drive. Or rather, whe [...]

From Filmers to Farmers is re-launched on the astounding open source blogging platform Ghost! [...]

The blogging scene is admittedly atrocious. Is there really no option for a collapse blogger to turn [...]

Daily Doom Photo

man-watching-tv

Sustainability

  • Peak Surfer
  • SUN
  • Transition Voice

You Can't Stop A Wave But You Can Surf-3"The struggle with any addict is to produce permanent change."Part ThreeJust when things s [...]

You Can't Stop A Wave But You Can Surf-2"A more prosperous way down would be to work at community scale"Part TwoAccording to both [...]

"Will common sense conservation be enough? Probably not." Part OneBelow is a kite sailboat [...]

Kahului Underwater"Such as slippage has not occurred for 100,000 years, but it has happened some 15 times in the [...]

Sargon and the Sea Peoples"For hundreds of years, stories of marauding Sea Peoples were told to frightened children. [...]

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

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

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

Visit SUN on Facebook Here [...]

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

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

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

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

Lefty Greenies have some laudable ideas. Why is it then that they don't bother to really build [...]

Top Commentariats

  • Our Finite World
  • Economic Undertow

7.6 billion homo sapiens, using 10 grams of hydrocarbons to produce 1 gram of food. Any questions? [...]

Whats is giving way first; the environment or the economy? I think we are at or near 'Earth Day [...]

But he's a cu.lt figure; Tesla is similar to Concorde in some ways; both are subsidy queens. [...]

According to the write-up: This documentary caused an uproar in Russia when it appeared in April of [...]

I agree. This was not my idea. Excluding the financial system is pretty silly as well. The group has [...]

You all talk of MMT as if it is legitimate economic theory that can be put in a text book. It is not [...]

I'm not completely sure why this line of thinking is called 'Modern Monetary Theory' [...]

When I read about MMT, I think, the leftists are getting uppity, aren't they! They insist money [...]

Steve, perhaps you can recommend a good book explaining MMT. I just listened to a 23 minute video wi [...]

On a day that the stock market is pushing back above 24,900 the 2 to 10 is under 26 basis points and [...]

RE Economics

Going Cashless

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Simplifying the Final Countdown

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Bond Market Collapse and the Banning of Cash

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Do Central Bankers Recognize there is NO GROWTH?

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

Singularity of the Dollar

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Kurrency Kollapse: To Print or Not To Print?

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SWISSIE CAPITULATION!

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

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Merry Doomy Christmas

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Peak Customers: The Final Liquidation Sale

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Collapse Fiction

Useful Links

Technical Journals

The main features of the instrumental global mean surface temperature (GMST) are reasonably well des [...]

It is still a challenge to provide spatially explicit predictions of climate parameters in African r [...]

In Australia, successful seasonal predictions of wet and dry conditions are achieved by utilizing th [...]