Wealth

Rising Tides and Economyths

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Published on the Doomstead Diner on December 13, 2015

"A Rising Tide Lifts All Boats…."

Discuss this article at the Economics Table inside the Diner

"…and sinks everyone on shore."

OK, I added the coda to that cliche myself.  LOL.

After that Intro, you probably think this article is going to be about Climate Change, or maybe my Geotectonic Ocean Heat Transfer Theory.  It's not.  It's about Economics and Money, my central focus since I became aware of Collapse Dynamics in 2007-2008 with the collapse of the Investment Banks Bear Stearns & Lehman Brothers.

In some respects this article is also going to be a rehash of concepts I tried to clarify in The Money Valve 4 part Series around a year and a half ago or so now.  For those of you who missed the series, the links are The Money Valve, The Money Valve II, The Money Valve III & The Money Valve IV,

"A Rising Tide Lifts All Boats" has nothing to do with Tsunamis, Earthquakes or even the position of the Moon as it circles the Earth.  It's another one of those Economyths TM like Trickle Down Economics.

The aphorism "a rising tide lifts all boats" is associated with the idea that improvements in the general economy will benefit all participants in that economy, and that economic policy, particularly government economic policy, should therefore focus on the general macroeconomic environment first and foremost. The phrase is commonly attributed to John F Kennedy,[1] who used it in a 1963 speech to combat criticisms that a dam project he was inaugurating was a pork barrel project.[2][3] However the phrase has been used more commonly to defend tax cuts and other policies where the initial beneficiaries are high income earners.[4]

The notion here is that if you hand out money to the already rich, the new money and new prosperity will eventually work it's way down to the bottom end of the society and they will be better off too.  Their Canoes will be higher up, even though they might not be as comfortable as the super yachts of the .01% who get dished out the money first.

https://s-media-cache-ak0.pinimg.com/736x/d1/a5/88/d1a588173dc9e1794df1fe13ee74f6dd.jpg

Tide rises for this boat first

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Tide is supposed to lift this boat also

Unfortunately, in reality in the world of Economics it doesn't work that way at all.

This Economyth has been long used by the Elite to justify their own wealth & privilege, and for a long time it was semi-believable also  I mean, today even Poor People have Smart Phones!  20 years ago poor people did not have smart phones!  Today even poor people in the FSoA have Used Cars!  100 years ago poor people did not have used cars!

http://www.blogcdn.com/www.engadget.com/media/2013/01/modelx-2013-01-14-600.jpg

The .1% have "Green" EVs like this

http://www.pensacolafishingforum.com/attachments/f51/60566d1347646261-fs-used-diapers-beat-up-cars-goat-carts-old-tennis-shoes-car-jpg

Poor people have nasty polluting ICE cars like these

But at least they have carz now!  See?  The rising tide really DID lift all boats!

Well no, not really, because while the tide was rising up above ground with the production of all those smart phonez and carz, below ground the tide of fossil fuel energy that enabled the production of all those toys was receding.  The "trickle down" effect  of poor folks getting used carz after the new car buyer worked for a while as the energy moved its way downhill, but the poor folks never got the newest latest greatest Tesla or whatever the hot item of the day was, at least with the big ticket items.

Meanwhile, outside of the Heart of Darkness in the 1st World countries, the lives of the poor folks DEFINITELY are not getting better, in fact the Rising Tide for them is making things a whole lot worse these days in quite a few towns, like Jakarta for instance.

http://s.wsj.net/public/resources/images/BN-BD757_INfloo_G_20140119014845.jpg

Wading to school & work every day is NOT an improvement!

All over the 3rd World, the poor people are starting to get the picture that the rising tide for the 1st World countries is not going to lift them out of poverty, in fact it is making them poorer and worse off by the day here in many ways.  Besides the climate and pollution problems endemic to these countries is the fact they are the first place the wars break out as western countries still seek to strip them of any resources still left there and as the locals fight over the scraps left over in brutal civil wars, useful to the Elite for ridding the planet of unecessary Useless Eaters.

Unfortunately for said Elite as well as all the poor and formerly middle class folks in Europe, these folks don't JUST stay in their home countries killing each other off, a decent percentage try to GTFO of Dodge and migrate into their home turf, where the rising tide is no longer helping their local poor people either.  The used cars may still be available for them to buy, however they are not very useful when they don't have money to buy gas or jobs to drive the used car to either!

http://crudeoilpeak.info/wp-content/uploads/2015/08/Spain_oil_consumption_1965_2014.jpg

Spain hit Peak Oil consumption in 2007

http://3.bp.blogspot.com/-c5NNh9wDjpI/UuGNV_YgA9I/AAAAAAAAKCE/fPeaHJ3KIAA/s1600/Italy_Oil_Gas.png

Italy hit Peak Oil consumption a little earlier, around 2005-6

https://gailtheactuary.files.wordpress.com/2013/04/piigs-oil-consumption.png

For all the PIIGS, peak was around 2005, wih the Big Slide downhill beginning in 2007

Are people who are already getting poorer by the day going to be very welcoming of a huge influx of even poorer people who will compete with them for the few part time jobs still left in the shrinking oil economy?  OF COURSE NOT!

http://www.snopes.com/wordpress/wp-content/uploads/2015/11/civil-war-in-sweden.jpg

Normally reserved and politically correct Swedes morph into Arsonists

Meanwhile, the Elite class wants to mandate resettlement of "qualified" non-terrorist migrants, to any neighborhoods except the ones they live in.  This idea of course floated as well as a lead balloon, so now the Elite are trying to buy off Turkey to fence them in over there.  Anybody who thinks the Elite have a real "Plan" here has been drinking conspiracy theory Kool-Aid for too long, there is no plan.  They are flying by the seat of their pants trying to do damage control while they get their Bunkers built in Argentina (Doug Casey), Panama (Bush Family Compound) and New Zealand (Steve Wozniak).

What should be pretty clear here by now is that with the "Rising Tide", the Elite are trying to keep their yachts floating by sinking everybody else's canoes and fishing boats.  This process of making 99% of the population incrementally poorer while making 1% of the population incrementally richer has been working for a while, since the 1970s really but accelerating since the collapse of Bear Stearns and Lehman Bros. in 2008.  In the Slow Boiling Frog paradigm, the average J6P didn't really notice this for the first 30 years or so of the downhill slide, but in the last decade it has become VERY apparent, and nowadays EVERYBODY KNOWS.

The tide rolled in from the Tsunami around 1750 with the invention of the Steam Engine accessing the thermodynamic energy of coal, but it really accelerated at the beginning of the 20th century acessing liquid fossil fuels with the invention of the Internal Combustion Engine.  That made the automobiles and the airplanes possible, without it the Wright Brothers would never have got off the ground at Kitty Hawk.

http://www.multibriefs.com/briefs/pca/NoSubstitute.jpgAs with Porsche, "there is no substitute".

While electric power in rechargeable batteries might run a few cars, it won't run airplanes.  Creating enough biofuels to burn energy flying around at anywhere near the pace we currently use it would take all the arable land on earth, there would be nothing left to eat!  Airplanes, even the Gulfstream V Private Jets the Elite use to commute to conferences like COP21 are not long for this world, but to keep them flying as long as they can, the fuel has to be triaged off from the Useless Eaters and funneled ino their jet engines, by whatever means necessary.  If it takes bombing them back to the Stone Age, that is what will be done until it is no longer possible to do so, for one reason or the other.

It is not just about how much might still be left underground, it is about the economics of trying to yank it up and those economics are failing big time now.  In just this last week, not 1, but 2 hedge funds gated redemptions on the vast quantites of junk bonds issued out over the last decade to extractors of oil to keep the Happy Motoring lifestyle going just a little bit longer in the Heart of Darkness of the portion of the 1st World countries still solvent, which shrinks by the day, in real time you can watch it happening.  The Frog is not boiling so slow here you can't notice it, at least not if you are not already brain dead for one reason or the other.

What has already hit the poor folks in the 3rd World, what is hitting the Poor and Middle Cass of the 1st World as we speak is going to hit the Elite as well, in fact that also is going on as we speak here.  In just the last couple of days, two Hedge Funds gated redemptions from their investors.

Yesterday, in the aftermath of the shocking news that the Third Avenue Focused Credit Fund was liquidating and had gated investors due to its "illiquid" portfolio, we had one simple prediction:

"What this means is that now that the dreaded "gates" are back, investors in all other junk bond-focused hedge funds, fearing they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well."

 

 

 

 

 

We had to wait just over 24 hours to be proven correct, because moments ago Dow Jones reported that the $1.3 billion Manhattan-based Stone Lion Capital, a distress-focused hedge fund, has just suspended redemptions after "substantial requests."

If you are in the least bit familiar with the Collapse of Bear Stearns and Lehman, you should know by now that a collapse of firms this size with this large an investment portfolio does not stop with them.  They have counterparties to every trade, and when they try to liquidate en masse it forces the price discovery that is hidden until the day comes that everyone runs for the Fire Exit.

http://s3-eu-west-1.amazonaws.com/lookandlearn-preview/N/N842/N842507.jpgKATY BAR THE DOOR!

It does look as of this weekend that the next run is commencing.  This time, it is not clear that the CBs have a big enough Bazooka to provide the liquidity and soak up the losses of all the Pigmen Gamblers out there betting with Other People's Money.

This is the correlary to Margaret Thatcher's criticism of Socialism, which is that sooner or later you run out of Other People's Money to spend on Social Welfare Programs.

https://pbs.twimg.com/media/B9rDkqgIYAE5Qcu.jpg

The problem with Capitalism of course is that eventually you run out of Other People's Money to Gamble with.  You can only fake this for so long by issuing out Irredeemable Debt, eventually EVERYBODY KNOWS that it is a scam.  When they do wake up to this, they are mighty pissed off too!  Cue the Gullotines and Lynch Mobs.

So what is the outcome of this?  MORE MAYHEM!  There is a Snowball's Chance in Hell that "World Leaders" could come together to find a solution, even if there was another solution beside a lot of DEAD PEOPLE.  All you as an individual can do on the Grand Scale is to try to distance yourself as much as possible from the mayhem, but this is of course quite difficult to do considering industrial civilization has infected just about all locations on Earth right now, and even if you are close personal friends with Richard Branson, you have a 100% chance of dieing if you try to escape Earth on one of his Rocket Ships.  They won't even make it to Mars, much less do interstellar travel for the next century at least, and probably not FOREVER.

money-burningSeeing as you are stuck here on Earth here in the first half of the 21st Century, you might as well enjoy the show, because this one is gonna be the Mother of all Shitstorms It's going to be the Greatest Bonfire of Paper Wealth in all of Recorded History, and the Crash & Burn of the first and only truly Global Civilization of Homo Industrialus on the Roller Coaster Ride Down from Population Overshoot to Population Undershoot.

Break out the Popcorn.

http://rs482.pbsrc.com/albums/rr184/Char2152/Cat%20Graphics/Animated-Cats-LitteronaRollerCoaste.gif~c200

I lost my Wallet (and my Marbles)

Off the keyboard of RE

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Published on the Doomstead Diner on May 12, 2015

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marbles

Discuss this artilcle at the Medicine & Health Table inside the Diner

Amongst the many problems you face when you have a Spinal Injury is that it starts to affect your Brain Functions in many ways. The higher up the spine the injury is, the more things get affected.  My problem is in the C4-C5 area of the cervical vertebrae in my neck.  Complete severing of the spinal chord in this area results in Quadraplegia.  I don't have that problem…YET!

http://www.spinalcordinjuryzone.com/wp-content/media/spinal_map.jpgIt's just compromised and being SQUEEZED, and this results in many physically debilitating problems.  You can lose muscle control in any area of your body, for me currently the biggest loss is in my right arm, but I have muscle weakness everywhere now as well.  Difficult to walk, difficult to get out of bed and so forth.

It also affects your appetite, and sense of Hunger.  I just about never feel Hungry and actually WANT to eat, I have to remember to feed myself every day.  I mainly keep eating because I still like (and can experience still) the taste of my favorite foods.  I love to cook, as readers of my SNAP Card Gourmet series know.  Also, I know I HAVE to eat if I want to stay alive, and I do for a while longer anyhow.  More on the reasons for that later here.

Your Bowel and Urinary functions are affected as well.  You can become completely incontinent.  Again, so far I am fortunate this has not occurred yet, but I do have what you call an "immediacy" issue, which is that as soon as I do feel the need to piss or shit, I have to get to the bathroom inside a minute or two or I will have an "accident", as my mom called it while I was being Toilet Trained.  I try not to venture too far from a bathroom because of this.

It affects your Hearing as well, you can get a symptom known as Tinnitis, which I have.  Described sometimes as "ringing in the ears", for me it is a constant High Pitched SQUEAL, that if I keep myself bizzy I can ignore, but it is always there.

Tinnitus (/tɪˈntəs/ or /ˈtɪnɪtəs/; from the Latin tinnītus "ringing") is the perception of sound within the human ear ("ringing of the ears") when no external sound is present. Despite the origin of the name, "ringing" is only one of many sounds the person may perceive.

Tinnitus is not a disease, but a condition that can result from a wide range of underlying causes. The most common cause is noise-induced hearing loss. Other causes include neurological damage (multiple sclerosis), ear infections, oxidative stress,[1] emotional stress,[2] foreign objects in the ear, nasal allergies that prevent (or induce) fluid drain, earwax build-up, and exposure to loud sounds. Withdrawal from benzodiazepines may cause tinnitus as well. Tinnitus may be an accompaniment of sensorineural hearing loss or congenital hearing loss, or it may be observed as a side effect of certain medications (ototoxic tinnitus).

There are two main types of tinnitus, subjective tinnitus and objective tinnitus. Tinnitus is usually a subjective phenomenon, such that it cannot be objectively measured. The condition is often rated clinically on a simple scale from "slight" to "catastrophic" according to the difficulties it imposes, such as interference with sleep, quiet activities, and normal daily activities.[3] Subjective tinnitus has been also called "tinnitus aurium" "nonauditory" and "nonvibratory" tinnitus, objective tinnitus "pseudo-tinnitus" or "vibratory" tinnitus.

All of this I became aware of as I researched my injury, so I expected and understood it, and why it was occurring.  What I did not expect was how it would affect my higher cognitive functions, aka THINKING & MEMORY.

All those higher functions are ABOVE the injury to my spinal column, so in theory should not be affected.  But they are affected because of feedbacks through your nervous system, or lack of feedback.  I have become "forgetful", misplace things all the time now and cannot find them. I briefly lost my keys to my digs a couple of weeks ago, had to go out and make a replacement set (I had some copies fortunately), although I did turn up the original set a few days later.  I haven't lost my Wallet once in the last 30 years, but last week I did.  After fruitless searching for it, I bit the bullet and headed over to the DMV AGAIN to replace my Driver's License, and over to the Credit Union to cancel my Debit Cards and order new ones.  I'm still without the Debit Cards, that will take a couple of weeks probably before I have working ones again.  I got a Temporary License (good for 2 months), and now I wait for the permanent replacement to come in the mail as well.  The DMV here in Alaska doesn't issue Driver's License/ID out on the spot anymore, it has to go through Facial Recognition and Background Checks before you get your Full License, good for 6 years if you don't lose it, but anytime you do need to replace it you have to go through the same rigamarole.

Once you are without ID and a Bank Card in this society, you are totally screwed if you don't have Backup.  I'm fortunate I am a Doomer, so I have multiple backups on most things, in the case of the Driver's License I was able to use the last Temp License they issued me which had not yet expired.  Same with getting my new bank debit cards.  I also had my Passport and my Birth Certificate as well.  So I could more or less PROVE that I am ME to the Goobermint and the Banking system and get the process going of replacing the lost ID items.  Still haven't received them though, and I won't be resting EZ until they are once again in a NEW Wallet that certifies me as part of this society.

Meanwhile as I wait to get issued my New Cards, how am I surviving?  Again, fortunate I am a Doomer, so I have a Stash of Cash to use for purchases until I have some working Plastic again.  I have a PayPal account with digibit money in it also.  This is mainly just a temporary inconvenience for me, but it really does show how connected to and how dependent you are on the whole system all the time.

Now, to address a topic I brought up at the beginning of this article, is WTF am I trying to STAY ALIVE at all here now?  The world is a MESS, I am a MESS, just fucking end it all here and do a Bullet-Brain Meeting!

The main reason I don't do that is because I remain curious about how this bizness of Collapse will play itself out, and I continue to want to write on the topic until I absolutely cannot do that anymore.  We often run into the question of "What is the Purpose of Living?" on the Diner.  MY purpose for living these days is to be a Chronicler of Collapse.  In a sense I am fortunate in this regard, since now besides charting the Global Collapse, I also have opportunity to chart my own Personal Collapse as well.  I shall chronicle this in all its glory & gory detail as long as my keyboard fingers still work.  I won't QUIT, no matter what, no matter how awful my life gets.  I will go out fighting to the end. It's the Terminator in me.

What all of these experiences have driven home to me is the importance of having FRIENDS, which is where all your REAL WEALTH is truly stored.

In the case of my Spinal Injury, my FRIEND Agelbert on the Diner researched my problem and dug up a Study being done in Atlanta that I may qualify for, and so get the repair job done on the tab of the Pharma Companies that are sponsoring this study.  Without The Diner, this never would have occured.

In the case of my potential Homelessness prior to my trip to the Great Beyond, this also is unlikely to occur now.  I have offers from 2 more FRIENDS from the Diner who have offered me Shelter if things continue on their Southward Trend Line for me.

Anyone who says Blogging and the Internet are a waste of time and you can't really CONNECT with people this way are ABSOLUTELY, INCONTRAVERTABLY WRONG!  I probably won't last a whole lot longer (although I am pretty tough to kick off, so who knows there?), but today I am confident I won't die alone in some snowdrift in Alaska, I DO have FRIENDS who care about me.  They are my friends from the DINER!

MapI have met more truly compassionate and caring people on the Diner than I have ever encountered IRL.

LONG LIVE THE DOOMSTEAD DINER!

RE

 

Wealth Confiscation & Destruction

Off the microphone of RE

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Aired on the Doomstead Diner on July 6, 2014

logopodcast

Discuss this Rant at the Podcast Table inside the Diner

Snippet:

SAMSUNG CAMERA PICTURES…For today, I want to look at the specter of Wealth Confiscation coming down the pipe, which has already occurred in places like Cyprus, but looks likely to expand in scope as the general financial Ponzi of the World implodes.

Graham Summers of Capital Research is a regular contributor to ZH, and a regular predictor of Financial Doom as well.  His schtick is how you need to set up your portfolio for Doomsday.
 
In his latest piece below, Graham talks about how TPTB will come after anyone with financial assets over around $200K, striking FEAR into the Heart of every 1%er out there.

The idea here is, TPTB will do anything and everything they can to try to keep the financial system floating another day, and if that means they have to confiscate the paper wealth of 99.9% of the people with some money in the bank, they will do so.

While worrisome to the 1% crowd out there, this is probably not quite so worrisome to the .01% with wealth measured in $Billions$.  These folks are “Key Men”, and though they may take a Haircut at the beginning, they won’t lose it ALL

For the rest, LISTEN TO THE RANT!

RE

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

Off the keyboard of Jim Quinn

Published on The Burning Platform on September 10, 2013

Cuckoos_Nest

Discuss this article at the Geopolitics Table inside the Diner

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

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

 

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

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

 

Increase in Real GDP per Dollar of Incremental Debt

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

Five Stages of Collapse

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Monetary Base (billions of USD)

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

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

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

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

In Whom Do You Trust?

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 IT’S OUR CHOICE.

Money & Wealth: Part I

Off the keyboard of Monsta666

Discuss this article at the Economics Table inside the Diner

Main article

When talking about collapse issues one of the most prominent yet most commonly misunderstood areas comes with our basic understanding of what wealth and money really is. Both are seemingly simple matters yet upon closer inspection we find that are many nuances and subtleties in this story that people often miss. This misconception can even be extended to economists or people in finance that are well versed in money matters.

Indeed it is the complexity of money and all the financial products that derive from it with things such as bonds, stocks or other investment vehicles that can make us easily forget what wealth is really about. In fact it is this distraction through complexity that makes us commonly believe that wealth and money are one of the same things. It is useful to really grasp what wealth is lest we fall into a trap that many people, including the iluminati, who base much of their wealth in abstract financial instruments.

To understand wealth first we must realise that money only acts as a medium of exchange and by itself is not wealth. In addition to being a medium of exchange, money also acts as a means of measuring the relative value between various goods and services. This means of relative valuation while somewhat abstract is essential in any economy as the means of measuring relative values between goods/services becomes too complex without the use of money (for more information on this topic please refer to the Energy-Money Equilibrium series). These issues of valuation only become more prominent in international trade. Despite these obvious advantages all forms of money from fiat to even gold based currencies do not hold any intrinsic value by themselves. In other words we only place value in money because we can exchange items of value for it. In essence the value of money comes largely from the trust and faith that we have placed in it. This is even truer for fiat based currencies that cannot be redeemed for gold. If money cannot be exchanged for goods or services then any notional value money they have will disappear. For example if one was placed with a $1,000,000 and 1000 gold bars in a desert those forms of money would be of little use. You could not eat, drink or keep cool with this money and so without trade money would be utterly worthless perhaps even a burden and liability due to its weight and the danger it would pose against thieves by simply possessing them. From this simple example we can see that money has no value by itself and therefore cannot be counted as actual wealth. While this example may seem a bit silly the mechanics of money becoming worthless through hyperinflation work in the same dynamics.

However as noted money derives its value by the fact it can be exchanged for items of value so what we can say about money is that it is a claim on wealth. If we extend this claim concept a little bit further we can say that since debt is a claim on future income (money) then what debt really is a claim to a claim to wealth. That maybe a bit of convoluted way of expressing debt but if we wish to distil this last expression we can simply say that debt and money are both claims on the underlying wealth of an economy.

This all sounds nice and rather straightforward but it begs the question of what wealth actually is? Wealth can simply be expressed as the actual assets that a person owns for example a house, SUV, iPhone or other tangible items are all forms of wealth. As a side-note wealth is a measure of stock while money or income is measure of flow. This point while seemingly innocuous now will be an important concept to grasp as we progress further in this topic. As you see these tangible items – the items that society values – is the true wealth of an economy and the only role that money plays (which intrinsically has no value by itself) is it allows and facilitates the transfer of wealth between various agents in an economic system.

The other role money does play is it acts as a store of wealth so if we wish to store money then the money should be able to be exchanged at a later date for the same amount of wealth as if traded that day. At least this is what “sound money” should do. As we know due to the effects of inflation this proves not to be the case. However it is this issue of money acting as a store of wealth which leads to the first source of confusion between money and wealth. The means of wealth storage via money results in wealth being measured in monetary terms. The issue of measuring wealth through monetary values then leads to the point of determining how things are valued in the first place.

In modern economics the value or utility of any given item comes from the exchange value it has in a market. In other words the wealth of any item is only determined or realised once it has a value in the market which it can be sold for. While this may not seem like an issue, at least on first glance, this issue of exchange value does pose a problem. This is because there is a difference between exchange value (the value an item gets in the market) and use value (the value an item has to an individual or society). To illustrate the difference and problems posed by these differences of worth it is best to consider the age old concept of the diamond and water paradox.  While water is a requirement for life and therefore has a high use value to people its exchange value is very low while a diamond; which is not needed at all for life and therefore has no or little use value has a high exchange value.

This is a curious development that comes from how our economic system places value on items. So what accounts for the difference? The reasons are actually quite easy to explain: water while highly useful has generally been abundant and easy to extract so even though its use value is high its exchange value has been low due to its abundance and easy extraction. Since the opposite is true for diamonds (it is rare and harder to extract) its exchange value has been high even though its actual use value is considerably lower.

The large discrepancy between use and exchange values generally occurs for many vital commodities such as food, air and most significantly energy resources. These differences in values have become more pronounced in recent years due to the abundances of energy in the last 200 years of the industrial revolution that have made not only energy cheap (from an exchange value standpoint) but have also made other resources such as food and water cheap as energy acts as an enabler of all other resources. For this reason energy can be regarded as the master resource. As a result of this phenomena it is likely we have grossly underestimated the wealth we have accumulated or perhaps in other cases (such as in fossil fuel depletion) we have grossly underestimated the wealth we have liquidated by only focussing on the exchange value of items and not their use value.

While this point may still seem to be of only academic interest it should be noted these very issues do tend to crop up in times of deprivation and economic dislocation when items in high demand are not bought as people do not have the means to pay the exchange or “going” rates. As a result while the use value of items such as food are still high; perhaps even higher in desperate times (people are more malnourished during these times) since people do not have the means to pay for the goods the exchange value will tend to be lower than in normal times. This leads to the paradoxical situation where the farmer produces a “surplus” of food even though there are millions of people malnourished or even starving. As a result of this “surplus” less food is produced (to cut losses from “overproduction”) which only further exacerbates the situation as there is even less food to go around. These issues can be extended to modern day equivalents when many lands in Africa maybe very fertile yet the amount of wealth is not as high as one would first believe as the exchange value or income ultimately determines the value and wealth of the land. It does not matter how much the people want food, the only thing that matters economically is what people are able to pay for the said food. On the other hand due to the flaws of this exchange value mechanism it can observed that an overweight person from a developed country will gain more utility (in a pure economic sense) from this food than a starving person because they can pay the exchange value and so wealth will transfer to this person as it delivers the greatest amount of utility from an economic standpoint even though the use value is obviously less. This issue is clearly not the best outcome from a social or moral standpoint and this example is a chief reminder of the flaws of the value system used in modern economics.

On this topic of land, the other important point can be made about wealth. That is fundamentally all wealth that we see in the planet comes from either the ecosystem of the Earth or the energy from the sun. Normally from a purely economic perspective we consider wealth as items such as factories, cars, roads or other items that have economic value. While such statements are indeed valid and can be correctly deemed as forms of wealth it is important to note that all these sources of wealth ultimately come from the Earth as they all require resource inputs such as oil, metals etc. to be formed. Therefore from this we can say the economic system that we live in today is actually part of the larger ecosystem and all the wealth we accumulate in the economy derives from the underlying ecosystem we live in.

As a result of this we can easily deduce that for the overall wealth of the human economy to grow it must come at the expense of the natural ecosystems wealth. Since all wealth comes from the Earth or the products from the sun’s energy (which is applicable to many forms of agriculture) it is not technically correct to say man creates wealth rather he merely extracts it from existing resources in the ecosystem.

This relationship between resource extraction and wealth extraction is quite obvious to see in the primary economy when resources are extracted directly from the ecosystems to provide goods of economic value but it can seem even with this wealth extraction concept recognised one may still envision the possibility of wealth creation through the transformation of a resource. To offer an example of this possible wealth creation let us consider the information sector which at its base claims to create wealth by using cheap resource inputs from metals and transforms these input into high value products such as computers and smart phones. While this process does appear to create extra wealth – at least on first glance – it should be noted that the process of manufacturing these products is highly energy intensive. First to build a typical computer or smart phone requires the resources that are scattered across the globe and as result requires large energy inputs to make these long supply lines viable as the video below clearly suggests:

Furthermore the energy use in manufacturing the product in the factory is also very energy intensive and requires very precise conditions (such as dust free rooms) to be maintained. In fact on a weight to weight basis computer manufacturing is around 10 times more energy intensive than the manufacturing or a car.[1]This high energy consumption all stems from the second law of thermodynamics (to read more information on this topic please refer to the Energy: Part II article). In addition to these facts another general pattern can be observed; that is the more complex any given technology becomes the larger the amount of supporting infrastructure is required to build and maintain the technology. This support infrastructure does not just come from physical items such as longer supplier chains or more sophisticated factories but also in the form of higher education and training required for the workers to operate in these environments. These embodied energy costs while not directly related to the construction of the item itself are considerable and will pose a larger energy cost to society in general. This will be an even bigger issue in a declining net energy environment which is likely to be the case in the coming decades.

As noted earlier the exchange value of vital resources such as energy do not capture the true use value of this resource. To understand why this is the case for energy we need to consider how much energy is embodied in the various forms of fossil fuel energy. For example the energy extracted from one barrel of oil is equivalent to around 7 years of labour[2]while the burning of one short ton of coal delivers around three times the amount of energy as a barrel of oil all at a lower cost.[3]While the exchange value in these cases is around $108.50 for the barrel and around $64.96 for coal (at the time of writing) the amount of use value in terms economic output far exceeds their exchange value[4][5] It is this arbitrage between exchange and use value that has been main reason for the explosive amount of economic growth we have seen in the last two centuries during the industrial age.

If the true use value of these fossil fuels plus the associated external costs (due to pollution) were accounted for then it is likely the amount of wealth created through this process would be considerably less. Furthermore as noted earlier all this wealth creation comes at the expense of fossil fuel depletion which is really the destruction of stocks of wealth. If we subtract the true losses of wealth from fossil fuel depletion coupled with the smaller addition of wealth created by capturing the true costs then it is likely no wealth has actually been created in this process. It is also important to note that once these resources are burned they are gone so it really a onetime deal and these stocks act like an endowment from nature.

As a result of this it is actually not appropriate to count the burning of fossil fuels as a form of income because really the burning of fossil fuels is a liquidation of stocks of wealth which is a one time deal. To give an analogy it would be like selling your home and then counting the proceeds as part of your yearly income. Such a thought sounds silly but if we consider how many nations count the burning/selling of this resource as part of their GDP (which is a measure of income) it becomes apparent how flawed our accounting system for measuring income and wealth is.

In any case what we can say with a good degree of confidence is that any wealth generated from this endeavour will come at the expense of a reduction in wealth in the natural ecosystem. For wealth to be created in the economy either resources or energy inputs must be consumed from the ecosystem. Now this is not to say this wealth extraction process is always unsustainable because in many instances, at least theoretically, it can be sustainable. This sustainability can arise because our ecosystem is not a completely closed system as it receives energy from the sun. As a result of this solar energy land can regenerate and create new wealth in the ecosystem. Indeed for much of human history wealth primarily came from the solar energy of the sun and wealth was obtained into the economy on a “pay-as-you-go” basis from wealth created from photosynthesis. It is only in the last 250 years that significant sources of energy came from the drawdown of fossil fuels and it is this drawdown that was responsible for the large amount of economic growth in the industrial age.

While it is possible in some circumstances for the human economy to grow for a time it should be noted that growth is only really sustainable if the resources extracted from the ecosystem do not exceed the capacity of the Earth to regenerate new resources and empty various sinks of pollution. Unfortunately in the world we live in today our current rates of consumption of resources exceed the world’s regenerative capacity and as a result many vital resources such as topsoil, water tables, fish stocks and animals are all experiencing declines.[6][7][8][9]In addition the amount of pollution emitted exceeds the capacity of the Earth’s sinks to absorb these waste products and as result the pH in oceans are altering which has an adverse effect on various ocean fauna.[10]In addition oceans accumulate increasing concentrations of pollutants and the atmosphere grows warmer due to C02 emissions. And this is all occurring at current rates of consumption; if we wish to pursue more economic growth and increase the wealth of the human economy even further then it must come at the cost of further degradation of the environment. If continued then it is likely these set of actions will lead to resource collapse (ecosystem bankruptcy?) and uncontrolled climate change.

Another important aspect to consider in this wealth story is that of profit. The normal definition for profit is that the supplier of a good or service must sell at a higher price than they took to produce the good/service. If we consider this from a wealth prospective then this means the cost of procuring the resource must be less than what the transformed resource will sell at the market. In other words the costs of the good/service should be less than the exchange value that it will sell for. However since we are only dealing with the exchange value and do not account for the use value then it is likely the actual profit from wealth standpoint is less than what we would get from an exchange or monetary standpoint. What’s more if all external costs such as pollution and environmental degradation (environmental costs should include the costs for removal of fossil fuels) are fully accounted for then it is likely that there would be no profit at all in various economic transactions (in certain cases it could be even a negative profit). In fact to obtain a real profit it is likely that a combination of three things must happen. Either the external costs are omitted or resources and/or labour must be exploited. By exploitation the price paid to procure these resources or labour must be below their true use value for wealth to accumulate. It is my personal belief that it is a combination of exploitation and unaccounted costs that allows nearly all economic transactions to produce a profit on paper.

Summary

Wealth and money are two fundamentally different concepts and the confusion between the two terms mainly arises from the fact we use money as a store of wealth. As a result of this all wealth is measured in monetary terms. However as money has no actual intrinsic value by itself then its value only comes from the fact it can be exchanged for items of value. It is this fact that means all items of wealth is only measured by their exchange value and not their use value. As a result of this money cannot capture the true value of wealth as not all values are accounted for.

As a result we cannot accurately account for the loss of wealth due to depletion of various resources and this issue is only compounded by the fact all external costs are rarely accounted for. If all these factors were factored in then it is likely the amount of profit or actual real wealth accumulated through our economy is a lot less than we imagined and could even be negative considering the declining quality of resources that we are now extracting.

Finally it should be noted that since money is only a claim on wealth and is not a source of wealth by itself then it follows that if the money supply increases faster than the underlying wealth in the economy then the result will be inflation (if the opposite occurs then we get deflation). It is this dynamic of changing money supply relative to overall wealth that will be explored in the next part of this money and wealth primer.

Further reading

Energy-Money Equilibrium (RE)
Economics and Moral Philosophy (feasta)

References:

[1] = The monster footprint of digital technology (Low-tech Magazine)
[2] = What is a Human Being Worth (in Terms of Energy)? (The Oil Drum: Europe)
[3] = What is the average heat (Btu) content of U.S. coal? (EIA)
[4] = BBC News Market Data: Commodities (BBC)
[5] = Coal News and Markets (EIA)
[6] = What If the World’s Soil Runs Out? (TIME Magazine)
[7] = Chapter 3: Emerging Water Shortages: Falling Water Tables (Earth Policy Institute)
[8] = World fish stocks declining faster than feared (Financial Times: google title name for link)
[9] = THE EXTINCTION CRISIS (Biological Diversity)
[10] = How will ocean acidification affect marine life? (Ocean Acidification)

On Dignity and Comparative Wealth

Repost from another part of the Topic For Discussion debate on Economic Undertow, this time trading ideas with Sandor.

Discuss this further inside the Diner

Re

Sandor says:

I like the platform, however I doubt that more than 5% of Americans will. The culture rejects the notion of ‘limits’ and ‘you can’t do that’. Responsibility may be the root virtue, but our culture misinterprets this concept as ‘guilt’ or ‘lawsuit’ or ‘superiority’.  Most Americans eschew the idea of responsibility from the get-go. They want to be irresponsible, to consume 25% of the global energy supply, and face no consequences. Even the Occupy Wall Street crowd doesn’t get it. They seem to think that all deserve $20/hr because they are… American. Never mind the $2/day laborer in India.

There are several third parties in this country already. Why are they marginalized in a ‘free press’ culture? Inertia, herding instinct, the embedded value of money channeled through familiar channels. Most Americans are not idealists or philosophers. They want their goodies. Now they want their jobs back. But not at $5/hr. That’s ‘unfair’. The first step I’ve taken with other Americans is to suggest boycotting all Democrats and Republicans, period, no exceptions. If you do that, then you have to start *thinking* beyond throwing the light switch on or off. If you can get that far, then start talking about the dangerous and seductive lie of perpetual ‘growth’.

I actually think if you can write an entertaining screenplay for a risk-taking, savvy Hollywood producer starring teenagers or superheroes that introduces these concepts and follows the thoughts through, you will have a far greater effect on the political discourse of the future than trying to jumpstart a better Tea Party.

  • “Even the Occupy Wall Street crowd doesn’t get it. They seem to think that all deserve $20/hr because they are… American. Never mind the $2/day laborer in India.”-Sandor

    No, I think 99%/OWS/J6P feels he deserves $20/hr because Jamie Dimon takes home $20,000/hr.  If the economy is structured so you NEED $20/hr just to meet the bills, then yea J6P deserves that for his work.

    What does $20/hr buy you Sandor?  That translates to around $40K/year, of which you lose $10K right off the top in taxes.  Then pay your medical insurance, fuel bills yadda yadda and if you can make ends meet without going into debt you are doing pretty good.

    The economies of places like Egypt where people subsist on $2 a day are entirely different in structure.  If that is what J6P will be paid here, your RE valuations are going to have to drop [b]substantially[/b], more than an order of magnitude since they are already unaffordable at $20/hr.  Really, you couldn’t even FEED yourself here on $2/day, even buying the cheapest foods on the Walmart Shelves.

    Not saying that J6P would be happy living on a $2/day wage, but he might live with it if Lloyd Blankfein is not out there pulling down $20K/hr for sitting on his ass and losing taxpayer money.  Inequitable Wealth distribution is the driver behind the $20/hr “demand” of OWS/J6P.

    As long as there is enough wealth out there, EVERYBODY deserves a wage that will allow them to live with some dignity inside their economic system.  A system which allows a few to take great wealth at the expense of the many is not sustainable, and will not be sustained.  Count on it.

    RE

    • Sandor says:

      My point is that OWS is using the wrong metric. It doesn’t matter what Jamie Dimon makes. It doesn’t matter that there are billionaires. What matters is how many people are on the planet, how much energy needs to be converted to maintain the ‘dignity’ you speak of for all 7 billion people. The unemployed living off the govie dole in the USA have it better than billions of ‘hard-working’ people on the planet. If by dignity you mean a job that doesn’t involve indentured servitude, there are plenty of places in the world where one can apply physical labor for 8-12 hrs a day every day of the year and live a subsistence lifestyle with ‘dignity’.

      OWS doesn’t get it. Americans, for the most part, have elevated expectations of ‘dignity’. That’s all fine. Aim high, etc. It’s all about ‘fairness’ until you start talking about the $2/day Indian. Then the concept of ‘fairness’ goes right out the window. It’s shortsighted and hypocritical. If there are more people than an economy needs, the people need to move, or they will have to be fed the scraps. And paying people not to work breeds a dependent underclass of people who lose hope in themselves.

      I have no objections to a Swedish style system with far greater income equality. But even they have wealthy industrialists. Income redistribution in and of itself is not the answer. The values of the culture have to change. American workers don’t want income ‘equality’. Not really. If they did, they wouldn’t vote for the clowns who hand out tax breaks to corporations and millionaires. Most Americans have refused to engage the issue of overconsumption and energy waste. And even many who do continue to support the corporatocracy because they ‘have to work with the system to get anything done.’ Steve’s Responsibility Party wants to get people to say ‘the (binge) party’s over’ while the music still plays and the booze flows. Buzzkill. Chicken Little doesn’t score big points in the USA until the sky falls. Americans will probably have to hit bottom before a third party is welcome with open arms.

      • “My point is that OWS is using the wrong metric. It doesn’t matter what Jamie Dimon makes. It doesn’t matter that there are billionaires. What matters is how many people are on the planet, how much energy needs to be converted to maintain the ‘dignity’ you speak of for all 7 billion people.”-Sandor

        It DOES matter what Jamie Dimon makes.  1 person making $10M/yr is the equivalent of 1000 people making $10K/yr.  People who see that and the wasteful and consumptive lifestyles of the rich and famous don’t see why they should not have a piece of this pie also.  Your not going to encourage conservation when those at the top waste the most.

        Dignity is a relative thing in a society.  In a poor farming community in the 3rd world, you live a dignified life if you have a hovel to sleep in and can keep a decent part of the produce from the land you work.  You do not live a dignified life if its taxed from under you or you can’t sell the produce at a price which allows you to buy the other items a dignified life requires in that society, like clothes.  Some societies don’t even require clothes to live a dignified life, but they are few and far between these days of course.

        Inside the society created during the Age of Oil, a dignified life meant having a house powered by electricity with a refrigerator to preserve food and hot and cold running water and flush toilets.  I remember when I was a kid recently returned from Brasil when we didn’t have a car.  To get our groceries, my mom would walk 6 blocks pulling a shopping cart.  Relative to the norm around us, this was undignified.

        In my mother’s youth, she lived in a cold-water tenement on the lower East Side of New York, and her mother ran a rag shop to make ends meet during the Great Depression.  Relative to the Fat Cats on the Upper East side, they were living an undignified life.

        Cross culturally speaking, obviously we cannot all afford the energy required to live a dignified life by the standards of the Age of Oil, the problem would be working the society back toward a situation where living in cold water flats and pulling your groceries in a shopping cart is relatively dignified.  This is not going to be the case if right under your nose the Elite of your society a Globe Trotting in Gulfstream V Private Jets, so what the 1% STEALS here is very important.

        Before you can lower the expectations of the society as a whole, the leadership of that society needs to come back down to earth and land those Private Jets.  Until then, J6P will EXPECT a $20/hr wage to live a dignified life in this society.

        RE

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