The post didn't come out right when first posted. Paragraphs have been corrected, with apologies.
* * *
It seems that the banking system of the United States got all better for the Thanksgiving holiday, because the FDIC did not close a single bank. Frankly, we wonder how the FDIC has managed to keep its reputation as high as it is, because this sort of politicisation is completely outrageous. As we understand it, the FDIC is tasked with protecting depositors of banks, not gauging the public mood for whether or not it should protect said depositors. This inaction is completely outrageous, in our humble opinion; we wish others were outraged, too. It does not make us feel confident that our banks aren't complete trash-heaps, and we wonder just how safe “[every] single penny of deposits” really is.
But at any rate, let us turn to world events. Dubai, we read, totters on the brink of default, and the rest of the world begins to panic about all the debt from the best skiing land the far side of the Rub' al Khali. Those little private islands aren't looking so hot as investments right about now, we'd hazard to guess; although, if we'd be permitted to moralise for a moment, they seem to us to be the logical conclusion of the insanity of suburban development. We honestly can think of nothing more ridiculously 'exclusive' than one's own, artificial island. The situation with Dubai is an interesting one, from a malinvestment point of view.
Let us be honest here: we fully expect anyone and everyone who invested in Dubai's madness will end up losing every single penny they ever invested. It will probably be a very fascinating blow-out to watch, but we'd like to take a look at how, exactly, this malinvestment probably came about. We are supporters of the notion of Peak Oil; i.e. the idea that the economically-extractable amount of oil in the world is finite, and will result in a permanent decrease in the availability of a potent energy source to fuel human economies. This is not a popular view, as we're sure you are aware; in fact, to even breath the words 'peak oil' in a sentence, and not immediately ridicule the concept as lunacy and defeatism, is to give suspect to one's character.
The popular discourse, as we understand it, is either permanently-increasing availability of cheap oil, or the latest stupidity called 'plateauing,' where oil reaches a level of production which can be maintained indefinitely. If it is taken as given that oil will never run out, then Dubai seems like a great investment, because the Emirate would forever become richer and richer; better invest now, before it gets even more expensive!
No one, it seems, stopped to question this notion of infinite oil before they leveraged themselves to the hilt to invest in Dubai. If, indeed, oil has peaked, which we believe it has, Dubai is probably going to be getting permanently poorer, at least in the long run. Hence, the grand malinvestment in Dubai, Dubai World, et al.
Dubai's madness – for really, what else could it be called, other than wilful insanity? – was facilitated by its endowment of oil. We'd like to present that oil as a windfall, for conceptual purposes; it was a one-time shot at something, granted by a quirk of geology and human development to the Emirate. They took that windfall and blew it on skiing in the desert and artificial islands shaped like palm trees; a grand gesture, we think, to the stupidity of humanity.
Norway, on the other hand, took their oil windfall and tried to use it for better purposes. As we understand it, they tried to use the vast wealth which came from the one-time exploitation of their oil to improve the quality of life for all Norwegians; something that Dubai has not done, and will never do. Quality of life in Norway will, we think, continue to be quite high, long after Dubai is perhaps consumed by sandstorms, or at least reduced to a ruin of its former self. The differences, we posit, between wise investment of a windfall, and a windfall-driven orgy of conspicuous consumption, will probably not be better evidenced than by these two nations.
The collapse of Dubai will likely serve as a model for future national collapses in the 2007 Depression. Those nations which have a windfall, and have already blown it, are probably going to go the way Dubai goes; namely, somewhere very dark and scary. It should serve as a stern warning to those nations which still have a windfall they're in the process of blowing, because it's not too late to change course. Smart investment of resource windfalls, such as oil, will be increasingly paramount in the future.
In this category, we're thinking of the resource-heavies of the world, and not the silly notion of BRIC which is presently flying around (Brasil, Russia, India, China); India and China, in our opinion, are going to blow out along the lines of Dubai. Instead, we'd like to present our pet notion of CARB: Canada, Australia, Russia, and Brasil. These four nations apparently enjoy fairly large resource endowments, which have not yet been economically exterminated; if husbanded, life in the 2007 Depression might not be quite so bad in CARB, as opposed to, say, Dubai.
The concept of CARB is one which we would prefer to address in a separate post, to avoid accusations of wind-baggery. Instead, and in closing, we'd like to point out the nation which has blown its resource windfall far more than Dubai could ever hope to accomplish.
Go on, guess. We dare you.
The New World was beyond a shot in the arm to the European economy, when it first began colonising the new continents; it was like speed, angel dust, crack, LSD, and crystal meth all rolled into one, injected directly into the brain. But before that granddaddy of all economic stimulus could be used for the benefit of European colonial powers, the United States came along and had the indecency to clam a vast swath of the New World for its own. From there, it proceeded to burn through the incredible, mind-boggling amount of wealth which was to be had, to build... umm... wait, we know this one. Oh yeah, suburbia, and the most expensive military the world has ever seen. Right, sorry.
Simply put, however bad Dubai will become, we will not be the least bit surprised if the U.S. ends up being far, far worse. It had a much bigger windfall, which it blew over about two hundred years and far too many pointless wars. The era of Warren Buffet's 'never bet against America,' we posit, is over. There is money to be made shorting the U.S. and investing elsewhere, not the other way around.
Showing posts with label collapse. Show all posts
Showing posts with label collapse. Show all posts
Sunday, November 29, 2009
Friday, July 17, 2009
Commercial Credit Collapse
Commercial credit is the money businesses borrow to fund their operations on a short term basis. Large corporations use the commercial paper market and bank loans. Smaller companies use loans from banks and finance companies. In the USA, the availability of commercial credit is contracting violently across the board. In our opinion, this portends an acceleration of the Depression, as employers find it more difficult to fund any sort of expansion - or even maintain their operations.
The commercial paper market has shrunk by 28 percent in the last three months according to this Bloomberg report. The entire market has shrunk by over half since its peak two years ago.
Bank lending is also falling. Since the beginning of the year, commercial and industrial loans of commercial banks have fallen by about 7% according to Federal Reserve Bank data.
Finally, lending by finance companies is also collapsing. According to data from the Federal Reserve Bank, business lending by finance companies had fallen about 6% from the beginning of the year to April. This figure will get substantially worse with the imminent demise of CIT, a large finance company.
Taken as a whole, a picture of severe credit contraction emerges. Both lenders and borrowers are losing en masse the capacity to lend or borrow due to deteriorating finances. Even sound borrowers may have little reason to borrow under the current circumstances and would just pay off loans as they come due. In any case, the result will be continued economic contraction.
The commercial paper market has shrunk by 28 percent in the last three months according to this Bloomberg report. The entire market has shrunk by over half since its peak two years ago.
Bank lending is also falling. Since the beginning of the year, commercial and industrial loans of commercial banks have fallen by about 7% according to Federal Reserve Bank data.
Finally, lending by finance companies is also collapsing. According to data from the Federal Reserve Bank, business lending by finance companies had fallen about 6% from the beginning of the year to April. This figure will get substantially worse with the imminent demise of CIT, a large finance company.
Taken as a whole, a picture of severe credit contraction emerges. Both lenders and borrowers are losing en masse the capacity to lend or borrow due to deteriorating finances. Even sound borrowers may have little reason to borrow under the current circumstances and would just pay off loans as they come due. In any case, the result will be continued economic contraction.
Tuesday, July 14, 2009
Mind the Gap
Perhaps a defining characteristic of the present Depression is that it is providing most of the World's people a one-way ticket of 'downward mobility'. Whether or not you join the mass migration will depend on luck, social resilience, and your own choices.
Since the first two conditions are out of your control, we will focus the choosing part. If the collapse is to happen quickly (which appears ever more certain with each, further government-dictated misallocation of resources), then the gap between your lifestyle as it was and as it is to be will be quite shocking.
The most important choice you can make is to commit to adjusting to whatever changes come your way, no matter how disruptive or distressing. Let us illustrate from our own experience: we happen to live in an area with an abundance of wild rabbits. They would make for very easy hunting or trapping. But we find the idea of butchering them most distasteful. We would, however, manage to overcome our squeamishness, if our need for food became urgent enough.
We present an extreme example precisely because you may be faced with an extreme situation: complete loss of income - whether a job, a pension, or otherwise. How will you manage to put food on the table and fuel on the fire if left entirely to your own devices? Can you scrape up some kind of livelihood on your own?
We are not trying to go all 'doomer' on you - we just want you to exercise some creative thinking in contingency planning. The more you expect the system to work for you, the greater the risk you are subject to if things break down.
Since the first two conditions are out of your control, we will focus the choosing part. If the collapse is to happen quickly (which appears ever more certain with each, further government-dictated misallocation of resources), then the gap between your lifestyle as it was and as it is to be will be quite shocking.
The most important choice you can make is to commit to adjusting to whatever changes come your way, no matter how disruptive or distressing. Let us illustrate from our own experience: we happen to live in an area with an abundance of wild rabbits. They would make for very easy hunting or trapping. But we find the idea of butchering them most distasteful. We would, however, manage to overcome our squeamishness, if our need for food became urgent enough.
We present an extreme example precisely because you may be faced with an extreme situation: complete loss of income - whether a job, a pension, or otherwise. How will you manage to put food on the table and fuel on the fire if left entirely to your own devices? Can you scrape up some kind of livelihood on your own?
We are not trying to go all 'doomer' on you - we just want you to exercise some creative thinking in contingency planning. The more you expect the system to work for you, the greater the risk you are subject to if things break down.
Wednesday, June 24, 2009
A Depression Trajectory
As a sort of follow-up to yesterday's post, we will muse a bit on how much world GDP decline to expect to this Depression.
One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.
Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.
As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.
We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.
We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.
It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.
To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.
One assumption that we are making is that over the next twenty years or so, fossil fuels will become too expensive to use very much as... well, fuel. The world is not going to run out of oil, gas, or high quality coal - but their fuel use will mostly be limited to its highest ends (i.e., not for mass private cars, heat, or electricity). In the post-fuel hydrocarbon era, much of the remaining supply will be used for non-fuel uses such as fertiliser, plastics, and specialty chemicals.
Its a rather uncertain thing modelling collapse, but it is not unreasonable to say that hydrocarbon production may decline 90% or so in the next 20 years. That may seem outrageous, but many people like ourselves who make a study of this matter are arriving at similar conclusions. Consider this recent post at The Oil Drum. It's a bit technical, but Figure 3 is worth a thousand words.
As every schoolchild knows, or at least ought to know, the industrial economy grows or shrinks with the supply of fuel. If fuel production declines 90%, the economy will fall by a similar amount. There will be efficiency, nuclear power, solar power, hydropower, and many other ways to mitigate the loss of energy available to society - hopefully enough to keep things civilised. And once Civilisation has weaned itself off fossil fuel, economic growth just may well resume from a new, low base and at a slower rate.
We believe an energy-intensive economy such as the USA's will experience roughly a 90% decline over the next 20 years. At the end of the Depression, per-capita income is likely to be in the neighborhood of $5,000 a year in current dollars.
We suggest the Reader consider what life might be like for them on such an income, or a bit more or less - depending on their skill level. Also to consider what sort of means they would have to produce any income in a world where most people can afford very little beyond the basics of food and shelter.
It will be very difficult to hope that investment capital will produce much income. Which industries will even survive this depression? Virtually all bonds are sure to default, including government ones - either directly or through inflation. Successful investors will likely be the active, hands-on sort.
To earn income will require being involved with a surviving industry, such as agriculture. Otherwise you will need to become entrepreneurial, and hard-working. Though challenging, the changes ahead are manageable - as long as you keep a positive outlook.
Wednesday, June 17, 2009
Coming Soon to Sprawl Near You
The demise of Detroit is the most striking example of the self-destruction of most US cities. We call it self-destruction because it was not by accident, but the result of unintended consequences of a series of decisions.
The common thread of these decisions was to abandon the thousands-of-years-old tradition of building cities around the scale of human self-propulsion. In the USA, this tradition was abandoned in favour of building the urban field - a better name for what resulted than city - around the needs of the motor vehicle.
Even most of those few remaining cities which have lively and livable downtowns are surrounded by a ring of strip malls, big box stores, and industrial and office 'parks'.
Now that the US has seen peak automobiles, and the age of the motor vehicle is drawing to a close, the USA will find itself very much in trouble. It has constructed a type of city - this urban field - which will find itself soon utterly obsolete and mostly useless.
Steps could be taken to correct this: allowing mixed-use zoning; promoting 'infill' and small lot redevelopment. But communities which allow this are few and far between. The norm is strict segregation of land use, and new development on big lots with copious parking. People will be living with the unhappy consequences of this ongoing, bad planning for decades.
Detroit is the city most molded by the automobile - right down to its broad, highway-like streets and its too-long-to-walk blocks. The average house in Detroit now sells for $6,000. You can say that it is the crime, or the unemployment, but we call it a failure of urban form.
This same failure of form exists in the suburbs of Detroit and the suburbs of every American city (as well as most of the cities), and the same decay and economic ruin that afflicts the rustbelt cities will spread to them. Expect to see $6,000 houses more the rule than the exception in the years ahead.
The common thread of these decisions was to abandon the thousands-of-years-old tradition of building cities around the scale of human self-propulsion. In the USA, this tradition was abandoned in favour of building the urban field - a better name for what resulted than city - around the needs of the motor vehicle.
Even most of those few remaining cities which have lively and livable downtowns are surrounded by a ring of strip malls, big box stores, and industrial and office 'parks'.
Now that the US has seen peak automobiles, and the age of the motor vehicle is drawing to a close, the USA will find itself very much in trouble. It has constructed a type of city - this urban field - which will find itself soon utterly obsolete and mostly useless.
Steps could be taken to correct this: allowing mixed-use zoning; promoting 'infill' and small lot redevelopment. But communities which allow this are few and far between. The norm is strict segregation of land use, and new development on big lots with copious parking. People will be living with the unhappy consequences of this ongoing, bad planning for decades.
Detroit is the city most molded by the automobile - right down to its broad, highway-like streets and its too-long-to-walk blocks. The average house in Detroit now sells for $6,000. You can say that it is the crime, or the unemployment, but we call it a failure of urban form.
This same failure of form exists in the suburbs of Detroit and the suburbs of every American city (as well as most of the cities), and the same decay and economic ruin that afflicts the rustbelt cities will spread to them. Expect to see $6,000 houses more the rule than the exception in the years ahead.
Wednesday, May 27, 2009
The Impossible Task
Pity the poor American Consumer. She has to buy a new car to restore automobile production. She has to buy cheap plastic crap to jump start world trade. She has to buy a new house to revive the housing market. And all this on a shrinking income, and with significantly less credit available.
Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.
Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.
The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.
Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.
Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.
Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.
Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!
Any way you look at it, near-term recovery seems improbable. Lurking in the background are any number of serious problems which make any kind of lasting economic growth seem remote: resource constraints; massive financial and contractual liabilities; stocks of capital which are being run-down instead of maintained; government diktat which allocates scarce resources to non-productive use - to name a few.
Against this backdrop, we ask: Is collapse - economic and social - inevitable? Sadly, we have to answer, yes. Inevitable, not because of technical incapacity to adjust to new economic realities, but because of lack of will to do so.
The fact of the matter is that people want things to go 'back to the way they were'. Political leadership reflects this. If people wanted to move on to the future as it needs to be, the leadership would reflect that.
Over 35 years ago a book called Limits to Growth was widely read and discussed. It modelled the overshoot and collapse of Industrial Civilisation which would occur in the 21st Century unless remedial action were taken. The World was warned, but few listened. Instead, population continued to explode; economic growth and expanding materialism were taken for the end-all of human existence.
Now the very crisis that Limits to Growth foretold is upon the world, and yet actions which could be taken even now to ameliorate the effects of the impending decline find voice only on the margins of society. The mass of people and its leaders are, in the words of Mr. James Kunstler, attempting to sustain the unsustainable.
Exactly what is unsustainable? Simply put: A growing population with an economy that requires growing flows of money and physical goods. An affluent, comfortable lifestyle for all is sustainable only when it can be maintained on ever-decreasing flows of resources - i.e., continuously more efficient.
Speaking of new cars, Mr. Obama wants 14 to 15 million new cars sold per year to replace those "old clunkers." Time to go shopping!
Tuesday, March 10, 2009
Let the Economy Change
Words like 'decline' and 'collapse' are being tossed around with reference to the economy as if the economy were a static entity. Actually, of course, economies are very dynamic - with a continual stream of emerging and declining enterprises and industries. When the economy in the aggregate is growing, the emerging are growing faster than the declining are shrinking. When the declining are shrinking faster than the emerging are growing, the economy in the aggregate is shrinking, as is the case today.
Once upon a time there was a theory that if the declining enterprises were liquidated quickly, it would offer room for the emerging enterprises to grow. Imagine if you will, a forest fire burning out the dead wood.
Nowadays, the declining enterprises are given bailouts, and the forest fire of Depression isn't allowed to burn out the dead wood. If our analogy is accurate, this makes for bad forest management of the sort that led to the great Yellowstone Fire of 1988.
If current government efforts to stymie the Depression are successful, they will only put off a future, greater depression. The economy must change sooner or later to accommodate reality.
We do not know where economic developments will take society, but we opine that the rate of change is too slow. Bad operations like General Motors and AIG must be put down to allow the economy to readjust to the new realities. and the sooner the better.
Once upon a time there was a theory that if the declining enterprises were liquidated quickly, it would offer room for the emerging enterprises to grow. Imagine if you will, a forest fire burning out the dead wood.
Nowadays, the declining enterprises are given bailouts, and the forest fire of Depression isn't allowed to burn out the dead wood. If our analogy is accurate, this makes for bad forest management of the sort that led to the great Yellowstone Fire of 1988.
If current government efforts to stymie the Depression are successful, they will only put off a future, greater depression. The economy must change sooner or later to accommodate reality.
We do not know where economic developments will take society, but we opine that the rate of change is too slow. Bad operations like General Motors and AIG must be put down to allow the economy to readjust to the new realities. and the sooner the better.
Thursday, February 5, 2009
Loony Tunes meets Economics
If you, dear Reader, should have an account at Wells Fargo, you might have noticed January's edition of "Economic Indicators." Upon reading this drivel, we reached the conclusion that it was written by the horses. The writer, a Dr. Scott Anderson, vice president and senior economist of Wells Fargo, really should have both his grammar and his head checked.
One part right at the beginning got us thinking:
Seriously, though... despite 'Dr.' Anderson's wishes to the contrary, the economy will not stop crashing when people stop reading bad news. Wells Fargo seems to implicitly understand this, given their disclaimer at the bottom of the first page. Nonetheless, it is a huge disservice to the bank's customers to pass off this sort of trash.
Big banks like Wells Fargo have portrayed themselves as the safest place for the lumpeninvestors to park their savings. With all the recent 'office redecoration,' banks like Wells Fargo should bend over backwards to prove to their customers that they are more responsible than their competitors.
We are absolutely certain that this sort of disinformation will continue into the future. It will only make the eventual fallout from the collapse of such big banks all the more damaging... and well-deserved.
One part right at the beginning got us thinking:
"There is very little in the economic tea leaves to give economists hope that a recovery is nigh. I am not one to dwell on doom and gloom. Honestly, I'm not sure how much more bad news readers can take."Oh, really? Then step aside, Scott. We here at the Depression Gazette know all about bad news. That's why Google generates so many adds about psychological depression: they know we're up to no good.
Seriously, though... despite 'Dr.' Anderson's wishes to the contrary, the economy will not stop crashing when people stop reading bad news. Wells Fargo seems to implicitly understand this, given their disclaimer at the bottom of the first page. Nonetheless, it is a huge disservice to the bank's customers to pass off this sort of trash.
Big banks like Wells Fargo have portrayed themselves as the safest place for the lumpeninvestors to park their savings. With all the recent 'office redecoration,' banks like Wells Fargo should bend over backwards to prove to their customers that they are more responsible than their competitors.
We are absolutely certain that this sort of disinformation will continue into the future. It will only make the eventual fallout from the collapse of such big banks all the more damaging... and well-deserved.
Wednesday, January 28, 2009
Racing to the Next National Blow-Out
As the financial hydrogen bomb cloud over Iceland begins to fade, her citizens are beginning to adjust to life in a long, cold nuclear winter. Surrounded by a glow-in-the-dark landscape, and a currency that burns to the touch, they've begun to pick over the ruins of their previous life. With a new coalition government in the works, and the age-old practice of whaling to provide jobs, Iceland will probably pull through... though she will be vastly changed. We hope they can find some whales.
Frankly, though -- and not to seem callous -- Iceland was a weak hand. One can call upon the Galbraith Financial Principle: the best and biggest will fail last. Iceland was neither biggest, nor the best; she was merely the first country squashed flat by the 2007 Depression. The question one should be asking is not how will Iceland pull through, but rather, who's next. This piece has a very good list: Great Britain, Latvia, Greece, Ukraine, Nicaragua. We would add Mexico to this list; however, these are probably the next countries to go.
Personally, we would put our money on Great Britain: she's in rough shape, and with the annihilation of the pound sterling in the works, the Brown Government could very well go to pieces a la Iceland. When governments say they aren't concerned about the value of its issued currency, bad things can happen. The Brown Government may feel it's on top of the situation, but it's no more in control than Zimbabwe's.
Then there is the terrible crime of hubris: Mr. Paul Marshall recently told a Treasury committee that a Madoff scandal in the U.K. is "very unlikely." Funny, but we remember Mr. Madoff himself saything that very same thing... Big investors are assuring the Brown Government that there is no "U.K. Madoff," but if the government believes that load of lies... they're unworthy of governing.
Frankly, though -- and not to seem callous -- Iceland was a weak hand. One can call upon the Galbraith Financial Principle: the best and biggest will fail last. Iceland was neither biggest, nor the best; she was merely the first country squashed flat by the 2007 Depression. The question one should be asking is not how will Iceland pull through, but rather, who's next. This piece has a very good list: Great Britain, Latvia, Greece, Ukraine, Nicaragua. We would add Mexico to this list; however, these are probably the next countries to go.
Personally, we would put our money on Great Britain: she's in rough shape, and with the annihilation of the pound sterling in the works, the Brown Government could very well go to pieces a la Iceland. When governments say they aren't concerned about the value of its issued currency, bad things can happen. The Brown Government may feel it's on top of the situation, but it's no more in control than Zimbabwe's.
Then there is the terrible crime of hubris: Mr. Paul Marshall recently told a Treasury committee that a Madoff scandal in the U.K. is "very unlikely." Funny, but we remember Mr. Madoff himself saything that very same thing... Big investors are assuring the Brown Government that there is no "U.K. Madoff," but if the government believes that load of lies... they're unworthy of governing.
Thursday, January 8, 2009
Growth: Quantitative versus Qualitative
For the purposes of this discussion, Quantitative growth in business or society could be said to be just doing more of the same thing with more people and machines or whatever. Qualitative growth is doing a given task more efficiently, or developing more valuable products and services from less valuable ones.
When economies are expanding, quantitative growth will usually yield impressive growth of sales, and profits. For society as a whole, there is increased economic activity, increased tax revenue for governments, and increased income for investors and workers.
Qualitative growth tends to happen more slowly. It comes about through innovations. Sometimes it happens as continuous incremental improvement, or sometimes as flashes of inspiration.
There has been a lot of quantitative growth in the world over the last several hundred years, and especially over the last fifty. We believe this trend is transient, and largely the consequence of the exploitation of fossil fuels and mineral resources. As society glides down the slope past peak just-about-everything, quantitative growth and the economic theories which justified it will become a thing of the past.
On the other hand, qualitative growth seems to spring from the human spirit and will probably rise to the occasion of being more needed than ever as the product of the bowels of the earth are exhausted. On this count we are very optimistic. From what we have seen of ingenuity in ourselves and others, this is an inexhaustible resource.
To allow qualitative growth to become humanity's primary economic driver, several changes will have to happen to the way people look at their lives: First, they will not measure themselves by how much they consume, but rather by how well they do things. Second, they will have to let go of always wanting more and different, and instead learn to be satisfied with making the best of what they have, with only a small allowance for novelty. Third, they will have to learn to practice restraint.
It seems to be human instinct to "be fruitful and multiply." Unfortunately, the human race seems to be multiplying itself into overshoot and collapse. People need to realise that humans can either shrink their numbers gracefully, or have the natural limits of the Earth do it for them painfully. In not many years time, much of what was once termed progress will be seen to have been a swindle - an orgy of consumption and resource extermination that benefited only a tiny minority of plutocrats and left the rest with broken illusions.
When economies are expanding, quantitative growth will usually yield impressive growth of sales, and profits. For society as a whole, there is increased economic activity, increased tax revenue for governments, and increased income for investors and workers.
Qualitative growth tends to happen more slowly. It comes about through innovations. Sometimes it happens as continuous incremental improvement, or sometimes as flashes of inspiration.
There has been a lot of quantitative growth in the world over the last several hundred years, and especially over the last fifty. We believe this trend is transient, and largely the consequence of the exploitation of fossil fuels and mineral resources. As society glides down the slope past peak just-about-everything, quantitative growth and the economic theories which justified it will become a thing of the past.
On the other hand, qualitative growth seems to spring from the human spirit and will probably rise to the occasion of being more needed than ever as the product of the bowels of the earth are exhausted. On this count we are very optimistic. From what we have seen of ingenuity in ourselves and others, this is an inexhaustible resource.
To allow qualitative growth to become humanity's primary economic driver, several changes will have to happen to the way people look at their lives: First, they will not measure themselves by how much they consume, but rather by how well they do things. Second, they will have to let go of always wanting more and different, and instead learn to be satisfied with making the best of what they have, with only a small allowance for novelty. Third, they will have to learn to practice restraint.
It seems to be human instinct to "be fruitful and multiply." Unfortunately, the human race seems to be multiplying itself into overshoot and collapse. People need to realise that humans can either shrink their numbers gracefully, or have the natural limits of the Earth do it for them painfully. In not many years time, much of what was once termed progress will be seen to have been a swindle - an orgy of consumption and resource extermination that benefited only a tiny minority of plutocrats and left the rest with broken illusions.
Wednesday, December 10, 2008
An Alternate View of the Depression
Today we discovered a very interesting blog. It is called "Meltdown 2011," and presents what we would call a conspiracy interpretation of current events. The author, a Mr. Scott Gallup, believes the 2007 Depression, or "The Meltdown" as he calls it, is being created intentionally to further the ends of what he calls 'Shadow Powers'. Generally, we discount such a viewpoint, but nevertheless listen to it.
The 'doom and gloomers' have had a better predictive track record than the rest of the population lately, and one could chalk that up to the 'broken clock is right twice a day' effect. On the other hand, given the present economic crisis, the notion that they might be on to something deserves a bit more attention than usual.
If you can navigate Meltdown 2011's enigmatic layout, you will find a treasure trove of 'alternative ' information. We would categorise much of it as more than a little tired, but some of it is original and well-informed, such as it's coverage of issues in the precious metals markets (which was what drew us to the site in the first place).
It is a taxing task to attempt to wrap one's head around vast and complex issues. We ourselves attempt this with open-mindedness, and avoid reductionism. Our opinion is that even if some would-be overlord class is attempting to manage the world's institutions, economies, people and so forth, they are almost certainly not up to the task, and would fail to achieve their intended results. Ultimately, the only functional human systems are those where power and decision-making are widely distributed. Efforts to set up non-functional systems may bring misery and suffering (the Soviet Union again comes to mind), but in time they do collapse.
There are always attempts by politicians, seen and unseen, to grab power. That is what they live for, after all. Perhaps the 2007 Depression will be perceived by the political class as a capital opportunity to grab more power. Perhaps they will even succeed for a time. However, the more vigilant the citizenry is towards attempts to take power from it, and the more prepared they are for such an assualt, the less likely they are to be overpowered. Meltdown 2011 may be going overboard a bit in the vigilance department, but nevertheless it provides interesting food for thought.
Thursday, November 27, 2008
The Delusion of American Exceptionalism
On occasion, when we have argued about such things as the collapse of the United States, we have been presented with an interesting rebuttal. It typically runs along the lines of "that can't happen here." When we press for why the United States won't someday fall apart, we hear merely a repetition: "This is America, that can't happen in America."
Well, we beg to differ. No country, or society, in all of history has ever proven immune to disruptive events. Never has a society forever improved without downfall. Great debates can erupt over, say, the nature of the peak of the Roman Empire, or the British Empire, or the Russian Empire... the list goes on, but each has an eerie similarity. One could argue a nation's development follows a bell-shaped curve: a nation starts from obscurity, rockets to its height of power, and then falls again to obscurity.
That's not to say a country's trajectory downwards is a one-way trip. Some countries have reached a hight of power, gotten trashed, pulled themselves out of near or utter ruin, and went on to best their previous peak. Places like Germany and Japan come to mind. These two societies have been through more than one peak-and-bust cycle, and today are considered some of the most stable and industrious countries on the planet.
The United States is a country, a society like any other. It is subject to the same possibilities of decay and collapse as any other country. It is also the longest-running experiment in democratic government, and experiments do not always result as one expects. The United States, one way or the other, will eventually end and become something else. To declare otherwise is tantamount to hubris, which was a favourite plot device of Ancient Greek tragedy. Those plays always had messy ends.
Well, we beg to differ. No country, or society, in all of history has ever proven immune to disruptive events. Never has a society forever improved without downfall. Great debates can erupt over, say, the nature of the peak of the Roman Empire, or the British Empire, or the Russian Empire... the list goes on, but each has an eerie similarity. One could argue a nation's development follows a bell-shaped curve: a nation starts from obscurity, rockets to its height of power, and then falls again to obscurity.
That's not to say a country's trajectory downwards is a one-way trip. Some countries have reached a hight of power, gotten trashed, pulled themselves out of near or utter ruin, and went on to best their previous peak. Places like Germany and Japan come to mind. These two societies have been through more than one peak-and-bust cycle, and today are considered some of the most stable and industrious countries on the planet.
The United States is a country, a society like any other. It is subject to the same possibilities of decay and collapse as any other country. It is also the longest-running experiment in democratic government, and experiments do not always result as one expects. The United States, one way or the other, will eventually end and become something else. To declare otherwise is tantamount to hubris, which was a favourite plot device of Ancient Greek tragedy. Those plays always had messy ends.
Subscribe to:
Posts (Atom)
Posts
